1. Module 4
ORGANIZING THE ACTIVITIES OF
SALES MANAGERS AND SALES PEOPLE
11

2. C a m p b e ll's O ld S a le s O r g a n iz a t io n
D iv is io n M a n a g e r s
D is t r ic t M a n a g e r s
A c c o u n t M a n a g e r s
S a le s R e p s .
V ic e P r e s id e n t , S a le s
C a n n e d F o o d s
D iv is io n M a n a g e r s
D is t r ic t M a n a g e r s
A c c o u n t M a n a g e r s
S a le s R e p s .
V ic e P r e s id e n t , S a le s
F r o z e n F o o d s
D iv is io n M a n a g e r s
D is t r ic t M a n a g e r s
A c c o u n t M a n a g e r s
S a le s R e p s .
V ic e P r e s id e n t , S a le s
F r e s h / R e fr ig e r a t e d
D iv is io n M a n a g e r s
D is t r ic t M a n a g e r s
A c c o u n t M a n a g e r s
S a le s R e p s .
V ic e P r e s id e n t , S a le s
S p e c ia l P r o d u c t s
G e n e r a l
S a le s M a n a g e r
V ic e P r e s id e n t
S a le s a n d M a r k e t in g
Campbell’s Example
22

3. C a m p b e ll's N e w S a le s O r g a n iz a t io n
R e g io n a l M a n a g e r s
S u p e r v is o r s
S a le s R e p s .
G e n e r a l M a n a g e r
W e s t
R e g io n a l M a n a g e r s
S u p e r v is o r s
S a le s R e p s .
G e n e r a l M a n a g e r
S o u t h
R e g io n a l M a n a g e r s
S u p e r v is o r s
S a le s R e p s .
G e n e r a l M a n a g e r
C e n t r a l
R e g io n a l M a n a g e r s
S u p e r v is o r s
S a le s R e p s .
G e n e r a l M a n a g e r
E a s t
V ic e P r e s id e n t
G e n e r a l S a le s M a n a g e r
V ic e P r e s id e n t
S a le s a n d M a r k e t in g
Campbell’s Example
33

4. Purposes of sales organization
An organizational structure is an arrangement of activities
involving a group of people. The goal in designing an
organization is to divide and coordinate activities in such a
way that the group can accomplish its common objectives
better than they could by acting as individuals.
44

5. An organizational structure should serve 3 purposes:
a. Activities should be divided and arranged in such a
way that the firm can benefit from the specialization
of labor.
b. The organization structure should provide for
stability and continuity in the firms selling efforts.
c. The structure should provide for the coordination
and integration of various activities assigned to
different people in the sales force.
55

6. Horizontal structure of the sales force
The first issue to be decided concerning the organization of the
sales force is whether the firm should hire its own sales people
or use outside agents (e.g., manufacturers' reps).
Types of Agents
1. Manufacturers' representatives
http://www.jba-inc.com/
2. Selling (or sales) agents
When are outside agents appropriate?
1. Economics criteria
2. Control and strategic criteria 66

7. ECONOMIC METHOD OF DETERMINING IF
OUTSIDE
AGENTS ARE APPROPRIATE
In a given selling situation, a company sales force and independent
agents are likely to produce different levels of costs and sales volume.
The fixed costs of using external agents are lower than a company
sales force because there is less administrative overhead involved and
also because manufacturers' reps do not receive a salary or
reimbursement for field selling expenses.
However, costs of using agents tend to rise faster as sales volume
increases because agents usually receive higher commissions than
company sales people.
Consequently, there is a breakeven level of sales volume below which
the costs of external agents is lower, but above which a company sales
77

8. Sales Volume
Selling
Cost
Total
Cost of
Agents
Total
Cost of
Sales
Force
Variable
Cost of
Sales
Force
Fixed
Cost of
Sales
Force
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9. Example:
A company is faced with a planning decision of
whether to use a company sales force or outside agents.
It estimates that salaries and expenses will amount
to $30,000 per sales person and that the company will
require 10 sales people to cover the territory.
Furthermore, the sales people will receive a 5%
commission on the dollar volume that they sell.
If the company decided to use outside agents
however, it would have to pay a fixed 15% commission on
the dollar volume that they sell.
Determine when the company should use agents
and when it should use a company sales force? 99

