Amity School of Business

Sales and Distribution Management

Amity School of Business

Concepts of Sales Organisation

A sales organisation assists the sales manager
to carry out needed tasks efficiently and
effectively to achieve results
The basic concepts of the sales organisation
are:
Degree of centralisation
Degree of specialisation
Line or staff positions
Market orientation
Effective co-ordination

Nature of
Sales Organization

Amity School of Business

An organization is simply an arrangement of

activities involving a group of people. The goal is
to arrange these activities so that the people
involved can act better together than they can
individually.
Trend is towards a flatter organization in which
coordination across activities is more important
than top down control.
Salespeople are more often a part of the cross
functional team design to serve specific
customers.

Purpose of
Sales Organization

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To permit the development of specialists

To ensure that all necessary activities are performed
To achieve coordination
To define authority
To economize on executive time

Functions of Sales Organization

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Planning Function
Sales Forecasting
Sales Budgeting
Selling Policy

Administrative Function
Selecting Salesmen
Training Salesmen
Control of Salesmen

Executive Function
Sales Promotion
Selling Routine : Execution of customers orders

Characteristics of a
Good Organization

Amity School of Business

Organization structure should reflect a marketing

orientation
Organization should be built around activities
and not around people
Responsibility and authority should be related
properly
Span of executive control should be reasonable
Organization should be stable but flexible
Activities should be balanced and coordinated.

Principles of
Sales Organization

Degree of centralization
Degree of specialization
Line and Staff positions
Marketing orientation
Effective coordination
Span of control

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Setting up a
Sales Organization

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Defining the objectives

Delineating the necessary activities
Grouping the activities into Jobs and
Positions
Assigning Personnel to positions
Providing for coordination and control

Amity School of Business

Basic Types of Sales Organisations

Sales organisations are generally classified into
four basic types:
Line Organisation
Line and staff organisation
Functional organisation
Horizontal organisation

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Specialisation within Sales Organisation

Needed to increase effectiveness of salesforce
Done by expanding basic sales organisation
Basis of specialisation
Geography
Type of product
Market
Combination of above
Criteria for selection (1) nature of product, (2)
salesforce abilities, (3) demands of selling job, (4)
customer and market facts

Coordination of Personal Selling

with other Marketing Activities

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Sales and Advertising

Work towards same objective of profit maximization
Activities of sales force are planned and directed along lines that
increase advertising effectiveness
Advertising is geared up as and when required so as to assist
the salespeople

Sales and Marketing Information

Marketing information system assist the sales department by
gathering data needed for analyzing sales problems, assisting in
determining sales potential, measuring the effectiveness of the
sales effort
Sales department provides the information system with many of
the raw statistics and other information needed for sales and
market analysis and forecasting.

Amity School of Business

Sales Forecasting
It is an estimate of sales during a specified future
period which is tied to a proposed marketing plan
and which assumes a particular set of
uncontrollable and competitive forces
-Cundiff and Still

Amity School of Business

Importance of Sales Forecasting

Helps manufacturing department for setting up
production capacity and planning production
Finance department for raising cash for
investment and operations as well as for profit
planning
Purchase function for planning their purchases
HR function to help them plan for manpower
planning

Amity School of Business

Terms Used in Forecasting

Market Potential
Maximum possible sales opportunities
present in a particular market segment and
open to all sellers during a stated future
period.

Market Forecast
Expected industry sales for a given product or
service at one specific level of industry
marketing expenditure, in a given market, for
a specific period of time.

Amity School of Business

Company Sales Potential

Best possible estimated sales of a given
product or service for a company in a given
geographic area for a specific period of time.
Company Sales Forecast
Estimated company sales of a given product
or service, under a proposed marketing
plan, in a given market, for a specific period
of time.

