Amity School of Business

Sales and Distribution Management

Module-2
Sales Organization
 Amity School of Business

OBJECTIVE
MODULE-2

 Sales Organization

 Purpose and Importance of Sales Organization

 Various Types of Sales Organizations

 Coordination amongst other departments

Sale forecasting and its techniques

 Amity School of Business

Concepts of Sales Organisation

• A sales organisation assists the sales manager
to carry out needed tasks efficiently and
effectively to achieve results
• The basic concepts of the sales organisation
are:
• Degree of centralisation
• Degree of specialisation
• Line or staff positions
• Market orientation
• Effective co-ordination
 Nature of Amity School of Business

Sales Organization
• An organization is simply an arrangement of
activities involving a group of people. The goal is
to arrange these activities so that the people
involved can act better together than they can
individually.
• Trend is towards a flatter organization in which
coordination across activities is more important
than top down control.
• Salespeople are more often a part of the cross
functional team design to serve specific
customers.
 Purpose of Amity School of Business

Sales Organization

• To permit the development of specialists

• To ensure that all necessary activities are performed

• To achieve coordination

• To define authority

• To economize on executive time

 Functions of Sales Organization
Amity School of Business

• Planning Function
– Sales Forecasting
– Sales Budgeting
– Selling Policy
• Administrative Function
– Selecting Salesmen
– Training Salesmen
– Control of Salesmen
• Executive Function
– Sales Promotion
– Selling Routine : Execution of customer’s orders
 Characteristics of a Amity School of Business
Good Organization
• Organization structure should reflect a marketing
orientation
• Organization should be built around activities
and not around people
• Responsibility and authority should be related
properly
• Span of executive control should be reasonable
• Organization should be stable but flexible
• Activities should be balanced and coordinated.
 Principles of
Sales Organization Amity School of Business

• Degree of centralization
• Degree of specialization
• Line and Staff positions
• Marketing orientation
• Effective coordination
• Span of control
 Setting up a
Sales Organization Amity School of Business

• Defining the objectives

• Delineating the necessary activities
• Grouping the activities into “Jobs” and
“Positions”
• Assigning Personnel to positions
• Providing for coordination and control
 Amity School of Business

Basic Types of Sales Organisations

Sales organisations are generally classified into
four basic types:
• Line Organisation
• Line and staff organisation
• Functional organisation
• Horizontal organisation
 Line Organisation
Amity School of Business
Head
Marketing

Sales
Manager

Area Sales Area Sales

Area Sales Area Sales
Manager3 Manager4
Manager1 Manager2

salespeople salespeople salespeople salespeople

Characteristics: All managers have line authority to direct and control

subordinates. Used in small firms / departments
Advantages: Simple organisation, clear authority, quick decisions, low
cost
Disadvantages: No support to line managers from subordinates who
have specialised knowledge / skills. Less time for planning / analysis
 Line and Staff Organisation
Head-Marketing Amity School of Business

Marketing Research Promotional Customer Service

Sales Manager
Manager Manager Manager

Area Sales Area Sales Area Sales

Manager-1 Manager-1 Manager-1

Salespeople Salespeople Salespeople

Characteristics: Specialist staff managers are available for senior

marketing / sales managers. Staff managers’ role is to assist / advise line
managers. Used in medium and large size organisations
Advantages: Better marketing decisions, superior sales performance
Disadvantages: High cost and coordination, slower decision making,
conflict may arise if staff managers’ role is not clear
 Functional Organisation
Amity School of Business
Head-Marketing

Marketing Research Promotional Customer Service

Sales Manager
Manager Manager Manager

Area Sales Manager #4

Salespeople

Characteristics: Each functional specialist has line responsibility over

salespeople. Used by a large firm with many products / market
segments, minimising line authority to functional managers
Advantages: Qualified specialists guide salesforce, simple to administer
Disadvantage: confusion due to more managers giving orders to
salesforce
 Horizontal Organisation
Operations Team:
Research & Design Team: Amity School
•Production of Business
/ Operations
•Customer Research •Quality Assurance
•Product / Service Design •Systems Engineering

Planning Team:
•Strategic Planning
•Accounts, Finance
•HR, Administration
•Chief Operation Officer

Customer Support Team: Customer Satisfaction

•Information Team:
•Service •Sales & Marketing
•Training •Pricing, Promotion
•Channels, Logistics

