Creating Sales Force Structure, Territories, and Goals
Creating the proper sales force structure, territoires, and goals leads to customer, sales force and firm satisfaction.
Explain the components of and rationale behind sales force, territory and sales goal creation
- The sales force structure will guide the sales force and impact the company’s bottom line.
- Sales territories are the customer groups or geographic districts for which individual sales people or sales teams hold responsibility.
- The purpose of a sales force coverage (or sales territory) metric is to create balanced sales territories.
- When setting sale quotas, sales managers should compare results to past performance, not forecasts.
- buying power: purchasing power
- quota: A prescribed number or percentage that may serve as, for example, a maximum, a minimum, or a goal.
Sales operations are a set of business activities and processes that help a sales organization run effectively, efficiently, and in support of business strategies and objectives. Sales operations may also be referred to as sales operations, sales support, or business operations. The set of sales operations activities vary from company to company but often include these nine categories:
- Sales strategy: design, planning, execution;
- Measurement of results: reporting, analytics and sales data;
- Compensation, sales quota, policies;
- Technology and tools, including CRM;
- Training and sales communication;
- Sales territory design and optimization;
- Lead generation/sales programs; and
- Customer segmentation.
Creating The Sales Force Structure
How will the sales process be structured? The answer to that question, an important one, depends on the company’s strategy. The resulting structure will guide the sales force and their actions and will, therefore, impact the company’s bottom line.
When developing the sales force structure, sales managers must:
- Figure out the right mix of generalists, product, market, or activity specialist with the objective of balancing sales force productivity. What is the right mix? That depends on the company and it’s offerings.
- Design a reporting structure that makes it easy to both coordinate and control the sales process and the activities of the salespeople.
- Help the sales people achieve their goals (and reduce stress) by providing training, coaching, incentives, information support, and performance management.
Sales territories are the customer groups or geographic districts for which individual sales people or sales teams hold responsibility. Territories can be defined on the basis of geography, sales potential, history, or a combination of factors. Companies strive to balance their territories, because this can reduce costs and increase sales.
The purpose of a sales force coverage (or sales territory) metric is to create balanced sales territories.
There are a number of ways to analyze territories. The most common approach is to assess them based on their potential or size.
If there is a large difference between territories, or they change over time, sales people may have either too much or not enough work. Too much work can cause the sales person to neglect some customers, while too little could lead to over-servicing the customers.
Both actions can cost the firm revenue.
In addition, if the sales person thinks that the territory distribution is unfair, they may leave and wind up working for a competitor.
So, balanced territory allocation is important to keep customers, sales people, and the firm, as a whole, satisfied.
“Sales potential forecast” can be used to determine sales targets and to help identify territories worthy of an allocation of limited resources.
A sales potential forecast is a forecast of the number of prospects and their buying power. It does not assess the likelihood of converting “potential” accounts.
Sales potential can be represented in a number of ways. Of these, the most basic is population (i.e., the number of potential accounts in a territory). In a survey of nearly 200 senior marketing managers, 62% responded that they found the “sales potential forecast” metric very useful.
Before they even begin to design new territories, a sales force manager should determine the workloads of all members of the sales team.
The workload for a territory can be calculated as follows:
Workload (#) = [Current accounts (#) * Average time to service an active account (#)] + [Prospects (#) * Time spent trying to convert a prospect into an active account (#)]
They should also determine the sales potential in a particular territory.
The sales potential in a territory can be determined as follows:
Sales potential ($) = Number of possible accounts (#) x Buying power ($)
A third metric that is just as important as the other two is to compare territories. Managers can look at the respective size of each territory or, more specifically, the travel time (the amount of time needed to reach customers and potential customers).
Creating Sales Quotas
Sales goals are commonly stated in terms of quotas. A sales quota is the minimum sales goal for a set time span. A sales quota may be minimum amount of dollars (monetary value) or product sold (volume). Sales quotas may also be for sales activity, such as number of calls per day. The time span could be set for the day, week, month, or fiscal quarter or year.