10. CONTROL AND STRATEGIC CRITERIA FOR DETERMINING
IF A COMPANY SALES FORCE SHOULD BE USED
Managers argue that internal sales forces are preferable to agents because agents are more
difficult to control.
Agents can be viewed as independent actors who are expected to act opportunistically in
pursuit of their own short-run objectives (i.e., sales).
This makes agents reluctant to pursue new accounts or smaller customers as well as
perform service and support activities.
On the other hand, managers can control their own sales force in many ways:
- selection
- training
- supervision
- operating procedures
- reward mechanisms
- etc.
Furthermore, monitoring performance of a company salesforce is easier than with
independent agents if performance is based on anything more than dollar sales volume.
1010

11. Horizontal Sales Force Organizational Structures
If the organization decides that it needs its own sales force, it will
have to decide on its organizational structure. Generally, there are
four ways that sales forces are usually organized:
1. Geographic Organization
2. Product Organization
3. Customer Organization
4. Organizing by Selling Function (Functional Organization)
5. Combination
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12. G eographic S pecialization
C entral R egional Sales M anager
C onnecticut and R hode Island M aine
N ew H am pshire V erm ont
M assachusetts N ew Y ork
N ortheast D istrict Sales M anager
N ew Jersey Pennsylvania
D elaw are W ashington D .C.
V irginia M aryland
M idatlantic D istrict Sales M anager
N orth C arolina South Carolina
G eorgia A labam a
M ississippi Florida
Southern D istrict Sales M anager
Eastern R egional Sales M anager W estern R egional Sales M anager
N ational Sales M anager
1212

13. Geographic organization
The assignment of individual sales people to separate
geographic territories.
Strengths:
1. Low cost.
2. Lack of confusion concerning who the
customer should talk to if problems
arise.
Weakness:
1. Does not provide any benefits from the
division and specialization of labor.
1313

14. ProductSpecialization
Central Regional Sales Manager
Dictation Equipment Salesperson Typewriter Salesperson
Programmable Calculator Salesperson Large Computer Salesperson
Minicomputer Salesperson Copier Salesperson
Northeast District Sales Manager
Dictation Equipment Salesperson Typewriter Salesperson
Programmable Calculator Salesperson Large Computer Salesperson
Minicomputer Salesperson Copier Salesperson
Midatlantic District Sales Manager
Dictation Equipment Salesperson Typewriter Salesperson
Programmable Calculator Salesperson Large Computer Salesperson
Minicomputer Salesperson Copier Salesperson
Southern District Sales Manager
Eastern Regional Sales Manager Western Regional Sales Manager
National Sales Manager
1414

15. Product Organization
Separate sales forces for each product (or related group of
products) in their product assortment.
Strengths:
1. Familiarity with products and methods of selling
those products.
2. Closer cooperation between sales and production.
3. Enables sales management to control the selling effort
across the company's various products.
Weakness:
1. Duplication of effort.
2. Higher selling expenses and administrative costs.
3. Confusion among the firm's customers. 1515

16. CustomerSpecialization
Central Regional Sales Manager
Salesperson for Schools and Colleges Salesperson for Bank Customers
Salesperson for Manufacturers Salesperson for Retail Customers
Salesperson for Government Agencies Salesperson for Wholesale Customers
Northeast District Sales Manager
Salesperson for Schools and Colleges Salesperson for Bank Customers
Salesperson for Manufacturers Salesperson for Retail Customers
Salesperson for Government Agencies Salesperson for Wholesale Customers
Midatlantic District Sales Manager
Salesperson for Schools and Colleges Salesperson for Bank Customers
Salesperson for Manufacturers Salesperson for Retail Customers
Salesperson for Government Agencies Salesperson for Wholesale Customers
Southern District Sales Manager
Eastern Regional Sales Manager Western Regional Sales Manager
National Sales Manager
1616