Characteristics: Removes management levels & departmental

boundaries. Except planning team, all others are members of cross-
functional teams. Used by firms having partnering relationships with
customers.
Advantages: Reduction in supervision, unnecessary tasks, & cost;
Improved efficiency and customer responses.
 Amity School of Business
Specialisation within Sales Organisation
• Needed to increase effectiveness of salesforce
• Done by expanding basic sales organisation
• Basis of specialisation
• Geography
• Type of product
• Market
• Combination of above
• Criteria for selection – (1) nature of product, (2)
salesforce abilities, (3) demands of selling job, (4)
customer and market facts
 Geographic Specialisation
Head-Marketing Amity School of Business

Marketing Research General Sales Customer Service

Manager Manager Promotion Manager
Manager

Branch Sales Branch Sales Branch Sales Branch Sales

Manager-1 Manager-2 Manager-3 Manager-4

Salespeople Salespeople Salespeople Salespeople

Characteristics: salespeople, assigned geographic areas, are responsible

for all selling activities to all customers within assigned areas. Branch sales
managers adjust marketing plan to local needs
Advantages: Better market coverage and customer service, more control
over salesforce, quick response to local conditions & competition
Disadvantages: Limited specialisation of marketing tasks. Hence, it is
combined with product / market sales organisation
 Product Specialisation
Amity School of Business
• Used when the company has many products and / or brands
• Two types of product specialisation
(x). Sales organisation with product specialised salesforce
(y). Sales organisation with product managers as staff specialists

Head-Marketing

Marketing Research General Promotion Sales Training

Manager Sales Manager Manager Manager

Area Sales Managers – Area Sales Managers –

Product Group ‘A’ Product Group ‘B’

Salespeople – Salespeople –
Product Gr. ‘A’ Product Gr. ‘B’

Fig. ‘x’ Sales Organisation with product specialised salesforce

 Product Specialisation (Continued)
Head-Marketing
Amity School of Business

Marketing Research Promotion General Product Manager Product Manager

Manager Manager Sales Manager Product Gr. ‘A’ Product Gr. ‘B’

Area Sales
Managers

Salespeople

Fig. ‘y’ Sales Organisation with Product Managers as Staff Specialists

In fig. ‘x’: Characteristics: Salespeople in each product group sell only the products
in that group
Advantage: Each product gets specialised attention from the salesforce
Disadvantage: Sometimes, more salespeople contact the same customer, resulting
in customer dissatisfaction and higher cost
In fig. ‘y’: Characteristics: Each product manager plans and implements marketing
plan, for a product group
Advantage: Corrects the problem of duplication calls on a customer by salespeople
Disadvantage: Lack of product specialisation by salespeople
 Market Specialisation
General Sales
Manager
Amity School of Business

Sales Manager- Sales Manager- Sales Manager-

Sales Manager-
International- Government Consumer Markets
Commercial
Markets

Area Sales Mgrs Area Sales Manager- Area Sales Manager- Area Sales Mgrs-
International Commercial Government Consumer Markets

Sales Executives Salespeople Salespeople Salespeople

• Characteristics: Desirable when customers are classified by type, user

industry, or channel. Salespeople carry out all activities for all products only
for specific customer groups
• Advantages: Meets needs of specific customer groups, implements
customer-centred philosophy of the company
• Disadvantages: Geographic duplication, high cost
 Combination Sales Organisation
Amity School of Business
Director – Sales
& Marketing

General Manager General Manager General Manager General Manager

Sales - North Sales - East Sales - West Sales - South

Regional Sales Regional Sales Regional Sales

Mgr. – Govt. Mgr. - Commercial Mgr. - Dealers

Salespeople Salespeople Salespeople

• Characteristics: Many firms use some combination of specialisation

organisations, called hybrid or combination sales organisation, with
a view to minimise disadvantages and maximise advantages of
specialisation organisations
• Figure above shows combination of geographic and market
specialisations
 Emerging Organizational Design
Amity School of Business

• Agency and Distribution Selling

– Independent private businesses
– Contractual agreement with the selling organization
– Payment is based on commission
– Salespeople have less specialized knowledge about the product
and company
– Company’s salesforce policy is flexible
• Shared Sales Force
– Divides the salesforce among the number of divisions or product
lines of an organization to reduce
• Operating cost
• Increased efficiency
• Achieve synergy
• Achieve economies of scope
– Puts additional pressure on the salesperson to coordinate and
monitor customers, competitors, product features, other
department’s people
 Coordination of Personal Selling
with other Marketing Activities
Amity School of Business

• Sales and Advertising

– Work towards same objective of profit maximization
– Activities of sales force are planned and directed along lines that
increase advertising effectiveness
– Advertising is geared up as and when required so as to assist
the salespeople

