Evaluating the Effectiveness of the Organization Module Nine

Sales Organization Effectiveness Framework Sales Analysis Cost Analysis Profitability Analysis Productivity Analysis Sales Organization Effectiveness

Sales Analysis Example Sales District 1 District 2 District 3 District 4 District 5 Sales Quota $11,250,000 Sales Growth (Sales-LY Sales)/LY Sales 3%9%6%3%6% Market Share Sales/Industry Sales 26%29%29%18%27% Effectiveness Index (Sales / Sales Quota) $11,000,000 $11,000,000 $12,000,000 $10,000,000 $7,000,000 $12,150,000 $13,000,000 $11,500,000 $12,000,000 Sales Last Year $10,700,000$10,350,000 $6,800,000 $12,250,000$11,050,000 Industry Sales $42,000,000 $45,000,000$40,000,000$45,000,000$42,000,000

What is Cost Analysis The emphasis is on assessing the costs incurred by the sales organization to generate the achieved levels of sales.The emphasis is on assessing the costs incurred by the sales organization to generate the achieved levels of sales. The general approach is to compare the costs incurred with planned costs as defined by selling budgets.The general approach is to compare the costs incurred with planned costs as defined by selling budgets.

Selling Expense Categories Compensation expenses Salaries Salaries Commissions Commissions Bonuses Bonuses Total Total Travel expenses Lodging Lodging Food Food Transportation Transportation Miscellaneous Miscellaneous Total Total Administrative expenses Recruiting Recruiting Training Training Meetings Meetings Sales offices Sales offices Total Total Classification Actual 2002 Original Budget 2003 April Revision July Revision October Revision $14750$15000$15500$15400$15400

Cost Analysis Examples Region 1 Region 2 Region 3 Region 4 $3,660,000 $3,500,000 $3,150,000 $4,200,000 $3,600,000 $3,700,000 $3,400,000 $3,900,000 $60,000 ($200,000) ($250,000) $350,000 ActualBudgetVariance $985,000 $2,110,000 $830,000 $2,3400,000 $1,030,000 $2,040,000 $1,060,000 $2,160,000 ($45,000) $70,000 ($230,000) $180,000 ActualBudgetVariance Compensation CostsTraining Costs Region 1 Region 2 Region 3 Region 4 Actual % SalesBudgeted % Sales Actual % SalesBudgeted % Sales Note: ( ) indicates you spent less than budget.

Profitability Analysis: Income Statement Analysis Full cost approach attempts to allocate shared costs to individual units based on some type of cost allocation procedureFull cost approach attempts to allocate shared costs to individual units based on some type of cost allocation procedure Contribution approach only includes direct costs in the profitability analysisContribution approach only includes direct costs in the profitability analysis

Full Cost Versus Contribution Approaches Full Cost Approach: Sales - Cost of goods sold Gross Margin - Direct selling expense - Allocated expenses Net Profit Contribution Approach: Sales - Cost of goods sold Gross Margin - Direct selling expense Contribution to Profit

Profitability Analysis Example Sales Cost of Goods Sold Profit Contribution Net Profit Gross Margin District Selling Expenses Allocated Portion of Shared Zone Costs** Regional Direct Selling Expenses Region $ 24,000,000 $ 8,000,000 $ 45,000,000 $255,000,000 $300,000,000 $ 11,000,000 $ 16,000,000 $ 10,000,000 Full Cost Approach Full Cost Approach $180,000,000 District 1 District 2 District 3 $ 6,500,000 $ 8,000,000 $19,500,000 $ 11,500,000 $11,500,000$22,000,000 $28,000,000 $50,000,000 $58,500,000 $70,000,000 $168,500,000 $ 2,500,000 $ 3,500,000 $ 5,000, Contribution Approach * Regional Direct Selling Expenses are expenses from the Regional Direct Sales Effort. **Allocated shared zone costs are fixed and variable costs due to having an office and managing and administering the district salespeople. `` Note: District Costs Total To Regional Costs

Profitability Analysis: Activity-Based Costing (ABC) Allocates costs to individual units on the basis of how the units actually expend or cause these costs.Allocates costs to individual units on the basis of how the units actually expend or cause these costs. Places greater emphasis on more accurately defining unit profitability by tracing activities and their associated costs directly to a specific unit.Places greater emphasis on more accurately defining unit profitability by tracing activities and their associated costs directly to a specific unit.

ROAM = Profit contribution as percentage of sales X Asset turnover rate = (Profit contribution / Sales) X (Sales / Assets managed) Profitability Analysis: Return on Assets Managed Analysis (ROAM) Calculations provide an assessment of profitability and useful diagnostic information.Calculations provide an assessment of profitability and useful diagnostic information. ROAM is determined by both profit contribution percentage and asset turnover.ROAM is determined by both profit contribution percentage and asset turnover.

Return on Assets Managed (ROAM) District 1 8,000,000 12,000,000 $24,000,000 7,200,000 $24,000,000 District 2District 3District 4 4,000,000 16,000,000 12,000,000 10,000,000 14,000,000 $24,000,000 14,000,000 $24,000,000 12,000,000 8,800,000 5,200,000 9,600,000 Profit Contribution 4,800,000 2,400,000 4,800,000 1,200,000 8,000,000 4,000,000 16,000,000 8,000,000 32,000,000 4,000,000 8,000,000 20% 10% 20% Sales Cost of Goods Sold Accounts Receivable Gross Margin District Selling Expenses Inventory Total Assets Managed Profit Contribution Percentage Asset Turnover ROAM 30% 15% 5% % ROAM = (Profit contribution / Sales) X (Sales / Assets managed)

Productivity Analysis Expressed in terms of ratios of inputs to outputExpressed in terms of ratios of inputs to output Productivity improvements are obtained in one of two basic ways:Productivity improvements are obtained in one of two basic ways: 1.Increasing output with the same level of input 2.Maintaining the same level of output but using less input

Productivity Analysis Example Sales Selling Expenses Sales/Salesperson Sales Calls Proposals District 1 $ 1,000,000 9,000 2,000,000 $20,000, $24,000,000 District 2District 3District 4 $ 800,000 $1,000,000 7,500 8,500 10,000 3,000,000 $24,000,000 3,000,000 $20,000,000 2,400, Number of Salespeople Expenses/Salesperson $ 100,000 $ 80,000 $ 150,000 Calls/Salesperson $ 800,000 $ 100, Proposals/Salesperson