17. Customer Organization
Organizing the sales force by customer type.
Strengths:
1. Better understanding of customer needs.
2. Easier to train for different selling approaches for
different markets.
3. Ideas for new products.
4. Ability to control selling effort across different
markets.
Disadvantages:
1. Duplication of effort.
2. Increased selling and overhead expenses.
1717

18. Organizing by Selling Function
Such as having one sales force specializing in
prospecting for and developing new accounts while
a second sales force maintains and services existing
customers.
1818

19. Organizing to serve national or key accounts
Key accounts are large accounts. Key accounts need more service
than smaller accounts (80/20 Rule). As a result, some organizations
have special organizational structures set up specifically to deal with
key accounts.
Generally, there are 4 ways that firms organize their sales forces to
serve key accounts:
1. Rely on regular sales force members
2. Assign key accounts to sales executives
3. Form a separate key account division
4. Form a separate sales force for key accounts
1919

20. Rely on regular sales force members.
Advantage:
No additional administrative or selling expense.
Disadvantage:
Major accounts often require more detailed and
sophisticated treatment than smaller customers.
2020

21. Assign key accounts to sales executives.
Advantage:
Important customers are serviced by people high in the
organization who have authority to make important
decisions.
Disadvantage:
a. Managers sometimes allocate too much of the firm's
resources to their own accounts to the detriment of smaller,
but still profitable customers.
b. Assigning selling tasks to managers takes time away
from their management activities.
2121

22. A separate key account division.
Advantage:
Allows for the close integration of functional areas.
Disadvantage:
a. Duplication of effort.
b. Tremendous additional expense.
c. Risky.
2222

23. A separate sales force for major accounts.
Advantages:
a. Account managers can become familiar with
their customers needs and provide a high level
of service to them.
b. The firm can select its most competent sales
people to become members of the national
account sales force.
c. Provides an internal benefit to the selling
company (i.e., motivation mechanism).
Disadvantages:
Similar to those for customer type organization.
2323

24. ALLOCATING SELLING EFFORT AND
DESIGNING SALES TERRITORIES
2424

25. In this section we are concerned with allocating selling effort
across our accounts, determining how many salespeople will
comprise the sales force, designing the territories that
salespeople will cover, and routing and scheduling sales person
activities.
Therefore, this section is broken into three categories:
1. Allocating selling effort across accounts.
2. Determining sales force size.
3. Designing sales territories.
4. Routing and scheduling sales person activities.
Introduction
2525

26. Allocating Selling Effort Across Accounts
The allocation of selling effort across accounts deals with the
question “How much selling time should each one of our accounts
receive?”
Three basic analytical approaches are used to help answer this
question:
1. Single factor models.
2. Portfolio models.
3. Decision models.
2626

27. Allocating Selling Effort Across Accounts:
Single Factor Models
Single factor models classify all accounts based on one variable,
such as sales volume.
For example, we could classify our large accounts as A accounts,
those with over $50,000 of sales volume per year. B accounts could
be those accounts with sales volume between $25,000 and $49,999
per year, and C accounts could be those accounts with less than
$25,000 per year in sales volume.
2727

28. Allocating Selling Effort Across Accounts:
Single Factor Models
We could establish guidelines for the number of calls that each
type of account should receive:
Account # Calls per Year
A 24
B 12
C 6
2828

29. Allocating Selling Effort Across Accounts:
Portfolio Models
Portfolio models go one step further than single factor models
because they look at two factors, account opportunity and
competitive position to determine the relative attractiveness of
each account in the company’s account portfolio.
Account opportunity is the customer’s need and ability to pay for
and purchase the firm’s products or services.
Competitive position is the strength of the relationship between the
firm and the customer.
2929

30. Allocating Selling Effort Across Accounts:
Portfolio Models
Competitive Position
Strong Weak
AccountOpportunity
LowHigh
Very Attractive:
Accounts should
receive heavy
selling effort.
Very Unattractive:
Accounts should
receive minimal
selling effort.
Potentially Attractive,
additional analysis
should be done to see
how the firm could
be more competitive
Moderately Attractive,
Accounts should receive
enough selling effort to
keep the accounts.
3030

