Sales Force Management Case Study Analysis

Hanover-Bates Chemical Corporation

Aown Sahi
Amna Fayyaz
Hooria Adnan
Sara Khan
MBA-II (B)

Date: March 27, 2015

Submitted to: Prof. Fareedy

Table of Contents
CASE FACTS..................................................................................................................................2
PROBLEMS....................................................................................................................................3
CORE ISSUE...................................................................................................................................4
EXHIBIT ANALYSIS.....................................................................................................................4
RATIO CALCULATIONS..............................................................................................................7
SOLUTIONS...................................................................................................................................8
CONCLUSION................................................................................................................................9

CASE FACTS

Hanover-Bates Chemical Corporation produces chemicals for the chemical plating industry.

It has plants in Los Angeles, Houston, Chicago, and Newark.

The production process involves taking chemicals purchased from other suppliers and mixing

them into user-based formulas.

The Hanover-Bates has a strong balance sheet and trades on the over-the-counter market.
There are seven sales districts within the organization with a total of forty sales

representatives.
Each receives a salary, fringe benefits, and commissions of 0.5 percent of their dollar sales

volume up to their sales quota.

Field sales efforts are extremely important and quality control is critical with supplying the

plater with the processed chemicals

The northeast district sales manager had recently been persuaded to take early retirement and

had been replaced by James Sprague.

He has directives from the national sales manager to be responsive to the companys sales
plans and policies, improve the districts profit performance, and to manage a group of sales

representatives who are older, more experienced, and not very happy about his promotion.
James Sprague is the newly appointed district sales manager for the northeast. Upon arriving
he had dinner with Hank Carver and John Follet, two senior sales representatives, and
discussed his plans to review the companys data prepared by the national sales manager and

better the areas profits.

Carver, the most experience sales representative, took offense to analysis saying that his 34
years of experience obviously does not count for anything, and threatened to leave and go to

a competitor.
His district has a large number of potential accounts that are not being utilized. The sales by
account and gross profit of the northeast region is very similar to the north-central region,

which is a very highly regarded region.

The sales manager before Sprague had not been very open to changes made in the company
and was said to have reluctant compliance. To make matters worse, Sprague is younger and
has less experience than many of the people he is managing. Carver was thought to be in line

to get the sales manager position, but was passed over because of his old age.
The company also has little faith in Sprague and many people are expecting him to fall on
his face.
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PROBLEMS
Poor profit performance
The Northeast district had very poor profit performance compared to other districts within
the firm. They were not making their sales quota and are not utilizing the opportunity of
potential future accounts. James Sprague knew that his northeast district (District 3) had
some problems that needed to be addressed. Although James Spragues district was ranked
third in dollar sales, it ranked last in profit performance out of the seven districts.
Hank Carver threatening to quit
Hanover-Bates hired Jim Sprague as their new sales manager, in the Northeast district, who
had much less experience than many sales representatives within the firm. Hiring Sprague
ensured they will not have to repeat the hiring process within the next three years due to
retirement. However, this decision resulted in on-going discussion between both district and
corporate headquarter employees and consequently has Hanover-Bates best sales
representative (Hank Carver) threatening to quit.
Unattainable Quotas
Quotas in the north east district are one of the highest among all districts in the company,
Sales reps further are rewarded on the basis of their sales volumes only. This is one of the
problems contributing to their poor profit performance. Sales reps have no incentive and no
motivation to strive for larger margins since the quotas are unattainable.
Focus on C accounts
North east districts deals majorly to the type C accounts. Although these accounts are in
abundance their returns are the lowest. Which is a reason for their lower profits in
comparison to North Central district who focuses more on type B accounts.
High sales expense
District 3 also makes significantly more sales calls to all of its account types than District 7,
and yet North-Central has capitalized on a much greater percentage of its potential accounts.
This results in a higher sales ratio of 11% in comparison to district 7 of 10%

CORE ISSUE
"Improper quota assignment due to poor compensation structure"
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EXHIBIT ANALYSIS

Active Accounts
North Eastern district has the highest number of active accounts in category C 54% where as
North Central has only 49% of C accounts and their focus is more on category B accounts who
have higher profit margins as illustrated by the graphs below.
Active Accounts
N.E District
N.C District

B
9%
10%

C
36%
41%

54%
49%

60%
54%
49%

50%
41%
40%

36%
N.E

30%

N.C
20%
10%

10%

9%

0%
A

Potential Accounts
Same is the case with Potential accounts, North eastern district has capitalized less potential
accounts in Category C in comparison to North central district. as illustrated by the graphs
below.
Potential Accounts
N.E District

