SALES MANAGEMENT



Sales Management 590
Photo by: Stephen VanHorn

Sales management refers to the administration of the personal selling component of a company's marketing program. It includes the planning, implementation, and control of sales programs, as well as recruiting, training, motivating, and evaluating members of the sales force. In a small business, these various functions may be performed by the owner or by a specialist called a sales manager. The fundamental role of the sales manager is to develop and administer a selling program that effectively contributes to the organization's goals. The sales manager for a small business would likely decide how many salespeople to employ, how best to select and train them, what sort of compensation and incentives to use to motivate them, what type of presentation they should make, and how the sales function should be structured for maximum contact with customers.

Sales management is just one facet of a company's overall marketing mix, which encompasses strategies related to the "four Ps": products, pricing, promotion, and place (distribution). Objectives related to promotion are achieved through three supporting functions: 1) advertising, which includes direct mail, radio, television, and print advertisements, among other media; 2) sales promotion, which includes tools such as coupons, rebates, contests, and samples; and (3) personal selling, which is the domain of the sales manager.

Although the role of sales managers is multidisciplinary in scope, their primary responsibilities are: 1) setting goals for a sales force; 2) planning, budgeting, and organizing a program to achieve those goals; 3) implementing the program; and 4) controlling and evaluating the results. Even when a sales force is already in place, the sales manager will likely view these responsibilities as an ongoing process necessary to adapt to both internal and external changes.

GOAL SETTING

The overall goals of the sales force manager are essentially mandated by the marketing mix. The company coordinates objectives between the major components of the mix within the context of internal constraints, such as available capital and production capacity. The sales force manager, however, may play an important role in developing the overall marketing mix strategies. For example, the sales manager may be in the best position to determine the specific needs of customers and to discern the potential of new and existing markets.

One of the most critical duties of the sales manager is to estimate the market potential and sales potential of the company's offerings, and then to make realistic forecasts of sales. Market potential is the total expected sales of a given product or service for the entire industry in a specific market over a stated period of time. Sales potential refers to the share of a market potential that an individual company can reasonably expect to achieve. A sales forecast is an estimate of sales (in dollars or product units) that an individual firm expects to make during a specified time period, in a stated market, and under a proposed marketing plan.

Estimations of sales and market potential are often used to set major organizational objectives related to production, marketing, distribution, and other corporate functions, as well as to assist the sales manager in planning and implementing the overall sales strategy. Numerous sales forecasting tools and techniques, many of which are quite advanced, are available to help the sales manager determine potential and make forecasts. Major external factors influencing sales and market potential include: industry conditions, such as stage of maturity; market conditions and expectations; general business and economic conditions; and regulatory environment.

PLANNING, BUDGETING, AND ORGANIZING

After determining goals, the sales manager of a small business must develop a strategy to attain them. A very basic decision is whether to hire a sales force or contract with independent selling agents or manufacturers' representatives outside of the organization. The latter strategy eliminates costs associated with hiring, training, and supervising workers, and it takes advantage of sales channels that have already been established by the independent representatives. On the other hand, maintaining an internal sales force allows the manager to exert more control over the salespeople and to ensure that they are trained properly. Furthermore, establishing an internal sale force provides the opportunity to hire inexperienced representatives at a very low cost.

The type of sales force developed depends on the financial priorities and constraints of the organization. If a manager decides to hire salespeople, the next step is to determine the optimal size of the force. This determination typically entails a compromise between the number of people needed to adequately service all potential customers and the resources available to the company. One technique sometimes used to determine sales force size is the "work load" strategy, whereby the sum of existing and potential customers is multiplied by the ideal number of calls per customer. That sum is then multiplied by the preferred length of a sales call (in hours). Next, that figure is divided by the selling time available from one salesperson. The final sum is theoretically the ideal sales force size. A second technique is the "incremental" strategy, which recognizes that the incremental increase in sales that results from each additional hire continually decreases. In other words, salespeople are gradually added until the cost of a new hire exceeds the benefit.

