Budgeting and Evaluation 1

Sales Management

Budgeting and Evaluation

Budgeting and Evaluation 2

Outline:

• Purpose of budgeting• How sales budget is derived and

its purpose• How standards of performance

are set• Set qualitative and quantitative

measures of performance

Budgeting and Evaluation 3

Sales forecast is the starting for business planning activities. From forecast then the budgets are apportioned to departments.

I ) Budgeting

An organization needs to budget in order to:

•Ensure the expenditure does not exceed the planned income (limit the spending)

•A means of control

Purpose of Budgeting

Budgeting and Evaluation 4

Consequence of an incorrect medium-term forecast is immediate:

• If forecast is pessimistic, co achieves more sales than forecast lose potential sales because of unprepared and insufficient working finance

• If the forecast is optimistic, sales revenue does not match anticipated sales, the revenue problem arises, co may need a lending to fund its short-term working capital.

Forecast vs Budgeting

Budgeting and Evaluation 5

Income: Sales Revenue Expenses: Costs

Selling expenses: sales personnel salaries, commission, sales expenses, trainingAdvertising budget: TV promotion, couponAdministrative budget: Expenditure of running the sales office, sales administration and support staff

Expenses Vs Income

Budgeting and Evaluation 6

Affordable methodbase the budget on funds available after all other expenses have been paid. I.e leftover funds to advertising. How about healing the decreasing sales with increasing advertising?

Return on investment method Assume that advertising is a tangible item and long term investment that extends beyond the budget period. Discount the return on these expenditures.Incrementalbase future expenditures on the present budget. Assume the last unit of money spent on advertising should bring in an equal unit of revenue.difficult to measure the benefits(i.e.increase brand loyalty) from advertising expenses.

Types of Budgeting

Budgeting and Evaluation 7

Competitive parityuse competition as a guideline. i.e. adjust the advertising expenses in lines with competitor/market leader. Assume status quo within marketplacePercentage of salestie promotion to a % of last year’s sales revenue the more the sales, the more the promotion. How about decrease in sales? Decrease in promotion?

Objective and taskfirst define the level of promotion/advertising expenses needed to accomplish marketing objective,then set the budget. Marketing objective sometimes not related to profits.

Types of Budgeting

Budgeting and Evaluation 8

Purpose of evaluation• To attain company objectives by measuring actual perf

ormance against objectives.• Weakness of a sales person can be identified.• Appropriate action can be taken to improve performan

ce.• Improve salesperson’s motivation and skills.

(1) Salesperson is informed what is the company’s expectation and what is considered good performance. (2) increase confidence and motivation if the good performance is recognized by the evaluation.

• Evaluation is important in an effective training program.

• Evaluation information decides compensation plan.

II) Evaluation of sales person

Budgeting and Evaluation 9

The role of evaluation in sales managementThe role of evaluation in sales management

Salesforce evaluation

Training

Attainment &Setting objective

Compensation

Motivation

Budgeting and Evaluation 10

I) Quantitative measures of performance

1. Output / Input measures:

Output measures:Output measures:

Sales revenue achievedProfits generatedSales per potential/active accountNumbers of ordersSales to new customersNumber of new customers

Measures of PerformanceMeasures of Performance

Budgeting and Evaluation 11

I) Quantitative measures of performance

Input measures:Input measures:

Number of calls madeCalls per potential accountCalls per active accountNumber of quotationsNumber of visits

Measures of PerformanceMeasures of Performance

Budgeting and Evaluation 12

Output/input measures of performance (con’t)

hybrid ratios can be determined by combining output & input:

• Strike rate: No.of orders

• Sales revenue per call ratio• Profit per call ratio• Order per call ratio• Prospecting success ratio: Number of new customers

Measures of PerformanceMeasures of Performance

No. of quotations

Number of prospects visited

Budgeting and Evaluation 13

Output/input measures of performance

hybrid ratios help to answer the following questions:• Is the salesperson achieving a satisfactory level of

sales?• Is sales success reflected in profit achievement?• Is the salesperson“buying” sales by giving excessive

discount?• Is time spent prospecting being rewarded by orders?• Is the salesperson making a satisfactory number of

calls?• Is the salesperson making enough repeat calls on

different customer categories? Is he/she making too many calls on low potential customers?