B
8%

C
34%

57%
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N.C District

7%

34%

59%

70%
59%

57%

60%
50%
40%

34%

34%

N.E

30%

N.C

20%
10%

8%

7%

0%
A

Sales by Account Category

From here we can see that account type B generates the highest sale among the account types for
both districts. This reflects the problem that although major active and potential accounts are
type C accounts, highest sales are generated by account type B.
Sales by Account Category
N.E District

B
27%

C
49%

24%
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N.C District

24%

60%

55%

21%

55%
49%

50%
40%
30%

27%

24%

N.E

24%

21%

20%

N.C

10%
0%
A

Sales Expense Ratio

This ratio reflects that District 3 is incurring higher expenses of 11% as compared to District 7.Its
total selling expenses were $552,541 for 2001, the second highest in the company, while District
7s expenses were only $452,187 and a 10% sales expense ratio. The North-Central district also
managed to surpass both its sales and gross profit quotas while incurring much lower
administrative expenses then the Northeast district

11%
11%

11%
11%
11%
10%

N.E

10%

N.C
10%

10%
10%
10%
9%

Sales Expense Ratio

N.E District

$552,541

0.11
0.10

N.C District

$452,187

RATIO CALCULATIONS

Analysis Ratios by Active Accounts

Sales/Active Account

N.E District

61.97%
$25,896

28.74%
$12,007

9.29%
$3,882
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N.C District

59.16%

30.94%

9.90%

$26,821

$14,027

$4,486

From this analysis we can see that Majority sales among active accounts is generated by category
A accounts followed by category B and the lowest sales are generated from category C accounts
which are catered to largely by north east district. Same is the case with gross profit per accounts
and contribution margins. Account type A yields the maximum gross profits and margins of 63.8
63.7% respectively whereas category C generates only 7.9 and 5.6% respectively. As exhibited
by the tables given below

Contribution
Account
N.E District

Margin/Active

N.C District

Gross Profit/Active Account

N.E District
N.C District

67.32%
7984
61.92%

27.05%
3208
30.23%

5.63%
668
7.85%

9544

4660

1210

B
63.88%
$10,075

60.39%

28.22%
$4,450
30.62%

$11,786

$5,975

7.90%
$1,246
8.99%
1755

Analysis Ratios by Sales call

North east district does more sales calls for category C accounts 33% in comparison to North
central district 26% despite that its sales figure is less not only for type C accounts but all the
categories. This shows that per sales call they are generating less revenues in comparison to
district 7 which is again reflected in the gross profit per sales and contribution margin ratios.
Sales/Sales Call
N.E District
N.C District

A
$1,058
$1,094

B
$826
$975

C
$574
$753

Gross Profit / Sales Call

N.E District
N.C District

A
$412
$481

B
$306
$415

C
$184
$294

Contribution Margin/ Sales Call

N.E District
N.C District

A
$326
$389

B
$221
$324

C
$99
$203

SOLUTIONS
Refocus account coverage
District 3 should reallocate their efforts by focusing more on account types A and B. Currently,
their major focus in on low yielding C accounts. These are small accounts, generating $9,000 or
less in sales which have a low margin of 5.6% only as seen previously. They should follow
district 7 strategy and include more A and B accounts. This would generate higher potential
profit and the sales team would be more focused on making important sales in both A and B
accounts, rather than just trying to meet quotas.
Revamp Bonus allocation
Bonuses should be allocated according to personal performance and not sales volume alone in
order to keep the sales force aggressive and motivated. For this Hannover Bated needs to
implement a point reward system. This plan would reward higher points for the sales of high
margin points. Refer to the following table for the allocation of points. Furthermore the sales
force must be communicated the changes effectively through proper training programs .
ZBX
CBX
NBX
SPX
BUX
CHX (highest Gross Margin)

1
1
1
1.25
1.25
1.75

Bottom up Approach
o The bottom up approach will help to improve employee morale by showing them that
they are a valuable part of the company whose opinions are vital to the decision making
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process It is important that Sprague tells Carver how valuable he is to the organization.
Through this approach, he can retain the support of disgruntled salespersons and work
together to increase the profits of the districts and retain Carvers talent and take
advantage of his knowledge and experience.
o The sales team should be able to gain access to their performance records, so that they
can help management in determining their sales quotas. This can be done by showing the
sales reps how well they did in terms of dollar performance, and how they need to work
on profit performance in the future. Using this information in addition to the bottom up
approach, Hanover should be able to narrow the gap between the two districts, and
eventually, eliminate it. .

CONCLUSION
Hannover Bates need to follow District 7 as a benchmark and increase its profits by properly
allocating their sales force efforts.

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