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LEAN MANAGEMENT GUIDELINES FOR CHECK POINT 100

SALES PERFORMANCE EVALUATION

Business owners and sales managers must be fully familiar with sales performance evaluation and control procedures to ensure effective monitoring of sales results, and successful performance of the organization.

Sales Performance Evaluation is essentially a comparison between projected sales objectives and actual sales results achieved by the company. 

The sales manager can plan Sales Objectives on several basis as illustrated below.

 BASIS FOR ESTABLISHING SALES OBJECTIVES

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SALES FORCE PERFORMANCE EVALUATION

Sales Objectives, or Sales Quotas, are set during the planning stage and facilitate effective sales performance control. This process of establishing Sales Quotas is discussed in detail in Tutorial 5.

In addition, Sales Performance Standards are set for each sales person, thus providing a yardstick for measuring individual results. The differences between Planned Objectives and Actual Results must be identified, and subsequent corrective action must be taken accordingly.

The Sales Performance Planning, Evaluation, And Control Process entails a number of steps outlined below. The first three steps relate to sales force performance planning (Steps 1 to 3), and the next four steps relate to sales force performance evaluation and control (Steps 4 to 8).

THE SALES PERFORMANCE PLANNING, EVALUATION, AND CONTROL PROCESS

Step 1: Set Goals And Objectives For The Sale Force.

Step 2: Develop A Plan For The Sales Department To Achieve Sales Goals.

Step 3: Set Performance Standards For Individual Sales People.

Step 4: Prepare Monthly Sales Reports.

Step 5: Analyze Sales Performance Results.

Step 6: Evaluate Performance Of Individual Sales People.

Step 7: Compare Actual Results With Planned Objectives And Determine The Variance.

Step 8: Take Corrective Actions And Adjust The Sales Planning Process Accordingly (Repeat The Process As Necessary Starting With Step 1).

The first three steps have been discussed earlier in the context of Sales Force Management And Motivation, and they provide the basis for the sales force evaluation and control. Evaluation of sales performance is based on detailed Analysis Of Sales Revenues attained by the company during a particular operating period.

THE PARETO LAW

It is common, for example, to find that the bulk of business can be attributed to a small number of customers. This is known as the 80 - 20 Rule, or the Pareto Law, which is applicable to any area of activities.

In case of sales management, the Pareto Law may be interpreted in 80% - 20% split illustrated below.

TYPICAL ILLUSTRATION OF 80% - 20% SPLIT IN SALES

DOES THE PARETO LAW WORK ALL THE TIME?

The Pareto Law is, certainly, not always accurate, and serves merely as a general guideline. Thus, it is necessary to analyze the Sales Data, and to identify major sources of sales revenues, profits and "headaches". The idea, of course, is to focus on the 80% of positive sales contributors and try to eliminate the 20% of negative sales contributors.

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SALES PERFORMANCE ANALYSIS

The first step in the Sales Performance Analysis entails condensation of individual Sales Progress Reports described earlier, and preparation of Summarized Sales Reports. Summarized sales reports provide monthly and year-to-date information based on the breakdown illustrated below.

 BASIS FOR SALES REPORTING

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SALES-BY-A-SALES PERSON REPORT

A Sales-By-A-Sales Person Report enables the sales manager to monitor individual performance and examine results achieved by each sales person. This report, presented below, compares relevant sales volume quotas with appropriate monthly and year-to-date results produced by a sales person and determines variances accordingly.

SALES-BY-A-SALES PERSON REPORT EVALUATION

The examination of the above report indicates that:

• • Sales person 1 exceeded monthly sales quota by $7,000, though he or she is still behind on a   year-to-date basis by $40,000.
• • Sales person 2 is $8,000 short of meeting the monthly sales quota. However, on a   year- to-  date basis, this sales person is still well ahead by $10,000.
• • Sales person 3 is behind by $12,000 and $100,000 respectively in meeting monthly and   year-  to-date sales quotas.

The final conclusion derived from this report is expressed in percentages of plan achieved by each sales person as follows:

• • Sales person 2 appears on the top of the list with 102.5%.
• • Sales person 1 is 10% (100-90) below the plan.
• • Sales person 3 is 25% (100-75) below the plan.

SALES-BY-A-SALES TERRITORY REPORT

A Sales-By-A-Sales-Territory Report provides information about sales revenues generated by different sales territories. This report, presented below, summarizes sales volumes per territory on a monthly and year-to-date basis and produces variances in a manner similar to the previous example.

SALES-BY-A-SALES TERRITORY REPORT EVALUATION

The examination of the above report indicates that:

• • Sales Territory 3 generates the best results by producing $15,000 and $80,000 in excess of   the sales budget on a monthly and year-to-date basis, respectively.
• • Sales Territory 2 generates second-best results by producing an excess of $20,000 on a   year-to-date basis despite the fact that monthly actual sales were short by $10,000.
• • Sales Territory 3 generates the worst results by being short of $50,000 on a year-to-date   basis, although actual monthly sales exceeded the budget by $30,000.