• Sales and Marketing Information

– Marketing information system assist the sales department by
gathering data needed for analyzing sales problems, assisting in
determining sales potential, measuring the effectiveness of the
sales effort
– Sales department provides the information system with many of
the raw statistics and other information needed for sales and
market analysis and forecasting.
 Coordination of Personal Selling
Amity School of Business
with other Departments

• Sales and Production

• Sales and R&D
• Sales and HR
• Sales and Finance
• Sales and Accounting
• Sales and Purchasing
• Sales and Public Relations
• Sales and Legal
 Amity School of Business

Sales Forecasting

“It is an estimate of sales during a specified future

period which is tied to a proposed marketing plan
and which assumes a particular set of
uncontrollable and competitive forces”
-Cundiff and Still
 Amity School of Business

Importance of Sales Forecasting

• Helps manufacturing department for setting up

production capacity and planning production
• Finance department for raising cash for
investment and operations as well as for profit
planning
• Purchase function for planning their purchases
• HR function to help them plan for manpower
planning
 Amity School of Business

Terms Used in Forecasting

• Market Potential
– Maximum possible sales opportunities
present in a particular market segment and
open to all sellers during a stated future
period.

• Market Forecast
– Expected industry sales for a given product or
service at one specific level of industry
marketing expenditure, in a given market, for
a specific period of time.
 Amity School of Business

• The total market potential is calculated by multiplying the

number of buyers in the market by the quantity
purchased by the average buyer, by the price of one unit
of the product.
• For example, if there are one million potential buyers of a
particular product in the market and the average buyer
buys four units each year at a price of one dollar per unit,
the total market potential for that product for the year is
one million times four, times one, or four million. Total
market potential may be stated in dollars or units.
Amity School of Business
 Amity School of Business

• Company Sales Potential

– Best possible estimated sales of a given
product or service for a company in a
given geographic area for a specific
period of time.

• Company Sales Forecast

– Estimated company sales of a given
product or service, under a proposed
marketing plan, in a given market, for a
specific period of time.
 Sales Forecasting Methods
Amity School of Business

Qualitative Methods Quantitative Methods

• Executive opinion • Moving averages

• Delphi method • Exponential smoothing
• Salesforce composite • Decomposition
• Survey of buyers’ • Naïve / Ratio method
intentions
• Test marketing • Regression analysis
• Econometric analysis
 Amity School of Business

Executive opinion method

• Most widely used
• Procedure includes discussions and / or average
of all executives’ individual opinion
• Advantages: quick forecast, less expensive
• Disadvantages: subjective, no breakdown into
subunits
• Accuracy: fair; time required: short to medium (1
– 4 weeks)
 Delphi Method Amity School of Business

• Process includes a coordinator getting forecasts

separately from experts, summarizing the
forecasts, giving the summary report to experts,
who are asked to make another prediction; the
process is repeated till some consensus is
reached
• Experts are company managers, consultants,
intermediaries, and trade associations
• Advantages: objective, good accuracy
• Disadvantages: getting experts, no breakdown
into subunits, time required: medium (3/4 weeks)
to long (2/3 months)
 Amity School of Business

Survey of Buyers’ Intentions Method

• Process includes asking customers about their
intentions to buy the company’s products and
services
• Questionnaire may contain other relevant
questions
• Advantages: gives more market information, can
forecast new and existing products, good
accuracy
• Disadvantages: some buyers’ unwilling to
respond, time required is long (3-6 months),
medium to high cost
 Amity School of Business

Salesforce Composite Method

• An example of bottom-up or grass-roots
approach
• Procedure consists of each salesperson
estimating sales. Company sales forecast is
made up of all salespersons’ sales estimates
• Advantages: Salespeople are involved,
breakdown into subunits possible
• Disadvantages: Optimistic or pessimistic
forecasts, medium to long time required
• Accuracy: fair to good (if trained)
 Amity School of Business

Test Marketing Method

• Methods used for consumer market testing: full
blown, controlled, and simulated test marketing
• Methods used for business market testing: alpha
and beta testing

• Advantages: used for new or modified products,

good accuracy, minimizes risk of national launch
• Disadvantages: Competitors may disturb if some
methods are used, medium to high cost, medium
to long time required
 Amity School of Business

Factors Influencing the Sales Forecast

• Marketing Plans
– Changes in price structure, channels of distribution,
promotional plans, products may influence the future
sales.
• Conditions within the industry
– Competitor policies and new entrants into the market
needs to be taken into consideration.
• Market Conditions
– Awareness about the changes in the primary demand
for the industry’s output.
• General Business Conditions
– General state of the economy
 Types of Sales Forecast
Amity School of Business