Sales ForecastingAmity School of Business

Methods

Qualitative Methods

Quantitative Methods

Executive opinion

Moving averages

Delphi method

Exponential smoothing

Salesforce composite

Decomposition

Survey of buyers
intentions

Nave / Ratio method

Test marketing

Regression analysis

Amity School of Business

Executive opinion method

Most widely used
Procedure includes discussions and / or average
of all executives individual opinion
Advantages: quick forecast, less expensive
Disadvantages: subjective, no breakdown into
subunits
Accuracy: fair; time required: short to medium (1
4 weeks)

Delphi Method

Amity School of Business

Process includes a coordinator getting forecasts

separately from experts, summarizing the
forecasts, giving the summary report to experts,
who are asked to make another prediction; the
process is repeated till some consensus is
reached
Experts are company managers, consultants,
intermediaries, and trade associations
Advantages: objective, good accuracy
Disadvantages: getting experts, no breakdown
into subunits, time required: medium (3/4 weeks)
to long (2/3 months)

Amity School of Business

Survey of Buyers Intentions Method

Process includes asking customers about their
intentions to buy the companys products and
services
Questionnaire may contain other relevant questions
Advantages: gives more market information, can
forecast new and existing products, good accuracy
Disadvantages: some buyers unwilling to respond,
time required is long (3-6 months), medium to high
cost

Amity School of Business

Salesforce Composite Method

An example of bottom-up or grass-roots approach
Procedure consists of each salesperson
estimating sales. Company sales forecast is
made up of all salespersons sales estimates
Advantages:
Salespeople
are
involved,
breakdown into subunits possible
Disadvantages:
Optimistic
or
pessimistic
forecasts, medium to long time required
Accuracy: fair to good (if trained)

Amity School of Business

Test Marketing Method

Methods used for consumer market testing: full
blown, controlled, and simulated test marketing
Methods used for business market testing: alpha
and beta testing
Advantages: used for new or modified products,
good accuracy, minimizes risk of national launch
Disadvantages: Competitors may disturb if some
methods are used, medium to high cost,
medium to long time required

Amity School of Business

Factors Influencing the Sales Forecast

Marketing Plans
Changes in price structure, channels of distribution,
promotional plans, products may influence the future
sales.

Conditions within the industry

Competitor policies and new entrants into the market
needs to be taken into consideration.

Market Conditions
Awareness about the changes in the primary demand for
the industrys output.

General Business Conditions

General state of the economy

Types of Sales Forecast

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Product Level

All Sales
Industry Sales
Company Sales
Product Line Sales
Product Variant Sales
Product Item Sales

Time Period
Long Term
Medium Term
Short Term

Geographic Area

World
Nation
Region
Territory
Customer

Sales Budget

Amity School of Business

A sales budget consists of estimates of expected

volume of sales and selling expenses.
The sales manager is responsible for preparing
three detailed budgets:
-The sales volume budget (product
wise/territory wise/customer wise)
- The selling expense budget (expenditure for
various selling activities, traveling, salaries of the
sales people)
-The administrative budget of the sales
department( salaries of sales managers & office
operation expenses)

Amity School of Business

Purpose of the Sales Budget

Planning

Co-ordination

Control

Sales Budget Process

Amity School of Business

1.Review situation
Review of past performances, current and future (budget
period) marketing environment.
This activity should start about 4-6 months prior to the
commencement of new accounting year.
2.Communication
The head of sales function should communicate in writing
to all the field sales managers about the budget
preparation,
including
the
formats,
guidelines
assumptions, and time table.
The first line field sales manager estimates the sales
volume in units and value of each product and service to
be sold, along with estimated selling expenses and
admin expenses.

Amity School of Business

3.Subordinate budgets
The first line field sales managers prepare the
sales budgets for their respective sales territories
and submit the same to the immediate
reporting managers.
The regional/ divisional managers submit their
sales budget to the National sales mgr, who
prepares the company's budget combining all of
these.
4.Approval of the sales budget
The proposed sales budget is presented before
the top management for approval.

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5.Other departments
The final sales budget is given to other
departments like production, finance,
materials, and human resource to prepare
their budgets.
Only the sales budget has revenue &
expenditure budget, whereas all the rest dept
has only expenditure budgets.