The final conclusions are expressed in percentages of plan achieved by  the company in each sales territory as follows:

• • Sales Territory 3 - 113.3%.
• • Sales Territory 2 - 102.9%.
• • Sales Territory 1 - 90%.

SALES-BY-A-PRODUCT LINE REPORT

A Sales-By-A-Product-Line Report provides information about sales revenues generated by different product or service lines. This report, presented below, summarizes sales volumes per product or service line on a monthly and year-to-date basis and computes variances in a manner similar to the previous examples.

SALES-BY-A-PRODUCT LINE REPORT EVALUATION

The examination of the above report indicates that:

• • Product Line C, the bestseller, achieved 108.9% of the plan with $80,000 excess in the   year-  to-date sales against the budget despite a $10,000 shortage in monthly sales.
• • The second-best performer is Product Line A. This line achieved 96.7%of the plan with a   $20,000 shortage in the year-to-date sales, although monthly sales exceeded the budget by   $15,000.
• • The worst performer is Product Line B at 75% of the plan achieved with a $200,000 shortage   in the year-to-date sales. Its monthly sales, however, were $10,000 in excess of the budget.

SALES-BY-A-CUSTOMER REPORT

A Sales-By-A-Customer Report provides information about sales revenues generated by individual customers or industries. This report, presented below, summarizes sales volumes per customer or industry on a monthly and year-to-date basis and produces variances similar to the previous examples.

SALES-BY-A-CUSTOMER REPORT EVALUATION

The examination of the above report indicates that:

• • Customer A is the best customer. This customer "achieved" 125% of the plan with $100,000   excess in the year-to-date sales against the budget.
• • Customer B appears to be second best with 113.3%of the plan achieved with $80,000 excess   in the year-to-date sales against the budget.
• • The only poor results were derived from Customer C. Here the company achieved only 87.5%   of the plan with $100,000 below the year-to-date sales budget.

MONITORING OF SALES RESULTS

Evaluation Of Monthly And Year-To-Date Results enables the sales manager to monitor and control the overall performance of the sales organization. Although monthly results reflect the most recent sales performance, special attention should be drawn to the year-to-date values. This is particularly important because year-to-date results may indicate favorable performance despite unfavorable monthly results or vice versa.

By evaluating performance results, the sales manager will be able to Identify Company Strengths And Weaknesses in relation to individual sales territories, product or service lines, customers, or industries. The subsequent comparison of actual results with the planned objectives and the determination of variances will enable the sales manager to Take Corrective Action and adjust the sales planning process.

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MARKETING COST ANALYSIS

Although Sales Volume Analysis provides useful information, it does not indicate the profitability of sales territories, products and services, or customer groups. The answer to this issue can be obtained by conducting a detailed Marketing Cost Analysis. 

This analysis accounts for all relevant costs incurred during the planning and implementation stages of product and service promotion, distribution, selling, and after-sales service in the marketplace. One of the major problems with marketing cost analysis is the degree of accuracy in allocating various planning, promotional, distribution and selling costs to specific parameters presented below.

ALLOCATION OF MARKETING COSTS

Despite its potential inaccuracy, marketing cost analysis may provide a useful guideline for determining the level of profitability of various products and services, and it may facilitate improved decision-making process for the entire management team.

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 EVALUATE EACH SALES PERSON'S PERFORMANCE

In addition to evaluating the company's sales efforts in the marketplace, it is essential to review the efforts of each sales person. Performance Evaluation by individual sales person entails examination of several factors illustrated below. (64)

THE SALES PERSON'S PERFORMANCE EVALUATION

Qualitative Factors

• • Knowledge:
• • Of the product or service.
• • Of the company and its policies.
• • Of competitors' products, prices, and strategies.
• • Of customers and their requirements.
• • Personal Selling Abilities:
• • Time management.
• • Planning of sales calls.
• • Quality of sales presentations.
• • Ability to handle objections and close sales.
• • Customer Relations:
• • Ability to understand customer requirements.
• • Ability to satisfy customer needs.
• • Personality.
• • Personal Appearance.
• • Health.

The actual evaluation of a sales person's performance entails several steps outlined below.

THE SALES PERSON'S PERFORMANCE EVALUATION PROCESS

Step 1: Evaluate The Quantity Of The Sales Effort (The Input Factors).

These factors include such elements as number of calls per day, number of working  days, selling time versus non-selling time, direct selling expenses, and indirect selling activities.

Step 2: Evaluate The Quantity Of The Sales Results (The Output Factors).

These factors include sales volume per product, customer, territory, or as a percentage of quota and market potential, and gross margin contribution by product, customer, or territory.

Step 3: Evaluate The Individual Sales Person's Qualitative Factors.

Some of these factors are the salesperson's knowledge about products and services, company, competitors and customers, personal selling abilities, customer relations, and personality.

A thorough evaluation of the sales force performance and timely identification of problematic areas represent important sales management activities. These tasks enable the sales manager to monitor results produced by each sales person and to provide effective guidance on a continuous basis.

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