• Product Level
– All Sales
– Industry Sales
– Company Sales
– Product Line Sales
– Product Variant Sales
– Product Item Sales
• Time Period
– Long Term
– Medium Term
– Short Term
• Geographic Area
– World
– Nation
– Region
– Territory
– Customer
 Amity School of Business

Sales Territories
• A sales territory consists of existing and
potential customers, assigned to a
salesperson.
• The territory may or may not have
geographical boundaries.
• Most companies allot salespeople to
geographic territories, consisting of current
& prospective customers
 Amity School of Business

Major Reasons / Benefits of

Sales Territories
• Increase market / customer coverage
• Control selling expenses and time
• Enable better evaluation of sales force
performance
• Improve customer relationships
• Increase sales force effectiveness
• Benefit to salespeople and in turn, to the
company.
 Amity School of Business

Procedure for Designing Sales Territories

Build-up
method

Find location
Select a and
Decide
control potential OR
basic
unit of present and
territories
prospective
customers Break-
down
method
 Amity School of Business

Step 1
• Select a control unit (i.e. a geographical
territorial base or a location) used in
territorial analysis, usually are:
• States
• Counties
• Cities
• Zip-code areas
• Metropolitan Areas
 Amity School of Business

Step 2
• Find location and potential of present and
prospective customers within control units
 Amity School of Business

Step 3
• Decide basic territories by using
• Build-up method,
Or
• Break-down method
 Management must determine: Amity School of Business
Procedure in
Desirable call patterns:
Call frequency per account per year
Build-up Method

Total calls needed

in each control group

Workload capacity:
Total calls possible per rep per year =
number of daily calls x days selling

Tentatively set territorial boundary lines

by combining control units until total
calls needed = total calls possible

Modify territories as needed

 Territory Design: Build-Up Method Worksheet
Amity School of Business
Control Units
Delhi Pune Ahmadabad
Customer Call Calls Calls Calls
class frequency Accounts per year Accounts per year Accounts per year

A 2 per month 10 240 7 168 5 120

B 1 per month 30 360 17 204 10 120
C 1 every 2 months 68 408 55 330 27 162
108 1,008 79 702 34 402

Distribution of one rep’s calls 1,008 + 491 or 402

year (1,500)*
Possible control combinations 100% 70% or 100%
Delhi Pune Ahmadabad

Alternative territories 100% Delhi + 100% Ahmadabad

100% Delhi + 70% Pune
*6 calls/day x 5 = 30 calls/week x 50 = 1,500 calls/year
 Amity School of Business
Management must determine Procedure in
Breakdown Method
Company sales potential

Sales potential in each control unit

Sales volume expected from

each sales person

Tentatively set territorial

boundary lines by combining
control units total sales potential
= total sales volume expected

Modify territories as needed

 Amity School of Business

Break –Down Method

Company sales potential = Rs 200,000

Targeted volume/rep = Rs 10,000

Number of reps needed = Company sales potential = Rs200,000 =20
Targeted volume/rep Rs 10,000

Territory volume as = Targeted volume/rep = Rs 10,000 = 5%

Company sales potential Rs200,000

Each territory should comprise 5% of sales potential or Rs10,000

Combine adjacent control units until each sales potential becomes
equal to Rs10,000
 Territory Size and Workload TM 13-8
Amity School of Business
Workload Factor
Factors Territory Size
Increase/Decrease

Nature of Job:
Lots of presale and post-sale activity Decreases
Nature of product:
A frequently purchased product Decreases
A limited repeat-sale Increases
Market development stage:
New market--fewer accounts Increases
Established market--more accounts Decreases
Market coverage
Selective coverage Increases
Extensive coverage Decreases
Competition:
Intensive Decreases – unless
market is oversaturated
Limited Increases
 Assigning Salespeople to Amity School of Business

Territories
Sales Manager should consider two criteria:
(A)Relative ability of salespeople
• Based on key evaluation factors:
(1) Product knowledge, (2) market knowledge,
(3) past sales performance, (4) communication,
(5) selling skills
(B) Salesperson’s Effectiveness in a Territory
• Decided by comparing social, cultural, and
physical characteristics of the salesperson with
those of the territory
• Objective is to match salesperson to the territory
 Amity School of Business

Management of Territorial Coverage

• It means: How salesperson should cover the
assigned sales territory
• It includes three tasks for a sales manager:
• Planning efficient routes for salespeople
• Scheduling salespeople’s time
• Using time-management tools
 Amity School of Business

Objectives of Quotas

• Making available performance standards

• Controlling performance

• Motivating people

• Identifying strength and weaknesses

 Amity School of Business

Types of Quotas

Organizations set many types of sales

quotas:

