Chapter 2Managing sales force

Recruiting Salesforce

• Recruiting include activities to get individuals who will apply for the job

• The general purpose of recruitment is to get enough qualified candidates, to enable company select the right persons

• H.R. and sales managers must update information on government employment regulations

• Recruiting stage / process includes following activities:• Finding the sources of sales recruits• Evaluating and selecting recruiting sources• Contacting candidates through the selected source

Finding the Sources of Sales Recruits

• For identifying prospective candidates, firms use internal and external sources. They include:

Internal Sources External Sources• Employee referral programmes• Current employees• Promotions and transfers

• Advertisements in newspapers and journals / magazines• The Internet (job sites)• Educational institutions• Employment agencies• Job fairs• Other companies

Evaluating and selecting Recruiting Sources

• Recruiting sources are evaluated based on the database built over number of years

• Evaluating factors are:• Performance rating of salespeople, after 2 years working• Percentage of salespeople retained, after 2 years working• Total cost of recruiting• Selecting most effective source of recruiting at least cost• For a new company, selection depends on cost

• Contacting candidates through the selected source is done by H. R. department

Selecting Salesforce

• Selection process consists of seven major selection steps / tools

• Companies differ in using selection tools, depending on expenditure budget and time available

• Major selection tools / steps are:• Screening resumes• Application blank• Initial interview• Intensive interview• Testing• Reference check• Physical examination

Screening Resumes• It is done when the company receives many resumes• This step / tool not required, if somebody else like

employment agency does initial screening• Initial screening of resumes are done by comparing with job

specifications

Application Blank• Widely used, it is a methodical way of collecting relevant

information from the applicant• Advantages of using application blank (also called “formal

application form”) are:(1) Easy comparison of many applicants(2) Useful for asking question during interview sessions

Interviews

• Widely used selection tool• A good predictor of the candidate’s performance• Initial interviews are used for screening candidates• Intensive interviews are conducted to get indepth view of

candidates• Interview structure / type of interviews:

• Structured / patterned / guided interviews• Unstructured / non-directed / informal interviews• Semi-structured interviews• Behaviour and performance based interviews• Stress interviews

• Purpose is to decide a candidate’s fitness for a job

Testing

• Many firms use tests as a selection tool – EG P&G, IBM• Purpose of testing: To find whether applicants have traits /

characteristics that lead to success in sales job• Type of selection tests:

• Aptitude tests measure ability for selling and learning • Intelligence tests find out mental intelligence or intelligence

quotient (IQ)• Interest tests find out level of interest in a sales career• Knowledge tests measure knowledge of products, markets, etc• Personality tests find out attitude or traits like empathy, self-

confidence• Tests must have reliability and validity• Tests should be one of the selection tools and not the only tool

Reference Checks• They are important due to possibilities of resume frauds and false

personal information• They are done by letters / e-mails, telephones, or personal visits• Instead of candidate’s references, previous employers / customers to

be included for reference checks

Physical Examination• Objective is to find a physical problem that may prevent job

performance of an applicant• Most companies want their prospective employees to undergo

physical examination• Increasing number of firms ask applicant to complete the health

information form without seeing a medical doctor

Sales Territories• A sales territory consists of existing and potential customers,

assigned to a salesperson• Most companies allot salespeople to geographic territories,

consisting of current & prospective customers

Major Reasons / Benefits of Sales Territories• Increase market / customer coverage

• Control selling expenses and time

• Enable better evaluation of salesforce performance

• Improve customer relationships

• Increase salesforce effectiveness

• Improve sales and profit performance

Sales Quotas

• What are Sales Quotas?• Sales quotas are sales goals or targets set by a company for its

marketing / sales units for a time period• Marketing / sales units are regions, branches, territories,

salespeople, and intermediaries• Generally, company sales budget is broken down to sales quotas

for various marketing units• Objectives of Sales Quotas

• To use quotas as performance standards or performance goals• To control performance• To motivate people by linking quotas to compensation plans• To identify strengths and weaknesses of the company

Types of Quotas

• Organisations set many types of sales quotas: (1) sales volume, (2) financial, (3) activity, (4) combination

• Sales volume quotas• For effective control, sales volume quota should be set

for the smallest marketing units, such as salesperson, districts / branches, product items / brands