A sales manager who is in the process of hiring an internal sales force also has to decide the degree of experience to seek and determine how to balance quality and quantity. Basically, the manager can either "make" or "buy" his force. "Green" hires, or those without previous experience whom the company must "make" into salespeople, cost less over the long term and do not bring any bad sales habits with them that were learned in other companies. On the other hand, the initial cost associated with experienced salespeople is usually lower, and experienced employees can start producing results much more quickly. But as Irving Burstiner noted in The Small Business Handbook, few star salespeople are ever unemployed, and a small business probably lacks the resources to find and hire those who are. Furthermore, if the manager elects to hire only the most qualified people, budgetary constraints may force him to leave some territories only partially covered, resulting in customer dissatisfaction and lost sales. Therefore, it usually makes more sense for small businesses to hire green troops and train them well.

After determining the composition of the sales force, the sales manager creates a budget, or a record of planned expenses that is (usually) prepared annually. The budget helps the manager decide how much money will be spent on personal selling and how that money will be allocated within the sales force. Major budgetary items include: sales force salaries, commissions, and bonuses; travel expenses; sales materials; training; clerical services; and office rent and utilities. Many budgets are prepared by simply reviewing the previous year's budget and then making adjustments. A more advanced technique, however, is the percentage of sales method, which allocates funds based on a percentage of expected revenues. Typical percentages range from about two percent for heavy industries to as much as eight percent or more for consumer goods and computers.

After a sales force strategy has been devised and a budget has been adopted, the sales manager should ideally have the opportunity to organize, or structure, the sales force. The structure of the sales force allows each salesperson to specialize in a certain sales task or type of customer or market, so that they will be more likely to establish productive, long-term relationships with their customers. Small businesses may choose to structure their sales forces by product line, customer type, geography, or a combination of these factors.

IMPLEMENTING

After setting goals and establishing a plan for sales activities, the next step for the sales manager is to implement the strategy. Implementation requires the sales manager to make decisions related to staffing, designing territories, and allocating sales efforts. Staffing—the most significant of these three responsibilities—encompasses recruiting, training, compensating, and motivating salespeople.

RECRUITING The first step in recruiting salespeople involves analyzing the positions to be filled. This is often accomplished by sending an observer into the field, who records the amount of time a salesperson must spend talking to customers, traveling, attending meetings, and doing paperwork. The observer then reports the findings to the sales manager, who uses the information to draft a detailed job description. The observer might also report on the characteristics and needs of the buyers, since it can be important for salespeople to share these characteristics.

The manager may seek candidates through advertising, college recruiting, company sources, and employment agencies. Candidates are typically evaluated through personality tests, interviews, written applications, and background checks. Research has shown that the two most important personality traits that salespeople can possess are empathy, which helps them relate to customers, and drive, which motivates them to satisfy personal needs for accomplishment. Other important traits include maturity, appearance, communication skills, and technical knowledge related to the product or industry. Negative traits include fear of rejection, distaste for travel, self-consciousness, and interest in artistic or creative originality.

TRAINING After recruiting a suitable sales force, the manager must determine how much and what type of training to provide. Most sales training emphasizes product, company, and industry knowledge. Only about 25 percent of the average company training program, in fact, addresses personal selling techniques. Because of the high cost, many small businesses try to limit the amount of training they provide. The average cost of training a person to sell industrial products, for example, commonly exceeds $30,000. Sales managers can achieve many benefits with competent training programs, however. For instance, research indicates that training reduces employee turnover, thereby lowering the effective cost of hiring new workers. Good training can also improve customer relations, increase employee morale, and boost sales. Common training methods include lectures, case studies, role playing, demonstrations, on-the-job training, and self-study courses. Ideally, training should be an ongoing process that continually reinforces the company's goals.

