Evaluating the effectiveness of the organization

1. Evaluating the
Effectiveness of the Organization
Module Nine

2. Sales Organization Audit
• Comprehensive, systematic, diagnostic and
prescriptive tool.
• Assesses a firm’s sales management process
• Provides direction for improved performance
and prescription for needed changes.
• Should be performed regularly,
• Should be conducted by someone from outside
the sales organization.
Although it is an expensive and time-consuming
process, the sales organization audit generates
benefits that usually outweigh the costs.

3. Benchmarking
Benchmarking is an ongoing measurement and
analysis process that compares an organization’s
current operating practices with the “best practices”
used by world-class organizations.

4. Sales Organization
Effectiveness Evaluations
• No one summary measure of sales organization
effectiveness.
• Multiple factors must be assessed
• Four types of analyses are typically necessary
to develop a comprehensive evaluation of any
sales organization
• Conducting analysis in each of these areas is a
complex task

5. Sales Organization
Effectiveness Framework
Sales
Analysis
Cost
Analysis
Profitability
Analysis
Productivity
Analysis
Sales
Organization
Effectiveness

6. Sales Analysis
• When should we count an order as a sale?
– When an order is placed
– When an order is shipped
– When payment is received
• What is the primary metric?
– Dollars
– Units What if the
order is
cancelled?
What if the
shipment is
refused?
Is it possible to
have higher sales
dollars with fewer
units sold and
lower profits?
Is it possible to
have an increase in
units sold without
an increase in
sales dollars or
profits?

7. Sales Analysis Framework
Sales Analysis
Organizational
Level of Analysis Type of Sales Type of Analysis

8. Sales Analysis Framework
Sales Analysis
Organizational
Level of Analysis Type of Sales Type of Analysis
• Sales Organization
• Zones
• Regions
• Districts
• Territories
• Accounts

9. Sales Analysis Framework
• Total Sales
• Type of Product
• Type of Account
Sales Analysis
Organizational
Level of Analysis Type of Sales Type of Analysis
• Type of Distribution
• Order Size

10. Sales Analysis Framework
• Comparisons with Forecasts
• Comparisons with Sales quotas
• Comparisons with Previous period
• Comparisons within Sales Organization
• Comparisons with Industry/Competitors
Sales Analysis
Organizational
Level of Analysis Type of Sales Type of Analysis

11. Example of Hierarchical Sales Analysis
Region 1
Sales
Organization
Region 2 Region 3 Region 4
District 1
Territory 1 Territory 2 Territory 3 Territory 4 Territory 5 Territory 6
District 5District 4District 3District 2
Sales
Sales
Sales
$62,000,000 $62,000,000 $56,000,000 $73,000,000
$11,000,000 $12,000,000 $13,500,000 $7,000,000 $12,500,000
$1,100,000 $1,300,000 $1,250,000 $1,400,000 $750,000 $1,200,000
Additional
Analysis

12. Example of Type-of-Sales Analysis
Product
Type A
Product
Type B
Product
Type C
Account
Type A
Account
Type C
Account
Type Sales
Product
Type Sales
Sales $175,000 $275,000 $300,000 $290,000 $175,000 $285,000
Account
Type B
Territory 5
Additional
Analysis
Additional
Analysis

13. Types of Analysis Examples
Sales
District 1 District 2 District 3 District 4 District 5
Sales Quota $11,250,000
Sales Growth 3% 9% 6% 3% 16%
Market
Share
26% 29% 29% 18% 27%
Effectiveness Index 98 104 102 70 109
$11,000,000
$11,000,000
$12,000,000
$10,000,000
$7,000,000
$12,750,000
$13,000,000
$11,500,000
$12,000,000
Sales Last Year $10,700,000 $10,350,000$6,800,000$12,250,000$11,000,000
Industry Sales $42,000,000 $45,000,000$40,000,000$45,000,000$42,000,000

14. Cost Analysis
• Assess the costs incurred by the sales organization to
generate the achieved levels of sales.
• Compare the costs incurred with planned budget.
• Corporate resources earmarked for personal selling
expenses for a designated period represent the total
selling budget.

15. Selling Budgets
• Developed at all levels of the sales organization and for
all key expenditure categories.
• Objective is to determine the lowest expenditure level
necessary to achieve the sales quotas.
• Two approaches to setting the selling budget:
– percentage of sales method
– objective and task method

16. Selling Expense Categories
Compensation expenses
Salaries
Commissions
Bonuses
Total
Travel expenses
Lodging
Food
Transportation
Miscellaneous
Total
Administrative expenses
Recruiting
Training
Meetings
Sales offices
Total
Classification
Actual
2002
Original
Budget
2003
April
Revision
July
Revision
October
Revision