Amity School of Business

Sales Territories
A sales territory consists of existing and
potential customers, assigned to a
salesperson.
The territory may or may not have
geographical boundaries.
Most companies allot salespeople to
geographic territories, consisting of current
& prospective customers

Amity School of Business

Major Reasons / Benefits of

Sales Territories
Increase market / customer coverage
Control selling expenses and time
Enable better
performance

evaluation

of

sales

force

Improve customer relationships

Increase sales force effectiveness
Benefit to salespeople and in turn, to the
company.

Amity School of Business

Procedure for Designing Sales Territories

Build-up
method

Select a
control
unit

Find location
and
potential
of present and
prospective
customers

Decide
basic
territories

OR
Breakdown
method

Amity School of Business

Step 1
Select a control unit (i.e. a geographical
territorial base or a location) used in
territorial analysis, usually are:
States
Counties
Cities
Zip-code areas
Metropolitan Areas

Amity School of Business

Step 2
Find location and potential of present and
prospective customers within control units

Amity School of Business

Step 3
Decide basic territories by using
Build-up method,
Or
Break-down method

Management must determine:

Amity School of Business

Desirable call patterns:

Call frequency per account per year

Procedure in
Build-up Method

Total calls needed

in each control group
Workload capacity:
Total calls possible per rep per year =
number of daily calls x days selling
Tentatively set territorial boundary lines
by combining control units until total
calls needed = total calls possible
Modify territories as needed

Amity School of Business

Procedure
in
Breakdown
Method

Management must determine

Company sales potential
Sales potential in each control unit
Sales volume expected from
each sales person

Tentatively set territorial

boundary lines by combining
control units total sales potential
= total sales volume expected
Modify territories as needed

Assigning Salespeople to
Territories

Amity School of Business

Sales Manager should consider two criteria:

(A)Relative ability of salespeople
Based on key evaluation factors:
(1) Product knowledge, (2) market knowledge,
(3) past
sales performance, (4) communication, (5) selling skills
(B) Salespersons Effectiveness in a Territory
Decided by comparing social, cultural, and physical
characteristics of the salesperson with those of the
territory
Objective is to match salesperson to the territory

Amity School of Business

Management of Territorial Coverage

It means: How salesperson should cover the
assigned sales territory
It includes three tasks for a sales manager:
Planning efficient routes for salespeople
Scheduling salespeoples time
Using time-management tools

Amity School of Business

Routing
Routing is a travel plan used by a
salesperson for making customer calls in
a territory
Benefits of or Reasons for routing:
Reduction in travel time and cost
Improvement in territory coverage

Procedure for Setting up a Routing

Plan
Amity School of Business

Identify current and prospective customers on a territory

map
Classify each customer into high, medium, or low sales
potential
Decide call frequency for each class of customers
Build route plan around locations of high potential customers
Computerized mathematical models are developed
Commonly used routing patterns are:

Base
(B)

C
1

B
B

C
5

C
4

C
3

C
2

Straight line / Hopscotch

Circular

Clover Leaf

Scheduling

Amity School of Business

Scheduling is planning a salespersons visit time to

customers. It deals with time allocation issue
How to allocate salespersons time?
Sales manager communicates to salesperson major
activities and time allocation for each activity
Salesperson records actual time spent on various
activities for 2 weeks
Sales manager and salesperson discuss and decide
how to increase time spent on major activities
Companies specify call norms for current customers,
based on sales and profit potentials, and also for
prospective customers

Time Management Tools

Amity School of Business
To help outside salespeople to manage their time
efficiently and productively, the tools available are:
High-tech equipment like laptop computers
and cellular phones
Inside salespeople to provide clerical support,
technical support, and for prospecting, and
qualifying, as they remain within the company
Outside salespeople can then spend more
time getting more orders & building
relationships with major customers
Outside salespeople travel outside the
organisation

Sales Quotas

Amity School of Business

Sales quotas are sales goals set by a company

for its marketing units for a certain period of
time.
Sales quotas are developed from the annual
marketing plan of the company.
After preparing the sales forecast, the company
decides its sales budget, which includes the
companys sales volume and selling expenses.
The companys sales budget is then broken
down to sales quotas for regions and sales
territories .

