Sales & Distribution Management

Compiled By Saud Hussain Module - 2

Module-II:
Sales Forecasting Sales strategies and policies determining the size of the sales force, Sales territories, routing and scheduling, Controlling the selling effort Sales budget and budgeting procedures Quota setting and administration. Management of sales force: Personnel problems of sales management, recruiting and selecting, training and development, motivating salesman, sales meetings and contests, compensating sales personnel, evaluation and supervising salesmen.

Sales Forecasting:
Sales forecasting is an estimate of sales, in dollars or physical units, in a future period under a particular marketing programme. A sales forecast may be for a single product or for an entire product line. Although a sales forecast can be made for a short run or long run yet the short run or operating sales forecast is important to the sales executive. The operating sales forecast is the prediction of how much of a companys particular product (or product line) can be sold during a future period under a given marketing programme and an assumed set of out side factors.(PESTN)

Sales Forecasting Methods:

The sales forecasting methods are the procedures for estimating how much of a given product (or product line) can be sold if a given marketing program is implemented. No sales forecasting method is foolproof. Each is subject to error. Some are unsophisticated such as expert opinion or the pool of salespersons opinion and others are sophisticated as they use statistics. The well managed companies do not rely upon a single sales forecasting method but use several of them. The followings are the different sales forecasting methods.

a. Jury of Executive Opinion:

According to this method, a company invites the opinion of the executives and consultants who are well informed about the industry outlook and the company marketing position, capabilities and marketing programme. The companies use this experts opinion method for one or more of the four reasons. This is a quick and easy way to turn out a forecast. This is a way to pool the experience and judgment of well informed people. This is a feasible approach for the young companies who do not have experience in other forecasting methods. This method may be used when adequate sales and market statistics are missing. But the weakness of this method is the difficulty of breaking down the estimates of probable sales by products, by time intervals, by markets, by customers and so on.

b. The Delphi technique:

In this method the experts responds to a sequence of questionnaires which is vividly discussed. Out of the brainstorming the estimate is calculated on the basis of past performance.

c.Poll of Sales Force Opinion:

This is otherwise known as the grass-root approach. Here the individual sales person forecast sales for their territories. These individual forecasts are combined and modified as the management thinks necessary to arrive at the company sales forecast. This approach appeals to the practical sales managers because the forecasting responsibility is assigned to those who produce the results. There is a merit in utilizing this method as the salesmen become closest to the market conditions. The quota can easily be broken down according to the products, territories, customers, middlemen and sales force. The weakness of this method is the use of inexperienced sales force who sometimes become optimistic or pessimistic about the sales prospects just looking at the current business conditions. Some times they are too near the trees to see the forest. They are unaware of the sudden changes in the business conditions.

d. Exponential Smoothing:
Exponential smoothing is a short range sales forecasting technique in the form of moving average that represents a weighted sum of all past numbers in a time series, with the heaviest weight placed on the most recent data. The formula is: Next years sales = a(this years sales)+ (1-a)(this years forecast)

d. Exponential Smoothing:
a in the equation is called the smoothing constant and is set between 0.0 and 1.0. If for example, actual sales for this year came to 320 units of products and the sales forecast for this year was 350 units and the smoothing constant was 0.3 , the forecast for the next years sales is= (0.30)(320) + (0.7)(350) = 341 units of products. Determining the value of a is the main problem. If the series of the sales data changes slowly, a should be small but if the series changes rapidly, a should be large enough so that the forecast respond to those changes.

e.Projection of Past Sales:

The projection of past sales method of sales forecasting takes a variety of forms. To calculate the next years sale, the formula is Next years sales = this years sales x this years sale Last years sale This method is more appropriate for the companies which are more or less stable or mature industries. Time- series analysis: It is a statistical procedure for studying historical sales data. This procedure involves isolating and measuring four types of sales variations. Long term trends Cyclical changes Seasonal variations Irregular fluctuations. Generally these methods are used for the long run forecasting. Incase of the short run if the sales pattern is clearly defined or relatively stable from year to year, then the time series analysis can be appropriately used.