• Sales volume quotas can be stated in (a) rupees / dollars, (b) units, or (c) points

• Rupees / dollars sales volume quotas are appropriate when salespeople are required to sell many products

Sales Volume Quotas (Continued)

• Unit sales volume quotas are suitable when• Salespeople are selling a few products• Prices of the product fluctuate rapidly• Price of each product / service is high

• Point sales volume quotas are appropriate when the company wants salespeople to sell products that contribute more to profits

Financial Quotas

• Financial quotas control (a) gross margin or net profits, and (b) expenses of marketing units

• Gross-margin / Net-profit quotas• Calculate gross margin by subtracting ‘cost of goods sold’ (i.e. cost

of manufacturing) from sales volume. Sales managers are not responsible for cost of manufacturing

• Net profit quotas are generally accepted by sales mangers as it is calculated by subtracting direct selling expenses from the gross margin

• Expense quotas• In many companies, expense quotas are stated as a percentage of

sales• Expense quotas to be administered with flexibility, to make

salespeople cost conscious, allowing reasonable expenses

Activity Quotas

• These are set when salespeople perform both selling and non-selling activities

• Objective is to direct salespeople to carry out important activities

• For effective implementation, activity quotas are combined with sales volume and financial quotas

• E.G. Calling on high potential customers, payment collection from defaulting customers

Combination Quotas

• Used when companies want to control salesforce performance on key selling and non-selling activities

• Focus on a few types of quotas, to avoid confusing salespeople. An example:

Type of Quota Quota Actual PercentQuota

Weight (Importance)

Percent Quota x Weight

Sales Volume (Rs) 5,00,000 4,50,000 90 3 270Receivables (days) 45 50 89 2 178New Customers (Nos)

04 05 125 1 125

Total 6 573

• Total point score=573/6=95.5 for a salesperson• Typically use ‘points’ as a common measure to resolve the

problem of different measures used by various types of quotas

Motivating the Salesforce

• Motivation is derived from Latin word “movere”, which means “to move”

• Motivation is the effort the salesperson makes to complete various activities of the sales job

• 10-15 percent salespeople are self-motivated• Majority of salespeople are not adequately motivated• Importance of motivating salespeople is recognised,

because financial performance of the company depends upon the achievement of sales volume objective

Motivational Theories

• Motivational theories or behavioural concepts that are relevant to motivation of salespeople are:

• Maslow’s hierarchy of needs• Hertzberg’s dual-factor• Vroom’s expectancy• Churchill, Ford, and Walker model of salesforce motivation,

shown hereunder:

Motivation Effort Performance Reward Satisfaction

Selecting a Mix of Motivational Tools

• Sales manager should know each salesperson and understand his / her specific needs

• For designing or selecting a mix of motivational tools, a compromise between differing needs of customers, salespeople, and the company management becomes necessary

• Motivational tools are divided into (1) financial, and (2) non-financial. These are shown in the next slide

Motivational Tools in a Motivational Mix

• Financial compensation is the most widely used tool of motivation, as salespeople give highest value to it

Financial Non Financial

• Financial compensation plan• Salary• Commission/Incentive• Bonus• Fringe benefits• Combination

• Sales contests

• Promotion• Sense of accomplishment• Personal growth opportunities• Recognition• Job security• Sales meetings• Sales training programmes• Job enrichment• Supervision

Compensating the Salesforce

• A good compensation plan should consider objectives from the company’s and salespeople’s viewpoint

• Objectives of compensation plan from the company’s viewpoint• To attract, retain, and motivate competent salespeople• To control salespeople’s activities• To be competitive, yet economical: It is difficult to balance

these two objectives• To be flexible to adapt to new products, changing markets,

and differing territory sales potentials

Objectives of Compensation Plan from Salesperson’s Viewpoint

• To have both regular and incentive income• Regular income by fixed salary to take care of living

expenses• Incentive income for above average performance

• To have a simple plan, for easy understanding• This is in conflict with the objective of flexibility

• To have a fair payment plan• Fair or just payment to all salespeople is ensured by

selecting measurable and controllable factors

Designing an Effective Sales Compensation Plan• Designing a new compensation plan or revising an existing plan

consists of the following steps:• Examine job descriptions• Set up specific objectives for salespeople• Decide levels of pay / compensation• Develop the compensation mix• Decide indirect payment plan or fringe benefits• Pretest, administer, and evaluate the plan

