Evaluating the Effectiveness of the Organization

1
Evaluating theEffectiveness of the Organization

• Module Nine

2
Sales Organization Assessment

• Necessary in order to determine means of
  improvement
• Differentiate from performance of individual
  salespeople
• Focus on overall sales organization and different
  levels
• Results in general strategy and policy changes

3
Sales Organization Audit

• Comprehensive
• Systematic
• Diagnostic
• Prescriptive
• Should be performed regularly
• Should be conducted by someone from outside the
  sales organization
• Expensive and time-consuming process, but
• Benefits usually outweigh the costs

4
Sales Organization Audit Framework
SALES ORGANIZATION ENVIRONMENT Extra-organizationa
l Factors Intra-organizational Factors
SALES ORGANIZATION PLANNING SYSTEM
SALES MANAGEMENT FUNCTIONS
SALES MANAGEMENT EVALUATION
5
Benchmarking
An ongoing measurement and analysis process that
compares an organizations current operating
practices with the best practices used by
world-class organizations.
6
Benchmarking Process

• Plan
• Identify what to benchmark
• Identify comparative companies or salesforces
• Gather Data
• Determine data collection method and collect data
• Analyze Communicate
• Determine current performance gap
• Project future performance levels
• Communicate benchmark findings and gain
  acceptance

7
Benchmarking Process (continued)

• Implement Control to Improve Performance
• Establish functional goals
• Develop action plans
• Implement specific action plans and monitor
  progress
• Recalibrate benchmark

8
Sales Organization Effectiveness Evaluations
9
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

10
Sales Analysis Framework
11
Sales Analysis Framework
Sales Analysis
Organizational Level of Analysis
Type of Analysis
Type of Sales
12
Hierarchical Sales Analysis
Sales Organization
Region 1
Region 2
Sales 73,000,000
56,000,000
District 1
District 2
District 3
23,000,000 12,000,000
21,000,000
Territory 1
Territory 3
Territory 2
Territory 4
3,000,000 4,000,000 1,500,000
3,500,000
Additional Analysis
13
Sales Analysis Framework
Sales Analysis
Organizational Level of Analysis
Type of Analysis
Type of Sales
Total Sales Type of Product Type of
Account Order Size
14
Sales Analysis Framework
Sales Analysis
Organizational Level of Analysis
Type of Analysis
Type of Sales

• Comparisons with
• Sales quotas
• Previous period
• Industry/competitors

15
Types of Analysis Examples
Effectiveness index (actual sales / sales
quota) x 100 i.e. it is the percentage of quota
achieved
16
Cost Analysis

• Assessing the costs incurred by the sales
  organization to generate the achieved levels of
  sales
• Compare the costs with the selling budgets
• Total selling budget

17
Selling Budgets

• Developed at all levels of the sales organization
  and for all key expenditure categories
• The basic objective of budgeting for each
  category 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

18
Selling Expense Categories

• Compensation expenses
• Salaries
• Commissions
• Bonuses
• Total
• Travel expenses
• Lodging
• Food
• Transportation
• Miscellaneous
• Total

• Administrative expenses
• Recruiting
• Training
• Meetings
• Sales offices
• Total

19
Cost Analysis Examples
20
Profitability Analysis

• Income statement analysis
• Activity-based costing
• Return on assets managed analysis

21
Profitability AnalysisIncome Statement Analysis

• Full cost approach
• Sales
• - Cost of goods sold
• Gross Margin
• - Direct selling expenses
• - Allocated portion of shared expenses
• Net profit

22
Profitability AnalysisIncome Statement Analysis

• Contribution approach
• Sales
• - Cost of goods sold
• Gross Margin
• - Direct selling expenses
• Profit contribution

23
Profitability Analysis Example
24
Profitability AnalysisActivity-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

25
Profitability Analysis Return onAssets Managed
Analysis (ROAM)

• Calculations provide an assessment of
  profitability and useful diagnostic information
• ROAM is determined by both profit contribution
  percentage and asset turnover
• ROAM Profit contribution as percentage of sales
• X Asset turnover rate
• (Profit contribution / Sales)
• X (Sales / Assets managed)

26
ROAM Example
Profit Contribution / Sales Sales /
Assets Managed Profit Contribution
Percentage X Asset Turnover
27
Productivity Analysis

• Expressed in terms of ratios of inputs to output
• Sales / salesperson
• Expenses / salesperson
• Calls / salesperson
• Proposals / salesperson
• Sales/call
• Ratios can be compared across units and with
  other companies

28
Productivity Analysis

• Productivity improvements are obtained in one of
  two basic ways
• Increasing output with the same level of input
• Maintaining the same level of output but using
  less input