• Are calls being reflected in sales success?• How are the sales being achieved? A large of small

order or a few large orders?

Measures of PerformanceMeasures of Performance

Budgeting and Evaluation 14

Output/input measures of performance These ratio also provide possible reasons for the

sales:• Is the salesperson lazy, not making enough

calls?• Call rate is satisfactory but low call

effectiveness lack of skills • May be too many calls on established accounts

and not enough new prospects• Low strike rate suggests the need for an

analysis of why orders are not following quotations.

• Poor call effectiveness suggests investigation of sales technique to identify specific area of weakness(training may be needed).

Measures of PerformanceMeasures of Performance

Budgeting and Evaluation 15

2. Expenses and compensation measures Expenses Ratios include:1. Expenses/sales revenue generated2. Expenses/profit generated3. Expenses per call4. Expenses per square mail of territory

These measures should give an indication of when the level of expenses is excessive

Measures of PerformanceMeasures of Performance

Budgeting and Evaluation 16

2. Expenses and compensation measures Compensation Ratios include:1. Total salary (including commission)/sales

revenue2. Total salary (including commission)/profitsThe compensation analysis is valuable when

A large part of salary is fixedSalespeople are on different levels of fixed salary

These ratios:Show when a compensation has gone out of controlAllow changes made before low-paid higher-achiever leaves for jobs

Measures of PerformanceMeasures of Performance

Budgeting and Evaluation 17

II) Qualitative measures of performance

1. Sales skillsHandling the opening/developing rapportIdentification of customer needs, questioning abilityQuality of sales presentationUse of visual aidsAbility to overcome objectionsAbility to close the sale

2. Customer relationshipsAre customers well satisfied with the service, advice, reliability of the salesperson, any complaints?Any repeat buying from the customers?

Measures of PerformanceMeasures of Performance

Budgeting and Evaluation 18

II) Qualitative measures of performance

3. Self-recognitionPrepare callsKeep customer records up-to-date?Provide market information to headquartersConduct self-analysis of performance to improve weakness

4. Product knowledgeThe company’s products and their customer benefits and applicationCompetitor’s products and their benefits and applicationsRelative strengths and weakness btw own and competitors products

Measures of PerformanceMeasures of Performance

Budgeting and Evaluation 19

II) Qualitative measures of performance

5. Co-operation and attitudesRespond to the objectives determined by management in order to improve performanceCo-operate with suggestions made during training (on job training) for improve sales techniqueInitiative, hard-working, polite

Measures of PerformanceMeasures of Performance

Budgeting and Evaluation 20

Lynch(1992) suggests four scenarios of evaluation results:

1. Good quantitative/good qualitative evaluation:-Praise and monetary reward/ promotion

2. Good quantitative/poor qualitative evaluation:-Good quantitative results mean that performance in from of customers is good but the qualitative part, i.e.attitudes, may need further advice and education

3. Poor quantitative/good qualitative evaluation:- Good qualitative input is failing to be reflected in quantitative success. Training and guidance needed to improve the possible causes such as lack of persistence, poor closing technique, too many/too few calls

4. Poor quantitative/poor qualitative evaluation:- Critical discussion with the salesperson needed. Training may be required to improve the overall standard. More seriously, punishment or even dismissal may be required.

Measures of PerformanceMeasures of Performance

Budgeting and Evaluation 21

Fig. Salesperson evaluation matrix

Measures of PerformanceMeasures of Performance

-Praise-Reward-Promote

-Limited praise-Guide-Train

-Limited praise-Advise-Educate

-Discuss-Train-Punish-Remove

Budgeting and Evaluation 22

Fig. Salesperson evaluation matrix

Measures of PerformanceMeasures of Performance

-Praise-Reward-Promote

-Limited praise-Guide-Train

-Limited praise-Advise-Educate

-Discuss-Train-Punish-Remove