f. Survey of Consumer Buying Plans:

This method is basically used for industrial marketing where the potential market consist of small numbers and prospects, substantial sale is made to the individual accounts, the manufacturer sells directly to the users and the customers are concentrated in few geographical areas. In such cases it is inexpensive to survey a sample of customers and prospects to estimate the product or project the sales forecast.

g. Regression Analysis:
Regression analysis is a statistical process used in sales forecasting determines and measures the association between company sales and other variables. There are three major steps of regression analysis. Identify variables causally related to company sales Determine or estimate the values of these variables related to sales. Derive the sales forecast from these estimates. There may be two types of regression; simple and multiple.

h. Moving Average:
Moving averages are used to allow for marketplace factors changing at different rates and at different times. The 3-yearly moving average can be computed with the following formula: a+b+c b+c+d c+d+e d+e+f --------- , ----------- , ---------- , --------- , . 3 3 3 3

Importance of Sales Forecast

A sales forecast becomes a basis for setting and maintaining a production schedule manufacturing. It determines the quantity and timing of needs for labor, equipment, tools, parts, and raw materials purchasing, personnel. It influences the amount of borrowed capital needed to finance the production and the necessary cash flow to operate the business controller. It provides a basis for sales quota assignments to various segments of the sales force sales management. It is the overall base that determines the companys business and marketing plans, which are further broken down into specific goals marketing officer.

THE FORECASTING PROCESS:

Forecast Objective
Determine Dependent and Independent Variables

Develop Forecast Procedure

Select Forecast Analysis Method

Evaluate Results versus Forecast

Total Forecast Procedure

Make and Finalize Forecast

Present Assumptions about Data

Gather and Analyze Data

Sales strategies and policies determining the size of the sales force:
Determining the sales force size is an important decision for every sales department. Compensating sales people is a very costlier affair, there fore its size should be appropriate to serve customer and the firm needs. The customer needs may be easy availability of the product, timely delivery, providing sufficient product informations etc the firm needs may be increase of sales volume, increase of profit margin, creating a strong customer base etc. Each company has individualized requirements as to the kind of sales personnel best fitted to serve its needs. Therefore in determining the kind of sales people and their size we must understand what is expected of them: the job objectives, the duties and responsibilities and the performance measures.

Sales strategies and policies determining the size of the sales force:

It is difficult, perhaps impossible to determine the exact number of sales persons that a particular company should have. Three basic approaches are used in approximating this number. The workload method The sales potential method The incremental method

1.

The Work Load Method:

All sales personnel should shoulder equal work loads. The management first estimates the total work load involved in covering the companys entire market and then divides by the work load that an individual sales person should be able to handle, thus determining the total number of sales person required. Companies applying this method generally assume that the interactions of three factors such as customer size, sales volume potential, and the travel load determine the total workload involved in covering the entire market. The work load approach is very attractive to the practicing sales executives. It is easy to understand and easy to apply. Large firms such as IBM, AT &T, and HLL etc use this approach. Another shortcoming of this approach is that not only should all sales personnel have the same work load but they all should utilize their time with equal efficiency.

2.

The Sales Potential Method:

The sales potential method is based on the assumption that performance of the set of activities contained in the job description represents one sales personnel unit. A particular sales person may represent either more or less than one sales personnel unit. If the individuals performance is excellent, that individual may do the job more than one unit; if the individuals performance is below par, he/she may do less. If management expects all companys sales personnel to perform as specified in the job description, then the number of sales person required equals the number of units of sales personnel required. The formula used in this method is N = S/P + T(S/P) or N = S/P (1+T) Where N = number of sales personnel units. S = forecasted sales volume P = estimated sales productivity of one sales personnel unit T = allowance for rate of sales force turnover.

2.