Management usually sets the sales quota and the sales territory, but it’s not easy. When setting quotas, successful sales managers tend to:
- Ask for less than they think the sales person can deliver;
- Compare results to past performance, not forecasts; and
- Ensure that the compensation scheme allows the sales force to make money when the company does.
Recruiting and Selecting Salespeople
Salespeople who have the best characteristics, and who fit the company ethos, should be chosen during the recruitment process.
Examine the rationale and process of recruiting and selecting salespeople
- Recruitment can be costly and time consuming. The process must be designed to minimize cost while ensuring a wide pool or suitable candidates are considered.
- Candidates can be chosen internally or externally. Internal recruitment uses less resources and provides for growth within the company. External recruitment involves higher costs, but ensures diversity and fresh thinking.
- A variety of methods can be used to select the ideal candidate, including interviews, various forms, biographical information, and standardized tests.
- recruitment: The process or art of finding candidates for a post in an organization.
A great deal of recent research has underscored the strategic advantage of managing employees as if they are assets rather than commodities. Making investments in a business’s assets makes a great deal of sense, because these investments will bring a return. A growing number of companies, recognizing that their employees are among their most valuable assets, are backing up that recognition with solid investment.
Recruitment of the Sales Force
Recruitment of talented employees is an essential part of any company’s ability to maintain success and ensure the achievement of standards within an organization. Recruiting sales personnel is no different. Recruiting sales personnel consists of actively compiling a diverse pool of potential candidates which can be considered for employment. In different industries, the constant need for talent creates a highly competitive marketplace for individuals, and it is important for any manager to be aware of these factors as they develop recruitment programs and policies.
Methods of Recruitment: Internal and External
There are two principal ways to recruit workers: internally and externally. Most companies will actively use both methods, ensuring opportunities for existing employees to move up in the organization while at the same time fielding new talent. Internal recruitment is often the most cost effective method of recruiting potential employees, as it uses the existing company resources and talent pool to fill needs.
External recruitment focuses resources on looking outside the organization for potential candidates and expanding the available talent pool. The primary goal of external recruitment is to create diversity among potential candidates by attempting to reach a wider range of individuals unavailable through internal recruitment. Although external recruitment methods can be costly to managers in terms of dollars, the addition of a new perspective within the organization can carry many benefits which outweigh the monetary costs.
Selecting Quality Candidates
After obtaining a large, qualified applicant base, managers need to identify those applicants with the highest potential for success. Selective hiring helps prevent the costly turnover of staff and increases the likeliness of high employee morale and productivity.
To evaluate the fit, it is important for managers to create a list of relevant criteria for each position before beginning the recruitment and selection process. Each job description should be associated with a list of critical skills, behaviors, or attitudes that will make or break job performance. When screening potential employees, managers need to select based on cultural fit and attitude as well as technical skills and competencies. There are some companies, such as Southwest Airlines, based out of the United States, who hire primarily based on attitude because they espouse the philosophy that you hire for attitude, train for skill. According to former CEO Herb Kelleher, “We can change skill levels through training. We can’t change attitude. ” Attitude and personality is especially important for sales positions, as they are often a customer’s first and only point of contact with the company.
Managers must strive to identify the best applicants at the lowest cost. Companies have a variety of processes available to screen potential employees, so managers must determine which system will generate the most accurate results. The methods of selection vary both in levels of effectiveness and in cost of application. In addition to biographical information, companies can conduct personal interviews, perform background checks, and request testing. Because of the costs associated with these measures, companies try to narrow down the number of applicants in each round of hiring.
The best interviews follow a structured framework in which each applicant is asked the same questions and is scored with a consistent rating process. Having a common set of information about the applicants upon which to compare after all the interviews have been conducted allows hiring managers to avoid prejudices and all interviewees are ensured a fair chance. Many companies choose to use several rounds of screening with different interviewers to discover additional facets of the applicant’s attitude or skill as well as develop a more well-rounded opinion of the applicant from diverse perspectives.
