Programming Models in Sales force

 Sonia Marciano makes a very forceful comment on selling a product or service. This would apply even to commodities if you can elevate the spirit in some way; how about guaranteeing the delivery time, giving access to technical support, making it easier to return the products……

“We each sell a little piece of happiness. You are elevating someone’s spirit in some way, and to do that you have to understand the source of their angst and then you have to frame your product as a solution.” 

― Sonia Marciano

Today’s clients are knowledgeable and well informed.  Thus, Sales Representatives should come prepared, armed not only with a full knowledge of their products but a deeper understanding of his client’s wants & needs as well.  An instinctive sales person will always be at the right place at the right time to provide that need and close the sale.  Whoever is able to provide the solution stands to gain the client’s gratitude and trust because he just gave the client a little piece of happiness.

 The Sales team has to be armed with timely and accurate information so they can efficiently invest their time on the right market, hitting the nail right on the head.  The information fed to Sales will have an effect on the rest of the company.  Accurate high demand forecasts can push more sales.  Accuracy and timeliness have to go hand in hand because even if all the information gathered are correct but given late, or vice-versa, another group which is able to fully comply with the prerequisites of the demanding market wins the race. This is where technology comes into play. Sales Managers who are tech savvy will not forget the defunct tool called Oracle Sales Analyzer – A tool built on multidimensional analysis of the data that helped sales forces with data analysis giving transparency into the sales strategies.

 Are there any sales force decision models that can guarantee the highest productivity possible that will bring the company to its ultimate objective? We will evaluate some schools of thought vs the reality in the Organizations. Some of the points articulated below are from my experience. In my view the decision makers should be closer to the model users; first reason is the lower and upper bounds of the programming model is in the hands of the decision maker. Secondly, being closer to the process will help decision makers to alter the constraints to incorporate sales workforce loads.

 Effort Drives Sales

 A sales manager, after thorough analysis of a sales model and given a certain sales target may be expected to request for an increased sales force of about X%, while projecting a Y% increase in revenues. This follows the principle that marketing investment drives sales and most executives will support this premise. However, another school of thought runs counter to the premise that a large sales force can drive sales up.  Instead they proffer that improved productivity of the existing sales force will ultimately redound to lower average cost per sales call and will make it worthwhile even for calls made to prospects and customers that are not high in the list of potential clientele.

 Some managers have effectively cut sales force cost to gain maximized profit.  They stand by this principle as they believe that the additional budget that will be allotted for manpower increase will be a total waste, more so if management processes are not up to par.  Also, while the cost for the increased size is already a certainty, the positive effect, if any, will still be ascertained in the future.  Followers of this principle believe that what will increase sales is improved productivity.  On the other hand, if the increased sales force is well controlled, it can result to an incremental sales increase but may not necessarily have the same effect on the profits.  What is ironic is that in the end, once productivity increases the sales force might still have to be augmented to have enough people to attend to new customers.

 Sales Force and Profitability

The competent management of a sales force is one of the most critical elements in the productivity of many firms.    Three aspects play major roles: the size of the sales force, its distribution and its productivity.  With these factors, the following questions come to the fore:  will productivity performance be improved by 1) increasing the sales force, 2) effective sales territory alignment 3) and/or improvement of calling practice on costumers and product line items through optimization.

–       Increasing the Sales Force

Sales executives use different parameters when making a decision on increasing or decreasing the sales force.  Sales managers can request for an increase when asked to post higher sales.  Product launch generally requires a considerable amount of additional investment which includes beefing up of the sales force.  New product launch or venturing into new territories will use up more than X% per cent (sometimes up to 50%) of the existing sales force’s time.  If management opts to retain the present number and does not allocate enough sales effort to the existing products, individual sales target for each product could suffer even for the popular products. While it is true that sales may not be affected for a short period because of carryover resulting from efforts of the past year, the impact of having an undersized sales force will manifest in the long run.  So for a launch to be successful without jeopardizing existing products, increasing the sales force is the only choice.

 Some sales managers who do not want to take on the financial risk that goes with increasing manpower defer increasing the sales force.   As a rule, they keep their manpower static when incremental profits on sales force investment goes below 50%. However, we cannot equate this with maximizing profits.  Though it may seem contrary, when a sales force is undersized, increasing it will correspondingly increase the cost-to-sales ratio as well as the profitability.  The cost-to-sales ratio can always be reduced by downsizing but its effect on profitability will kick in only if the sales force really so big.

–       Effective Sales Territory Alignment

A well-designed sales territory alignment is critical in productivity for a number of reasons.  It will optimize customer coverage, boost sales, have a good tool for an equitable performance and rewards system and provide for an economical travel cost. A sales person assigned to a big territory and having too many prospective clients will not be able to cover everything.  He might just opt to call on minor league accounts just to make the goal.  On the other hand, a sales person assigned to a territory with very little work will spend too much time on low potential customers.  The result, thousands of potential clients and millions of dollars left untapped.

–       Optimization

The focused approach wins over the scattered strategy.  A company instructing its 100 strong sales force to promote and sell all of its 37 items could be overextending their resources.  Just calculate how much time could be effectively used to promote each product.  Algorithm result (non linear mixed integer programming model) puts the best number of product to promote to just eight.  The factors that are considered in this model are : Distance Constraint, Sales officer -product Assignment, Sales officer Location and Distributor or customer Location. Each of these factors can have an impact on the sales but its better to focus on the highest contributor. Computational complexity will increase as the number of factors increase. Strategies for maximizing profit focus the company’s efforts and resources on lesser but with higher potential clients and products.  The idea of optimization teaches that resources are optimally distributed when the incremental profits are the same for all the marketing units such as products, marketing activities, markets that need the resource. 

Compensation and Rewards

Decisions makers have learned to accept the fact that no compensation package will make everyone completely satisfied.  Every salesperson has an idea of what the ideal compensation plan should be.  Others opt for higher salary while others prefer higher incentives.  Some feel that sales caps are highly demotivating and some feel that team incentives are unfair as it also rewards freeloaders.  Regardless of all these sentiments, one feeling is common among employees, that they are under compensated and that they deserve to get more.

Hidden Compensation

Generally, companies provide purely salary for its compensation package.  For most employees, looking at their paycheck without so much as a minuscule change for a year could prove to be both disappointing and demotivating. It will be disastrous for any company to have their sales force in this zone for an extended period of time.   To counter this, some companies created a low salary with a commission structure from the first dollar to energize the sales force.  For this to work, care should be taken that the commission structure be at par or even higher than the present package. Other forms of hidden compensation can come in the form of tangible (such as travel, profit sharing, stock options) or intangible or fringe benefits. 

In conclusion, the use of mathematical model is one aspect of sales-force management. However, as discussed above, there are finer aspects that need to be considered in managing the sales force so that the profit maximization is achievable.

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