The Sales Potential Method:

For example, a firm with forecasted sales of $1 million estimated sales productivity per sales personnel unit of $ 100,000 and an estimated annual rate of sales force turnover of 10 percent. So N = $10, 00,000/ $1, 00.000 (1.10) Or N = 11 sales personnel units. This is a simplified model for determining the size of sales force. The crucial estimate of the sales productivity of one unit of sales strength relies heavily on the accuracy and completeness of the sales job description, it depends also on the managements appraisal of what reasonably maybe expected of those who fill the position. In addition both the estimates for the unit sales productivity and the sales force turnover rate require management to have some means of evaluating the efficiency of individual sales person and of determining the probabilities of their retention rate.

3.

Incremental Method:

Conceptually the incremental method is the best approach to determining the sales force size. It is based on one proposition that the net profits will increase when additional sales personnel are added if the incremental sales revenues exceed the incremental costs incurred. Thus to apply this method, one needs two important items of information. Incremental cost and incremental revenues. A sales response function is a quantitative expression that describes the relationship between the personal- selling effort and the resulting sales volume

Sales territories, routing and scheduling:

A sales territory is composed of a group of customers or a geographic area assigned to a salesperson.

Reason for establishing Sales territories: Sales territories are set up and subsequently revised as the market conditions dictate to facilitate the planning and control of sales operations. More specifically there are five reasons for having sales territories. To provide proper market coverage To control selling expenses To assist in evaluating sales personnel To contribute to the sales force morale To aid in the co-ordination of personal selling and advertising efforts.

Sales territories, routing and scheduling:

To Provide proper market coverage: Some times a company looses business to competitors because it does not have proper market coverage. To overcome this problem, generally management must establish sales territories, if the company does not have them or revise those that it has. If the sales territories are intelligently set and the assignments of the sales personnel are carefully made it is possible to obtain proper market coverage. Good territorial design allows sales personnel to spend sufficient time with customers and prospects and minimize the travel time. This permits them to become thoroughly conversant with customers problems and requirements.

Sales territories, routing and scheduling:

To control selling expenses: Effective territorial design combined with careful deployment of sales person results in low selling expenses and high sales volumes. Sales person spend fewer nights away from home which reduces or eliminates many charges for lodging and fooding, at the same time cutting travel miles reduces transportation expenses. These savings, plus the higher sales volumes from increased productive selling time reduce the ratio of selling expenses to sales. Well designed sales territories and appropriate assignments of sales personnel increase the total time available for contact with customers and prospects and helps improving sales volume

Sales territories, routing and scheduling:

To assist in evaluating sales personnel: Through geographically dividing the sales territories, management can easily assess the strength and weakness of different areas and appropriate adjustments can be made in selling strategies. This territory analysis will help the management to fix targets/quota by evaluating the sales and cost responsibility against the performance of individual sales person.

Sales territories, routing and scheduling:

Contribution towards sales force morale: Good territorial design helps maintaining sales force morale. Well designed territories help the sales force to cover areas with reasonable workloads and their effort yields results. Effective territorial design combined with intelligent sales person assignment makes each sales person productive; develop their self confidence and job satisfaction.

Sales territories, routing and scheduling:

Factors to consider while designing sales territories: Sales force objectives may be based on factors such as - contribution to profits, - return on assets, - sales/cost ratios, - market share, or customer satisfaction

Sales territories, routing and scheduling:

Scheduling: refers to establishing a fixed time when the
salesperson will be at a customers place of business. In theory, strict formal route designs enable the salesperson to: Improve territorial coverage. Minimize wasted time. Establish communication between management and the sales force in terms of the location and activities of individual salespeople.

The customer contact plan involves scheduling sales calls and routing a salespersons movement around the territory.

Sales territories, routing and scheduling:

Three Routing Patterns: 1.