Ultimately, the company will hire those who have the necessary skills and qualifications, and best fit the company culture and ethos. Salespeople have a specific set of personality attributes: they should be good listeners and have a keen desire to help people. They need to be trustworthy and honest, yet still be able to quickly perceive what the customer truly wants. They also need to be persistent. Employers will look for these attributes, among others, when hiring salespeople.
In general, training provides many diverse benefits both to the company as well as to the salesperson.
- Training employees results in improved performance or error reduction, leading to higher profits. Employees can strengthen their overall skill set and increase their understanding of the organization.
- Different industries and organizations will have different training needs, and will thus need to devise different training systems as a result.
- Different types of training include on the job training, technical training, mentoring systems, and coaching systems among others.
- training: the activity of imparting and acquiring skills.
Training is generally defined as the act of teaching a skill or behavior. However, what does this mean in business terms? Simply put, training in business is the investment of resources in the employees of a company so that they are better equipped to perform the tasks of their job. The type of resources invested may include time to learn, money to create programs and develop training materials, training effectiveness evaluation systems, etc.
Benefits of Training
Training provides greater skill and knowledge to the employees, which translate into any number of improved job performances. The belief is that providing employees with training will result in increased profits—the improved performance or error reduction of the employees results in cost reduction for the company. For sales personnel, training is especially important, as untrained salespeople interacting with customers may have a negative effect on the company’s reputation.
Both the employee and the company benefit from training. By attending training sessions, employees can deepen their existing skill set, increase their overall skill set and increase their understanding of the organization (see ). Additionally (and perhaps unintentionally on the part of the company), the trained employee becomes more marketable in the event that he or she searches for another job—more and better skills will often lead to better or higher paying jobs. Other benefits that both may enjoy are increased job satisfaction, motivation and morale; increased efficiency, resulting in financial gain; increased capacity to adopt new technologies and methods; increased innovation in strategies and products; reduced employee turnover; and enhanced company image, reputation and customer satisfaction (particularly in the case of salespeople).
Need for Training
The need for training varies depending on the type of organization that is being discussed; a manufacturing company has different training needs than an insurance firm. But regardless of the type of company being discussed, appropriate training systems can greatly benefit the company. Sales personnel will need different types of specialized training depending on the industry and the company’s unique circumstances.
How does one decide on a training system? The process begins with a training needs assessment. This assessment ought to be a systematic and objective analysis of the training needs in three main areas—organizational, job, and person. Organizational needs deal mostly with the skills the company is looking for, the labor force, etc. whereas the job needs focus on the skills that the company views as necessary for a specific position. Then there are the person needs, and these are the most variable needs. Often these needs arise after a gap is seen in the expected performance compared to the actual performance of the employee. Training can also be a part of a young employee’s “exploration” stage, where training can be used to focus the employee’s interest and development towards a specific area.
Designing and implementing the training systems requires the company to consider a number of things; the method of training, the material the training will deal with, who will provide the training, how to evaluate the effectiveness of the training, etc. On-the-job training relies on the employee to recognize the skills and knowledge he or she will need as they perform their work, and then develop those skills on his or her own. Technical training focuses on a specific need of specific employees. Mentoring systems pair a younger or less experienced employee with an individual that has experience and success within the company who can offer guidance, aid and insight to the younger/less experienced employees. Coaching systems involve the manager offering developmental assistance to the employee through observation, assessment, providing feedback, questioning, etc.
The training of a salesperson who will be working in a country other than his or her own can be broken into three segments—pre-departure, on-site, and repatriation. The pre-departure training consists of formal language training, training with respect to the local culture (culture sensitivity), education about the country (history, geography, government, etc.), and education about the company’s operation in the foreign country. Such training allows for easier assimilation of the employee into the country and the company’s office there. Once on site, training takes the shape of training at any other branch of the company. When the employee abroad returns, a repatriation program designed to reduce culture shock and to integrate the experience abroad is useful.
Motivating and Compensating Salespeople
Employees are best motivated through effective job design, equitable compensation, and treatment as stakeholders in the company.