• We shall examine these steps briefly

Examine Job Descriptions• Separate job descriptions are required for different sales positions or

jobs – E.G. missionary salesperson, senior salesperson, key account executive

• Each job description should include responsibilities and key performance standards, to decide how much to pay

Set up Specific Objectives for Salespeople• These are derived from company’s sales and marketing objectives

• Salespeople should have some control on the objectives – E.G. number of sales calls made

• Objectives should be measurable. E.G. sales volume, selling expenses

Decide Levels of Pay / Compensation

• It means the average pay or money earned per year (or month)• It is important to decide levels of pay for all sales positions• It is decided based on the following factors:

• Levels of pay for similar positions in the industry• Levels of pay for comparable jobs in the company• Education, experience, and skills required to do sales job• Cost of living in different metros and cities

• Annual average pay levels vary between industries, within the same industry, and sometimes within the company

• Firms decide a range of average pay, instead of a specific pay• Salespeople earn pay depending on their and company performance

Develop the Compensation Mix

• Widely used elements of compensation mix are: (1) salaries, (2) commissions, (3) bonuses, (4) fringe benefits (or perquisites)

• Expense allowances or reimbursements like travel, lodging, etc are not included

• Basic types of compensation plans are:• Straight salary• Straight commission• Combination of salary, commission, and / or bonus

• 68 percent companies use combination plan and balance 32 percent firms use straight salary or straight commission

• We shall briefly examine above compensation plans

Straight – Salary Plan• Characteristics:

• 100 percent compensation is salary, which is a fixed component• No concern for sales performance or salesperson’s efforts• This plan is suitable for sales trainees, missionary salespeople, and when

a company wants to introduce a new product or enter a new territory

• Advantages:• Salespeople get secured income to cover living expenses• Salespeople willing to perform non-selling activities like payment

collection, report writing• Simple to administer

• Disadvantages:• No financial incentive to salespeople for more efforts and better

performance. Hence, superior performance may not be achieved• May be a burden for new and loss-making firms

Straight – Commission (or Commission Only) Plan

• Characteristics:• It is opposite of straight-salary plan• Most popular commission base is sales volume or profitability• Commission rate is a percentage of sales or gross profit• This plan is generally used by real estate, insurance, and direct-

sales (or network marketing) industries• Advantages:

• Strong financial incentive attracts high performance, removes ineffective salespeople and improves results

• Controls selling costs and requires less supervision• Disadvantages:

• Focus is on sales and not on customer relationship• Salespeople may pay less attention to non-selling activities

Combination Plan

• Characteristics:• Combines straight salary & straight commission plan• Four types of combination plans used by companies:

1) Salary plus commission: suitable for getting improved sales and customer service

2) Salary plus bonus: a bonus is a lumpsum, single payment, for achieving short-term objectives. This plan is used for rewarding team performance

3) Salary plus commission plus bonus: suitable for increasing sales, controlling salesforce activities, and achieving short-term goals. Also suitable for selling seasonal products like fans

4) Commission plus bonus: Not popular. Used for team selling activities for selling to major customers

Combination Plan (Continued)

• Advantages:• Flexible to reward and control salesforce activities• Security for living costs and incentives for superior performance

for salespeople• Rewards specific sales performance• Different plans for different sales positions / jobs

• Disadvantages:• Complex and difficult to administer• May not achieve objectives if not properly planned,

implemented and understood

• Indirect payment plan, also called fringe benefits or perquisites, help in attracting and retaining people, but have now come under government tax in India

Pretest, Administer, and Evaluate Compensation Plan

• Pretesting the new / proposed Compensation Plan:• Companies pretest a new (or proposed) plan, before adoption• Either it is simulated on a computer, or pretested at one / more

branches for 6-12 months• It should involve all concerned people

• Administering the new compensation plan• Announce the plan in advance• Explain the new plan and reasons for changing the previous plan• Outsource administration if plans are changed frequently

• Evaluating the new compensation plan• Find if objectives of the plan are achieved• Some companies audit compensation plans