Straight-Line Pattern Base c

First Call c c
c c c c Base c

c Work Back

Cloverleaf Pattern

2.
c c

c c

c c c

c c

Each Leaf Out and Back Same Day

Sales territories, routing and scheduling:

3.
Major-City Pattern

2 1 5

1 - Downtown

Controlling the selling effort : Sales budget and budgeting procedures:

Budgeting can be defined as the process of planning and anticipating costs and expenditure of various financial resources on projects. It is the process of making specific financial plans for a short period of time. It helps in predicting and controlling the money spent within the organization and also involves day to day monitoring of current budgets. The first budget prepared. Each of the other budgets depends on the sales budget. It is derived from the sales forecast. It represents managements best estimate of sales revenue for the budget period.

Controlling the selling effort : Sales budget and budgeting procedures:

Sales Budget: It is the estimated amount of anticipated sales allocated by product, territory, or person; prepared weekly,

monthly, or annually. Sales Budget is the Operating plan for a period expressed in terms of sales volume and selling prices for each class of product or service. Preparation of a sales budget is the starting point in budgeting since sales volume influences nearly all other items. The sales force budget is the amount of money available or assigned for a definite period, usually one year. Sales Budget: The budget is made to forecast sales in terms of units sold and value of goods sold. This budget acts as a base for making production budget.

Controlling the selling effort : Sales budget and budgeting procedures:

What is Benefit of sales budget?
Sales budget is the most important budget while making the overall budget for the organization for a fiscal year. It is important in this sense that how would anybody make fiscal budget for organization if he don't know about how much to sale or what are the organization's sale would be. If you know the sales volume of units of product you want to sale in a fiscal year then you will make production budget according to that sales requirement in mind you will have production information in mind you will purchase raw material, hire labour according to requirements. So if you don't know about how much you want to sale then how would you budget other things and how would you compare your performance at the end of fiscal year.

Controlling the selling effort : Sales budget and budgeting procedures: Purposes of Sales Budget:

The sales budget is required for

Planning Coordination Control-

-of the sales activities.

Controlling the selling effort : Sales budget and budgeting procedures:

Budget Procedure:

Sales Quotas. Sales Volume and cost analysis

Quota setting and administration: A quota refers to an expected performance objective. Quotas are tactical in nature and thus derived from the sales forces strategic objectives.
WHY ARE QUOTAS IMPORTANT?

Quotas provide performance targets. Quotas provide standards. Quotas provide control. Quotas provide change of direction. Quotas are motivational.

Because: -

Sales Quotas. Sales Volume and cost analysis

TYPES OF QUOTAS Sales volume quotas. Breakdown total sales volume. Profit quotas. Expense quotas. Activity quotas. Quota combinations. Sales volume quotas includes dollar or product unit objectives for a specific period of time. Product lines. Individual established and new products. Geographic areas based on how the sales organization is designed, which would include: Sales division. Sales regions. Sales districts. Individual sales territories.

Sales Quotas. Sales Volume and cost analysis

The two types of profit quotas: Gross margin quota determined by subtracting cost of goods sold from sales volume. Net profit quota determined by subtracting cost of goods sold and salespeoples direct selling expense from sales volume. Expense quotas are aimed at controlling costs of sales units. Often expenses are related to sales volume or to the compensation plan. Activity quotas set objectives for job-related duties useful toward reaching salespeoples performance targets. Customer satisfaction refers to feelings about any differences between what is expected and actual experiences with the purchase.

Sales Quotas. Sales Volume and cost analysis

METHODS FOR SETTING SALES QUOTAS Quotas based on forecasts and potentials. Quotas based on forecasts only. Quotas based on past experience. Quotas based on executive judgments. Quotas salespeople set. Quotas related to compensation. THE PROCEDURES FOR SETTING OBJECTIVES AND QUOTAS WITH SALESPEOPLE Prepare the way. Schedule conferences with each salesperson. Prepare a written summary of goals agreed upon. Optional group meeting to share objectives.

Sales Quotas. Sales Volume and cost analysis

A GOOD OBJECTIVE AND QUOTA PLAN IS SMART

Specific Measurable Attainable Realistic Time specific