31. Allocating Selling Effort Across Accounts:
Decision Models
Decision models rely on past, historical data to develop a
regression equation representing the relationship between
sales calls and sales volume by account.
3131

32. Three methods are widely used to calculate the size of the sales
force:
1. The Incremental Method
2. The Breakdown Method
3. The Workload Method
Determining Sales Force Size
Increasing the size of the sales force almost always results in
increased sales for the company. However, the sales force is also
the most costly form of promotion for the firm. Therefore, firms
need to determine the optimal number of sales people to have in
the sales force.
3232

33. Determining Sales Force Size:
The Incremental Method
The basic premise underlying the incremental method of determining
sales force size is that sales reps should be added as long as the
additional profit produced by their addition exceeds the incremental
cost of their addition.
This method recognizes that their will be diminishing returns
associated with adding more sales people.
The computation of sales force size using this method is greatly
facilitated using spreadsheet programs with optimizer features.
3333

34. 3434
Sales Revenue = $1,000,000 √x
X
# of Sales People
$
Cost of Sales Force = $100,000x
$
Profit = $1,000,000 √x - $100,000x
Optimal Number of Sales People on the Sales Force
X

35. 3535
Example Problem:
Yearly revenue generated by the sales force is subject to the
Law of Diminishing Returns such that:
Revenue = $1,000,000 √x; where x = the number of sales people on
the sales force.
In addition, the cost of a salesperson averages $100,000 per year, so the
cost of the sales force can be computed as:
Cost = $100,000 x; where x is the number of people on the sales force.
How large should the sales force be in order to maximize profit and
what is the maximum profit at this sales force level?

36. 3636
Profit (π) = Revenue – Cost
Profit (π) = $1,000,000 √x - $100,000 xSolution
XX
5.
=

37. The simplest way to calculate the optimal sales force
size is the breakdown method .
The breakdown method assumes that all sales people
have the potential to produce the same amount of
sales in one year. The estimated productivity for one
sales person is divided into the company's forecasted
sales to determine how many sales reps are needed.
Determining Sales Force Size:
The Breakdown Method
3737

38. Example:
A firm forecasts total sales of $10 million for the coming year. If
each sales person is capable of producing $250,000 in sales per
year, how many sales people will be required?
Number required = Forecasted Sales
Productivity per sales person
= $10,000,000 / $250,000/sales rep
= 40 sales reps
Determining Sales Force Size:
The Breakdown Method
3838

39. Advantages:
1. Simple.
Disadvantages:
1. No allowance for sales person turnover.
2. Assumes each sales rep has equal productivity.
3. Uses reverse logic.
4. Considers sales rather than profits as the desired
end result.
Determining Sales Force Size:
The Breakdown Method
3939

40. The Workload Method is based on an equal
workload for all sales people.
To find the number of sales people needed,
management determines the amount of work it takes
to cover the target market. It then divides this
estimate by the workload the average sales person can
manage.
Determining Sales Force Size:
The Workload Method
4040

41. (1) Classify customers and prospects into groups according
to the amount of work required to service that group (usually
based on sales volume).
(2) Determine the number of sales calls an account should
receive per year and the desired length of these calls.
(3) Calculate the total amount of selling effort required to
serve the entire market.
(4) Estimate the time available per salesperson.
(5) Allocate the time available per sales person by the
function that s/he performs.
(6) Determine the sales force size.
The Workload Method Consists of 6 Steps:
4141

42. The workload method consists of the following steps:
(1) Classify customers and prospects into groups
according to the amount of work required to service that
group (usually based on sales volume).
Example:
Type of Sales Number of
Account Volume Accounts
A $50,000+ 120
B $20,000-50,000 250
C under $20,000 400
Determining Sales Force Size:
The Workload Method
4242

43. (2) Determine the number of sales calls an account should
receive per year and the desired length of these calls. These
estimates are made by past experience or judgement. The
estimates are then multiplied to find the number of contact hours
per year necessary for each account type.
Type of Estimated calls Estimated call Total Contact
Account per Year Length Hours/Year
A 25 60 Minutes 25 Hours/Year
B 15 40 Minutes 10 Hours/Year
C 8 15 Minutes 2 Hours/Year
Determining Sales Force Size:
The Workload Method
4343

