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Compensating Sales

Force

Module - 2

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Compensation Plans - Objectives

Balancing the needs of personnel

Secure income and security

Desire for personal recognition and status

Reinforcement for doing good work

Managing effects of time

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Compensation Plans -CharacteristicsFairness to all

Flexibility

Provide incentive and motivation

Lead to direction of efforts towards company objectives

Ease of administration and comprehension

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Compensation Plans - Types

Straight Salary

Straight Commissions

Combination Salary Plans

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Compensation Plan - Designing

Determining specific objectives

Income & security

Equity

Flexibility

Economy

Establishing desired level of earnings

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Compensation Plan - Designing

Methods of payment

Salary

Commission

Bonus

Employee stock option

Specialize prizes

Drawing account

Special cash incentives

Non cash incentives

Fringe benefits

Sales force expenses

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Compensation Plan -ImplementationPre-testing

Periodic monitoring

Sales contest

Planning sales contests

Evaluating sales contest

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Sales Force Expenses

Expense plans

Beneficial to sales person

Beneficial to organization

Easy to administer

Easy to understand

Types of expense plans

Company pays all expenses

Sales person pays all expenses

Company partially pay expenses

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Fringe Benefits

Elements in Fringe Benefits

Social security

Pension and retirement program

Insurance

Holiday

Time-off with pay

Other benefits

Advantage of Fringe Benefits

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Motivating Sales Force

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Concept of Motivation

Motivation deals with the force within a person, orwhich acts on a person, to initiate desired behavior anddirects it towards the attainment of organizational goals

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Motivational Theories

Maslows Hierarchyof Needs

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Herzbergs Two-Factor Theory

Hygiene Factors

Working conditions

Job securitySalary

Company policies

Quality of technical supervision

Interpersonal relations

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Herzbergs Two-Factor Theory

Motivational Factors

Responsibility

The work itselfPromotion

Recognition

Achievement

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Goal Setting Theory

By Edwin Locke

To fulfill specific needs and aspirations setting of certaingoals

Setting higher goals produces higher outputSetting goals encourages to work persistently towardsachieving goals

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Expectancy Theory

By Victor Vroom

The perceived consequences of actions motivate anindividual

Motivation is a function of three factorsExpectations

Valence

Instrumentality

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Job Design Theory

These theories correlate motivation with job satisfaction

Job satisfaction

Feeling of pleasure that one derives from ones

experience in jobJob Enrichment

Job Rotation

Job Enlargement

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Motivation and Productivity of theSales ForceProductivity

The ratio of output to input and is represented in theform of the following equation

Productivity = Output

Input

Sales productivity = Sales revenues

Sales expenses

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Effects of Personal Characteristics onSales Force Motivation

Competitor

Achiever

Ego-driven

Service-oriented

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Sales Motivational Mix

Sales culture

Sales training

Leadership

Basic compensation

Special financial incentives

Non financial rewards

Performance evaluation

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Motivating the Sales Personnel atDifferent Stages of Their Career

Exploration

stage

Establishm

entsta

ge

Maintenanc e

stag

e

Disengagem

entst

age

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Time and TerritoryManagement

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Time Management and ItsImportanceBetter market coverage

Reduce selling costs

Improved customer services

More accurate evaluation of sales force personnel

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Territory Management and Its Importance

Benefits of Territory Management

Better customer coverage

Increased sales

Equitable rewards

Reduced traveling costs

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Territory Design - Criteria

Sufficient potential

Reasonable size

Adequate coverage

Minimum impediments (Less physical hurdles liketraffic and bridges)

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Territory Design - Methods

Build up Method

Assessing the potential or attractiveness of both currentand prospective customers

Breakdown Method

Incremental Method

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Developing territories - Procedures

Identify objectives and criteria for territory formation

Bases for developing territory

Geography

Service requirements

Potential

Workload

Assigning sales personnel territories

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Operating the Territory ManagementSystem

Routing

Scheduling

Territory coverage by sales personnel

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Sales Quota

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Sales Quota - Meaning

Quotas are quantitative sales goals assigned tosalespeople

A standard of measurement of performance in a salesorganization

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Sales Quotas - Objectives

To provide quantitative performance standard

To obtain tighter sales and expense control

To motivate desired performance

To use in connection with sales contests

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Sales Quotas - Importance

Provide performance targets

Provide standards

Provide control

Provide change of direction

Tool for motivating sales people

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Sales Quotas - Types

Sales volume quota

Profit quota

Expense quota

Activity quota

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Characteristics of A Good SalesQuotaFair

Challenging

Flexible

Easily understandable

Help marginal coordination

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Setting Sales Quota - Methods

Quota based on sales forecast and market potential

Quota based on sales forecast alone

Quota based on past experience

Quota based on judgment

Quota based on sales force compensation

Quota set by sales force themselves

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Sales Quotas - Administration