17. Cost Analysis Examples
Region 1
Region 2
Region 3
Region 4
$3,660,000
$3,500,000
$3,150,000
$4,200,000
$3,600,000
$3,700,000
$3,400,000
$3,900,000
$60,000
($200,000)
($250,000)
$300,000
Actual Budget Variance
$985,000
$2,110,000
$830,000
$2,3400,000
$1,030,000
$2,040,000
$1,060,000
$2,160,000
($45,000)
$70,000
($230,000)
$180,000
Actual Budget Variance
Compensation Costs Training Costs
Region 1
Region 2
Region 3
Region 4
Actual % Sales Budgeted % Sales
6.1
5.8
5.4
6.0
6.0
6.0
6.0
6.0
Actual % Sales Budgeted % Sales
2.9
3.1
2.6
3.1
3.0
3.0
3.0
3.0

18. Profitability Analysis
Analyzing the profitability of different
organizational levels of different types of sales.
• Income Statement Analysis
• Activity-Based Costing
• Return on Assets Managed

19. Profitability Analysis:
Income Statement Analysis
• Full Cost Approach: Allocate shared costs to individual
units based on some type of cost allocation procedure.
• Percentage of Sales: Expenditure percentage multiplied
by sales forecast.
• Objective and Task: Budgets and objectives/tasks are
tied together during planning.
• Contribution Approach: Include only direct costs in the
profitability analysis.

20. Profitability Analysis Example
Sales
Cost of Goods Sold
Profit Contribution
Net Profit
Gross Margin
District Selling Expenses
Allocated Portion of Shared Zone Costs
Regional Direct Selling Expenses
Region
$ 24,000,000
$ 8,000,000
$ 45,000,000
$255,000,000
$300,000,000
$ 11,000,000
$ 16,000,000
$ 10,000,000
Full Cost
Approach
$180,000,000
District 1 District 2 District 3
$ 6,500,000 $ 8,000,000 $19,500,000
$ 11,500,000 $11,500,000 $22,000,000
$28,000,000
$50,000,000
$58,500,000
$70,000,000
$168,500,000
$ 8,250,000$ 3,500,000$ 5,000,000
---------
Contribution Approach

21. Profitability Analysis:
Activity-Based Costing (ABC)
• Allocates costs to individual units on the basis of
how the units actually expend or cause these costs.
• Places greater emphasis on more accurately defining
unit profitability by tracing activities and their
associated costs directly to a specific unit.

22. ROAM = Profit contribution as percentage of sales X Asset turnover rate
= `Profit contribution / Sales) X (Sales / Assets managed)
Profitability Analysis: Return on
Assets Managed Analysis (ROAM)
• Calculations provide an assessment of profitability
and useful diagnostic information.
• ROAM is determined by both profit contribution
percentage and asset turnover.

23. Return on Assets Managed (ROAM)
District 1
8,000,000
12,000,000
12,000,000
$24,000,000
7,200,000
$24,000,000
District 2 District 3 District 4
4,000,000 16,000,000
12,000,000 10,000,000 10,000,000
14,000,000
$24,000,000
14,000,000
$24,000,000
12,000,000
8,800,0005,200,0009,600,000
Profit Contribution 4,800,000 2,400,000 4,800,000 1,200,000
8,000,000 4,000,000 16,000,000
16,000,000 8,000,000 32,000,000
4,000,000
4,000,000
8,000,000
20% 10% 20%
1.5 3.0 .75
Sales
Cost of Goods Sold
Accounts Receivable
Gross Margin
District Selling Expenses
Inventory
Total Assets Managed
Profit Contribution Percentage
Asset Turnover
ROAM 30% 30% 15%
5%
3.0
15%

24. Productivity Analysis
• Compares profits and asset investments
• Expressed in terms of ratios of inputs to output
• Productivity improvements are obtained in one
of two basic ways:
1. Increasing output with the same level of input
2. Maintaining the same level of output but using less
input

25. Productivity Analysis Example
Sales
Selling Expenses
Sales/Salesperson
Sales Calls
Proposals
District 1
$ 1,000,000
9,000
2,000,000
$20,000,000
200
$24,000,000
District 2 District 3 District 4
$ 800,000 $1,000,000
7,500 8,500 10,000
3,000,000
$24,000,000
3,000,000
$20,000,000
2,400,000
270260180
Number of Salespeople 20 30 20 30
Expenses/Salesperson $ 100,000 $ 80,000 $ 150,000
Calls/Salesperson 450 250 425
$ 800,000
$ 100,000
333
Proposals/Salesperson 11 6 13 9

26. Ethical Issues
A salesperson has been on the road for a week and incurs laundry
expenses. He knows that if he places the laundry expenses under the
miscellaneous expense category in his expense report, he will have
to provide receipts. He decides that he can include them under the
meals category because receipts are not required for this category as
long as he stays under his per-diem allowance.
A salesperson is trying to get the customer to purchase a new product.
He decides to take three individuals from the customer’s firm to dinner
and a basketball game, even though he knows that he has exceeded
his entertainment budget for the month. He thinks about hiding these
entertainment expenses in different categories in his expense report.