COMPENSATION After the sales force is in place, the manager must devise a means of compensating individuals. The ideal system of compensation reaches a balance between the needs of the person (income, recognition, prestige, etc.) and the goals of the company (controlling costs, boosting market share, increasing cash flow, etc.), so that a salesperson may achieve both through the same means. Most approaches to sales force compensation utilize a combination of salary and commission or salary and bonus. Salary gives a sales manager added control over the salesperson's activities, while commission provides the salesperson with greater motivation to sell.

Although financial rewards are the primary means of motivating workers, most sales organizations also employ other motivational techniques. Good sales managers recognize that salespeople have needs other than the basic ones satisfied by money. For example, they want to feel like they are part of a winning team, that their jobs are secure, and that their efforts and contributions to the organization are recognized. Methods of meeting those needs include contests, vacations, and other performance-based prizes, in addition to self-improvement benefits such as tuition for graduate school. Another tool managers commonly use to stimulate their salespeople is quotas. Quotas, which can be set for factors such as the number of calls made per day, expenses consumed per month, or the number of new customers added annually, give salespeople a standard against which they can measure success.

DESIGNING TERRITORIES AND ALLOCATING SALES EFFORTS In addition to recruiting, training, and motivating a sales force to achieve the company's goals, sales managers at most small businesses must decide how to designate sales territories and allocate the efforts of the sales team. Territories are geographic areas assigned to individual salespeople. The advantages of establishing territories are that they improve coverage of the market, reduce wasteful overlap of sales efforts, and allow each salesperson to define personal responsibility and judge individual success. However, many types of businesses, such as real estate and insurance companies, do not use territories.

Allocating people to different territories is an important sales management task. Typically, the top few territories produce a disproportionately high sales volume. This occurs because managers usually create smaller areas for trainees, medium-sized territories for more experienced team members, and larger areas for senior sellers. A drawback of that strategy, however, is that it becomes difficult to compare performance across territories. An alternate approach is to divide regions by existing and potential customer base. A number of computer programs exist to help sales managers effectively create territories according to their goals. Good scheduling and routing of sales calls can reduce waiting and travel time. Other common methods of reducing the costs associated with sales calls include contacting numerous customers at once during trade shows, and using telemarketing to qualify prospects before sending a salesperson to make a personal call.

CONTROLLING AND EVALUATING

After the sales plan has been implemented, the sales manager's responsibility becomes controlling and evaluating the program. During this stage, the sales manager compares the original goals and objectives with the actual accomplishments of the sales force. The performance of each individual is compared with goals or quotas, looking at elements such as expenses, sales volume, customer satisfaction, and cash flow. According to Burstiner, each salesperson should be evaluated using both subjective (i.e., product knowledge, familiarity with competition, work habits) and objective (i.e., number of orders compared to number of calls, number of new accounts landed) criteria.

An important consideration for the sales manager is profitability. Indeed, simple sales figures may not reflect an accurate image of the performance of the sales force. The manager must dig deeper by analyzing expenses, price-cutting initiatives, and long-term contracts with customers that will impact future income. An in-depth analysis of these and related influences will help the manager to determine true performance based on profits. For use in future goal-setting and planning efforts, the manager may also evaluate sales trends by different factors, such as product line, volume, territory, and market. After the manager analyzes and evaluates the achievements of the sales force, that information is used to make corrections to the current strategy and sales program. In other words, the sales manager returns to the initial goal-setting stage.

ENVIRONMENTS AND STRATEGIES

The goals and plans adopted by the sales manager will be greatly influenced by the company's industry orientation, competitive position, and market strategy. The basic industry orientations available to a firm include industrial goods, consumer durables, consumer nondurables, and services. Companies that manufacture industrial goods or sell highly technical services tend to be heavily dependent on personal selling as a marketing tool. Sales managers in those organizations characteristically focus on customer service and education, and employ and train a relatively high-level sales force. In contrast, sales managers that sell consumer durables will likely integrate the efforts of their sales force into related advertising and promotional initiatives. Sales management efforts related to consumer nondurables and consumer services will generally emphasize volume sales, a comparatively low-caliber sales force, and an emphasis on high-volume customers.