Discuss methods to motivate and compensate salespeople
- Participation and influence are important ways to provide motivation to employees. Voice and influence mechanisms allow employees to contribute their expertise to the success of the business.
- Meaningful job design exemplifies the company’s goals and structure, and motivates employees. Without meaningful job design, an organization will never operate to its potential.
- There are many different types of compensation, including bonuses, benefits, and commission. This is especially true for salespeople, whose overall compensation is likely to be directly linked to the quantity and quality of their sales.
- Having internal and external equity in compensation is crucial to employees feeling that they are being adequately valued by the organization. “Matching the market ” maximizes the quality of talent while minimizing labor costs.
- equity: Justice, impartiality or fairness. Internal and external equity relate to a comparative level of pay compared to both internal and external candidates.
Employees as Stakeholders
The concept of employees as stakeholders refers to the interest employees have in the success of the company and the fact that actions taken by the organization directly affect the employees. Employees’ stakes in the company are economic in the fact that their livelihood comes from the firm, psychological in that they derive pride from their work, and political in terms of their rights as employees and citizens. To motivate employees and improve firm performance, companies should strive for employee participation and influence.
Voice and influence mechanisms allow employees to give input and to contribute their expertise to the success of the business. These mechanisms allow firms to get the most benefit from the skills of their human capital. Thus, firms with employee influence mechanisms get higher financial return from their employee assets.
Effective Job Design
Job design, defined as the allocation of specific work tasks to individuals and groups, is critical for any organization. Allocating jobs and tasks means specifying the contents, methods, and relationships of jobs to satisfy technological and organizational requirements as well as the personal needs of jobholders. If successful job design is not implemented, then the company’s general strategy and direction will be strongly diverted. Employees, in turn, will be demotivated. Meaningful jobs must exemplify the company’s goals and culture.
Individuals, including salespeople, need to be compelled and excited to do their work. It is thus essential to design their jobs with the goal of motivating them. Motivation describes the forces within the individual that account for the level, direction, and persistence of effort expended at work. Appropriate resource allocation allows large organizations to foster and develop innovation in their workforce. Reward systems include compensation, bonuses, raises, job security, and benefits. Job design is the base element for producing effective work organizations, so without meaningful job design, an organization will never operate to its potential.
Compensation: Internal Equity
The first consideration for designing a compensation system is that the base pay system needs to be internally equitable. In other words, the pay differentials between jobs need to be appropriate. The amount of base pay assigned to jobs needs to reflect the relative contribution of each job to the company’s business objectives.
Compensation: External Equity
The second consideration in creating a base pay system is external equity. This refers to the relationship between one company’s pay levels and the pay levels of competitors. Setting pay levels higher than the competition, in the hope of attracting the best applicants, is called “leading the market.” The risk is that a company’s costs will generally be higher than the costs of its competitors. Other employers can set their pay levels lower than their competition, hoping to save labor costs. This is called “lagging the market. ” The risk is that the company will be unable to attract the best applicants. Most employers set their pay levels the same as their competition. This strategy is called “matching the market” and maximizes the quality of talent while minimizing labor costs.
Types Of Compensation
Cash is one way to compensate employees, but cash alone is rarely enough payment. Benefits and other forms of non-monetary compensation are becoming more appropriate forms of compensation for employees in today’s workplace. In order to attract, retain, and motivate the best employees, benefits and other sources of non-monetary compensation should be considered. If the company has an understanding of what they can offer to employees, benefits can increase a company’s workforce quality and the general morale of employees.
Companies can offer different types of benefits in order to create a positive culture for their employees. These benefits have the ability to promote social interaction among employees, make life easier for working parents, or improve their quality of life. Depending on the industry and job type, benefits may be more attractive than salary figures. This fact could allow companies to pay lower wages, thus reducing the total amount spent on payroll.