Amity School of Business

Objectives of Quotas
Making available performance standards
Controlling performance
Motivating people
Identifying strength and weaknesses

Amity School of Business

Types of Quotas
Organizations set many types of sales
quotas:
Sales volume quota
Financial quota
Activity quota
Combination quota

Amity School of Business

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 sales volume quotas
are
appropriate when salespeople are
required to sell many products.

Amity School of Business

(b) Unit sales volume quotas are suitable

when
Salespeople are selling a few products
(steel sheets- Rs+ metric tonnes)
Prices of the product fluctuate rapidly
Price of each product / service is high
(c) Point sales volume quotas are
appropriate when
the company wants salespeople to sell
products that contribute more to profits

Financial Quotas

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a) Gross-margin / Net-profit quotas

Gross-margin is a company's total sales
revenue minus its manufacturing cost of goods
sold.
GM=(Total Sales Rev -- Manuf. Cost of goods
sold)
Net profit quotas are generally accepted by sales
mangers as it is calculated by subtracting cost
of goods sold and salespersons direct selling
expenses from the total sales revenue.
NP=Total Sales Rev(Manuf. Cost of Goods
sold + Direct Selling expenses)

Amity School of Business

b) 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

Amity School of Business

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
For Example, Calling on high potential
customers, payment collection from defaulting
customers

Amity School of Business

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.

Amity School of Business

Methods for Setting Sales Quotas

In practice, companies use more than one of the
following methods to increase their confidence in
sales quotas
A. Total market estimates
B. Territory potential
C. Past sales experience
D. Executive judgment
E. Salespeoples estimates
F. Compensation plan

Amity School of Business

Territory Potential Method

1)
2)

3)
4)

The procedure followed by new companies is as under:

Estimate next years industry sales forecast or market
potential, using sales forecasting methods
Estimate multiple factor index (MFI) for each territory,
based on factors that influence sales of the product.
These factors are given weights corresponding to the
degree of sales opportunity.
Industry sales forecast in a territory (or territory market
potential=(1)x(2)
Territory sales quota = (3) x estimated market share of
the company in the territory

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Past Sales Experience Method

The process consists of taking past one years sales (or an
average of previous 3 to 5 years sales), adding an arbitrary
percentage (or a percentage by which the market is expected
to grow), and thus setting each territory sales quota
The assumption that future sales are related to past sales
may not be always correct
This method should not be the only method used
Past sales should be one of the factors used for deciding
sales quotas

Amity School of Business

Executive Judgment Method

Senior executives use their judgement when
the product, territories, and the company are
new or very little market information is
available
Executives predict company sales budgets
and also territory sales quotas
This method should generally be used along
with other methods

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Salespeoples Estimate Method

Some firms ask their salespeople to set
their own quotas
Many salespersons either set very high or
too low sales quotas
For setting proper quotas, many sales
managers use 2 or 3 of above methods,
discuss with salespersons to get their
inputs, and decide sales quotas

Amity School of Business

Compensation Plan Method

Some organizations set quotas to fit with
their sales compensation plan
E.G. A company wants to pay a monthly
salary of Rs 5000, and a commission of 3%
on monthly sales above Rs 1,00,000. The
quota of Rs 1,00,000 is set in such a way
that salesperson would find it very difficult
to cross total compensation of Rs 8000 per
month (5000+3000)

Total Market Estimates Method

Amity School of Business
The Process followed by established companies is as
under:
1) Estimate next years total market demand, or
industry sales forecast, using sales forecasting
methods
2) Decide the companys estimated market share for
next year
3) Companys next year sales forecast= (1) x (2)
4) Find each territorys percentage share out of the
total company sales in the previous year
5) Territory sales quota = (3) x (4)