In his classic book Competitive Strategy, Michael Porter lists three common market strategies adopted by firms—low-cost supplier, differentiation, and niche. Companies that adopt a low-cost supplier strategy are usually characterized by a vigorous pursuit of efficiency and cost controls. Sales management efforts in this type of organization should generally stress minimizing expenses—by having salespeople stay at budget hotels, for example—and appealing to customers on the basis of price. Salespeople should be given an incentive to chase large, high-volume customers, and the sales force infrastructure should be designed to efficiently accommodate large order-taking activities.

Companies that adhere to a differentiation strategy achieve market success by offering a unique product or service. They often rely on brand loyalty or patent protection to insulate them from competitors, and thus are able to achieve higher-than-average profit margins. In this environment, selling techniques should stress benefits, rather than price. Firms that pursue a niche market strategy succeed by targeting a very narrow segment of a market and then dominating that segment. The company is able to overcome competitors by aggressively protecting its niche and orienting every action and decision toward the service of its select group. Sales managers in this type of organization would tend to emphasize employee training or to hire industry experts. The overall sales program would be centered around customer service and benefits other than price.

REGULATION

Besides markets and industries, another chief environmental influence on the sales management process is government regulation. Indeed, selling activities at companies are regulated by a multitude of state and federal laws designed to protect consumers, foster competitive markets, and discourage unfair business practices.

Chief among anti-trust provisions affecting sales managers is the Robinson-Patman Act, which prohibits companies from engaging in price or service discrimination. In other words, a firm cannot offer special incentives to large customers based solely on volume, because such practices tend to hurt smaller customers. Companies can give discounts to buyers, but only if those incentives are based on real savings gleaned from manufacturing and distribution processes.

Similarly, the Sherman Act makes it illegal for a seller to force a buyer to purchase one product (or service) in order to get the opportunity to purchase another product—a practice referred to as a "tying agreement." A long-distance telephone company, for instance, cannot require its customers to purchase its telephone equipment as a prerequisite to buying its long-distance service. The Sherman Act also regulates reciprocal dealing arrangements, whereby companies agree to buy products from each other. Reciprocal dealing is considered anticompetitive because large buyers and sellers tend to have an unfair advantage over their smaller competitors.

Several consumer protection regulations also impact sales managers. The Fair Packaging and Labeling Act of 1966, for example, restricts deceptive labeling, and the Truth in Lending Act requires sellers to fully disclose all finance charges incorporated into consumer credit agreements. Cooling-off laws, which commonly exist at the state level, allow buyers to cancel contracts made with door-to-door sellers within a certain time frame. Additionally, the Federal Trade Commission (FTC) requires door-to-door sellers who work for companies engaged in interstate trade to clearly announce their purpose when calling on prospects.

FURTHER READING:

Brown, Ronald. From Selling to Managing: Guidelines for the First-Time Sales Manager. AMACOM, 1990.

Burstiner, Irving. The Small Business Handbook. Prentice-Hall, 1989.

Churchill, Gilbert A., Jr., Neil M. Ford, and Orville C. Walker, Jr. Sales Force Management: Planning, Implementation, and Control. 3rd ed. Irwin, 1990.

Petrone, Joe. Building the High Performance Sales Force. Productivity Management Press, 1994.

Porter, Michael E. Competitive Strategy. Free Press, 1980.

Stafford, John, and Colin Grant. Effective Sales Management. Nichols, 1986.

Stanton, William J., and Richard H. Buskirk. Management of the Sales Force. 7th ed. Irwin, 1987.

Wilner, Jack D. Seven Secrets to Successful Sales Management. CRC Press, 1997.



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