Pay for Performance
It is important to design reward systems carefully, taking into consideration base salary and other incentives. This notion applies especially to salespeople. Most compensation systems include “variable pay.” Depending on work performance, many companies reward their employees without affecting the base salary. To reward employees for achieving a set goal, many companies use bonuses. To this point, companies such as GE, HP, and Sun Microsystems use software that directly evaluates the behavior of employees with respect to customer service. Long-term incentives are also a part of reward systems. Stock options and profit-sharing plans are representative of long-term reward systems.
Measuring Sales Force Performance
Appraisals are the common form of measuring how well an employee performed compared to a set of stated objectives; feedback communicates these evaluations.
Illustrate methods of measuring sales force performance
- Appraisals can be conducted according to a number of different critieria, which will vary according to company, industry, job, seniority, etc. Employees will usually have a unique set of criteria that they are evaluated against.
- Appraisals can be a sensitive and difficult process. Managers and employees alike tend to dread appraisals. By conducting the appraisal in a considered and proactive manner, tensions can be reduced.
- Feedback is often seen as synonymous with criticism, even though in the broadest sense, feedback is simply communication between two parties. As such, feedback needs to be delivered carefully, with recognition of the particular employee’s unique circumstances and personality.
- appraisal: A judgment or assessment of the value of something, especially a formal one. A performance appraisal evaluates how well the salesperson met their prior stated objectives.
Measuring the performance of the sales force within a company is vital to ensuring its success. This can be done through conducting performance appraisals and offering feedback.
(1) Performance Appraisals
Historically, performance appraisals have been used by companies for a variety of different purposes, including salary recommendations, promotion and layoff decisions, and training recommendations. In general, “performance elements tell employees what they have to do and standards tell them how well they have to do it” (United States Department of the Interior, 2004). One key item that is often forgotten during the appraisal process (by managers and employees alike) is that the appraisal is for improvement, not blame.
Numerous methods exist for gauging an employee’s performance, and each provides strengths and weaknesses for given environments. Appraisal methodologies depend greatly on the type of work being done; an assembly worker will require a considerably different appraisal system than a business consultant. Similarly, a salesperson will be appraised very differently than a researcher.
Performing an appraisal can be nerve racking for both parties if the situation is not handled correctly. There are many acts a manager can perform to make the process easier on both parties, and hopefully, mutually beneficial. Many assume that performance appraisals are meant to identify weaknesses to be worked on, and exposing these weaknesses can be painful for employees. Studies show that organizations should be leveraging the strengths of each employee rather than focusing on their weaknesses. Yearly performance reviews are becoming increasingly rare as companies begin to see the benefits of frequent appraisal. Constant fine tuning of performance can be much more effective than annual overhauls.
- Graphic rating scales: This method involves assigning some form of rating system to pertinent traits. Ratings can be numerical ranges (1-5), descriptive categories (below average, average, above average), or scales between desirable and undesirable traits (poor ↔ excellent). This method can be simple to setup and easy to follow, but is often criticized for being too subjective, leaving the evaluator to define broad traits such “leadership ability” or “conformance with standards.”
- 2+2: This method demonstrates how appraisals can be used primarily for improvement purposes. By offering employees two compliments and two suggestions for improvement focused around high-priority areas, organizations can become more productive. If the goal of the performance appraisal is employee improvement, this system can provide significant benefits; however, if the goals are more akin to compensation changes and rankings, the system provides little benefit.
In the broadest sense, feedback is simply verbal or nonverbal communication between two or more parties. Feedback should be given in all work situations, good and bad. However, people sometimes think of feedback as being synonymous with criticism when it is given in situations where expectations have not been met. Regardless, we are constantly surrounded by feedback as we see the consequences of our actions and how our actions affect the impressions of those around us, as shown in this feedback diagram.
One common problem that managers overlook when reviewing performance is remembering that feedback is not all about forms. Traditional performance reviews have checklists, ratings, or reports that are used as tools to analyze feedback in the organization. While these forms are useful in documenting and appraising a person’s performance, feedback should not be dictated by the type of form an organization uses. Instead, it should be well thought out and measured according to the individual employee in question, considering their unique circumstances and abilities.