44. (3) Calculate the total amount of selling effort required to
serve the entire market. The number of accounts in each category
are multiplied by the number of contact hours required for each
type of account.
Type of Number of Contact Hours Workload
Account Accounts per Account Hours
A 120 25 3,000
B 250 10 2,500
C 400 2 800
_________________________________________________
Total Workload Hours 6,300
Determining Sales Force Size:
The Workload Method
4444

45. Determining Sales Force Size:
The Workload Method
(4) Estimate the time available per sales person. The average hours
worked per week is multiplied by the weeks worked per year (taking
into account holidays, sickness, and vacation).
40 hours/week x 49 weeks/year = 1,960 hours/year
4545

46. Determining Sales Force Size:
The Workload Method
(5) Allocate the time available per salesperson by the function
s/he performs.
Task % of Time Hours Per Task
Selling 50% 980
Nonselling 30% 588
Travel 20% 392
1,960 Hours
4646

47. Determining Sales Force Size:
The Workload Method
(6) Determine the sales force size by dividing the total workload
hours by the selling hours available per salesperson.
6,300 hours required to cover the market = 6.42 Reps.
980 hours per salesperson, actual selling time
7 representatives are required to perform the necessary tasks.
4747

48. The territory design process strives to make all territories equal
with respect to the amount of sales potential they contain and
amount of work it takes a sales person to cover them effectively.
Sales Territory Design
4848

49. The Sales Territory Design Process
Select the
Basic Control
Unit
Examine the
Market Potential
In Each Control
Unit
Combine Control
Units into
Tentative Territories
Perform a
Workload Analysis
for each Tentative
Territory
Adjust the
Territories to
Allow for
Workload
Differences
Assign
Salespeople
to Territories
4949

50. Routing and Scheduling Sales Person Travel
Once territories have been defined, sales management needs to
Route and schedule their sales people so that the sales people can
Manage their territories efficiently and effectively.
Advise is given to sales people concerning the geographic
pattern of account coverage, as well as the length and frequency
of visits to customers. These issues are referred to as routing
and scheduling respectively.
5050

51. Routing Sales Person Travel
Routing is the geographic pattern that sales people follow
in order to cover their territory.
Routing begins by plotting the geographic locations of actual
and potential customers on a map of the territory.
Topographical and climatic characteristics of the territory
must be taken into account when developing an orderly
succession of calls.
Travel distances between two calls should be minimized, and
backtracking and crisscrossing across a territory should be
avoided.
5151

52. Routing Sales Person Travel
Since daily or weekly travel routes tend to start and end in
the same location (such as the sales person’s home), a pattern
begins to emerge.
For example, the sales person may begin the day or week with
a call to a customer located at the periphery of the territory
and work back to the home base. This is known as the
straight-line method of routing.
5252

53. Routing Sales Person Travel
If the size and diversity of the territory prevent the use of the
straight-line method, a cloverleaf pattern of four or more
adjoining circular sequences can provide the desired intensity of
coverage without sacrificing economy.
In a four-leaf clover, each account is visited every four weeks.
5353

54. Routing Sales Person Travel
A hop-scotch pattern follows more of a hub-and-spoke, rather
than a circular travel route. Several spokes radiate from the
sales person’s residence, and the sales person works back from
there in a zigzag manner.
5454

55. Scheduling Sales Person Activities
Whereas routing involves geographic considerations,
scheduling takes into account the activities the sales rep
must perform during the day, week, or month.
Scheduling refers to the task of allocating the salesperson’s
time to individual activities.
Estimates must be made regarding the average time it takes
to perform sales activities such as customer contact, waiting,
travel, etc.
5555

56. Scheduling Sales Person Activities
Time Management
To develop effective time management strategies, it is useful to
classify alternative time uses with regard to their productivity.
Uses of a Salesperson’s
Time Productivity
Customer contact
Planning
Support
Travel
Waiting
Productive
Unproductive
5656