Minimizing acceptance problems

Briefing

Conference

Periodical meetings

Managing and controlling people through quota

Coaching

Non-monetary incentives

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Sales Quotas - Limitations

Time consuming process

Reduce risk taking among salespersons

Sometime give birth to unethical practices

Difficulty in comprehending if complicated statisticalcalculations have been used

Focusing on attaining sales volumes at the cost ofignoring important selling activities

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Estimating Market Potential &

Forecasting Sales

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Analyzing Market Potential

Ability to Buy

Willingness to Buy

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Sources of Data

Primary data sources

Secondary data sources

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Sales Forecasting Method

Qualitative Methods

User Expectations

Sales Force Composite

Jury of Executive Opinion

Delphi Technique

Market Test

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Sales Forecasting Method

Quantitative Methods

Time Series Analysis

Moving Average

Exponential Smoothing

Regression and Correlation Analysis

Multiple Regression Model

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Selecting a Forecasting Method

Accuracy

Cost

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Types of Data Available

Requirements of the Software

Experience of the Company

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Criteria for Effective Forecasting

Accuracy

Plausibility

Durability

Flexibility

Availability of Statistical Indexes

Organizational Participation

Demand patterns in the Market for the Product

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Difficulties Associated withForecasting

Lack of Adequate Sales History

Lack of Time, Money and Qualified Personnel

Changing Customer Attitude

Fashions and Fads

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Evaluating Sales ForcePerformance

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Determinants of Sales ForcePerformance

Internal Factors

Motivation

Skill Level

Job Satisfaction

Role Perception

Personal Factors

Ego Derive

Empathy

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Determinants of Sales ForcePerformance

External Factors

Environmental Factors

Organizational Factors

Sales Management Function

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Performance Evaluation

Sales Force Evaluation Process

Determine Factors that Influence Sales Force Performance

Select the Criteria for Sales Force Evaluation

Establish the Performance Standard

Compare Sales Force Performance

Performance Review and Feedback

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Performance Evaluation

Purpose and reason

To be aware of company objectives

To improve motivation skills

To appraise the past performance

To develop a sales plan to increase future sales

Who should evaluate

When to evaluate

f i f l i

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Information Source for Evaluation

Company records

Reports from salespersons

Customers

Managers field visit

Managers personal insight

Other sources

C i i f h l i f S l

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Criteria for the Evaluation of SalesForce Performance

Qualitative Criteria

Sales Skills

Territory Management

Personality

C i i f h E l i f S l

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Criteria for the Evaluation of SalesForce Performance Quantitative Criteria Sales volume Average calls per day

Sales orders Ratio of selling costs to sales Gross profit obtained from new

customer

E bli hi P f S d d

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Establishing Performance Standards

Quantity standards

Quality standards

Time-based standards

Cost-based standards

M h d f S l F E l i

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Method of Sales Force Evaluation

EssaysRating scales

Forced Choice Method

Ranking

New Methods of Evaluation

Critical incident appraisal

Work standard method

Management by objectives

Behavioral anchored rating scale

Family measures as a method of sales force performance evaluation

M it i d R i i S l F

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Monitoring and Reviewing Sales ForcePerformance

Sales force performance can be measured with the helpof

Sales reports

Invoices

Order forms

Accounting records

Direct interaction

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Sales and Cost Analysis

S l C t l N t

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Sales Control - Nature

Objectives of Sales ControlPerformance measurement

Problem identification

Identifying opportunities

Sales Control Process

Setting goals

Comparing actual with targets

Taking necessary measures

S l A l i

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Sales Analysis

Elements of Sales Analysis

Purpose of evaluation

Comparison standard

Reporting and control system

Hierarchical sales analysis

S l A l i St

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Sales Analysis - Steps

Determining the Sources of SalesInformation

Collection of Sales Data

Processing of Sales Data

Studying the Results

S l A l i V i ti

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Sales Analysis - Variations

VariationsSales analysis by region

Sales analysis by sales representatives

Sales analysis by customersSales analysis by product line

Sales analysis by distribution channels

Sales analysis by unit sold

Problems in Sales Analysis

S l A dit

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Sales Audit

Elements of Sales AuditSales management environment

Sales management planning system

Sales management organization evaluation

Sales management functions

M k ti C t A l i

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Marketing Cost Analysis

Types of Costsq Natural and functional cost

q Direct and indirect cost

q Fixed and variable cost

Procedure for Cost Analysis

Spread of natural cost

Functional cost allocation

Determining the efficiency and profitability of sales units

Initiation of action

Marketing A dit

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Marketing Audit

Procedure for Marketing AuditSetting objectives

Collecting data

Report preparation and presentation

Components of Marketing Audit

Marketing environment audit

Marketing strategy audit

Marketing organization audit

Marketing system audit

Marketing productivity audit

Marketing function audit

Profitability Analysis

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Profitability Analysis

Break-even analysisCapital budgeting tools