• Sales volume quota

• Financial quota
• Activity quota
• Combination quota
 Amity School of Business

Sales Volume Quotas

For effective control, sales volume quota
should be set for the smallest marketing
units, such as salesperson, districts /
branches, product items / brands
Sales volume quotas can be stated in
(a) Rupees / dollars sales volume
quotas are
– appropriate when salespeople are
required to sell many products.
 Amity School of Business

(b) Unit sales volume quotas are suitable

when
– Salespeople are selling a few products
(steel sheets- Rs+ metric tonnes)
– Prices of the product fluctuate rapidly
– Price of each product / service is high
(c) Point sales volume quotas are
appropriate when
– the company wants salespeople to sell
products that contribute more to profits
 Financial Quotas Amity School of Business

a) Gross-margin / Net-profit quotas

– Gross-margin is a company's total sales
revenue minus its manufacturing cost of goods
sold.
– GM=(Total Sales Rev -- Manuf. Cost of goods
sold)
Net profit quotas are generally accepted by sales
mangers as it is calculated by subtracting cost
of goods sold and salespersons’ direct selling
expenses from the total sales revenue.
– NP=Total Sales Rev—(Manuf. Cost of Goods
sold + Direct Selling expenses)
 Amity School of Business

b) Expense quotas
– In many companies, expense quotas are
stated as a percentage of sales
– Expense quotas to be administered with
flexibility, to make salespeople cost
conscious, allowing reasonable expenses
 Amity School of Business

Activity Quotas
• These are set when salespeople perform both
selling and non-selling activities
• Objective is to direct salespeople to carry out
important activities
• For effective implementation, activity quotas are
combined with sales volume and financial
quotas
• For Example, Calling on high potential
customers, payment collection from defaulting
customers
 Amity School of Business

Combination Quotas

• Used when companies want to control

salesforce performance on key selling
and non-selling activities

• Focus on a few types of quotas, to avoid

confusing salespeople.
 Amity School of Business

Type of Quota Quota Actual Percent Weight Percent

Quota (Importan Quota x
ce) Weight
Sales Volume 5,00,000 4,50,000 90 3 270
(Rs)
Receivables 45 50 89 2 178
(days)
New 04 05 125 1 125
Customers
(Nos)
Total 6 573

• Total point score=573/6=95.5 for a salesperson

• Typically use ‘points’ as a common measure to resolve the
problem of different measures used by various types of
quotas
 Amity School of Business

Methods for Setting Sales Quotas

In practice, companies use more than one of the
following methods to increase their confidence in
sales quotas
A. Total market estimates
B. Territory potential
C. Past sales experience
D. Executive judgment
E. Salespeople’s estimates
F. Compensation plan
 Amity School of Business

Territory Potential Method

The procedure followed by new companies is as under:
1) Estimate next year’s industry sales forecast or market
potential, using sales forecasting methods
2) Estimate multiple factor index (MFI) for each territory,
based on factors that influence sales of the product.
These factors are given weights corresponding to the
degree of sales opportunity.
3) Industry sales forecast in a territory (or territory market
potential=(1)x(2)
4) Territory sales quota = (3) x estimated market share of
the company in the territory
 Amity School of Business

Past Sales Experience Method

The process consists of taking past one year’s
sales (or an average of previous 3 to 5 year’s
sales), adding an arbitrary percentage (or a
percentage by which the market is expected to
grow), and thus setting each territory sales quota
• The assumption that future sales are related to
past sales may not be always correct
• This method should not be the only method
used
• Past sales should be one of the factors used for
deciding sales quotas
 Amity School of Business

Executive Judgment Method

• Senior executives use their judgement when
the product, territories, and the company are
new or very little market information is
available
• Executives predict company sales budgets
and also territory sales quotas
• This method should generally be used along
with other methods
 Amity School of Business

Salespeople’s Estimate Method

 Some firms ask their salespeople to set
their own quotas
 Many salespersons either set very high or
too low sales quotas
 For setting proper quotas, many sales
managers use 2 or 3 of above methods,
discuss with salespersons to get their
inputs, and decide sales quotas
 Amity School of Business

Compensation Plan Method

• Some organizations set quotas to fit with
their sales compensation plan
• E.G. A company wants to pay a monthly
salary of Rs 5000, and a commission of 3%
on monthly sales above Rs 1,00,000. The
quota of Rs 1,00,000 is set in such a way
that salesperson would find it very difficult
to cross total compensation of Rs 8000 per
month (5000+3000)
 Total Market Estimates Method
Amity School of Business

The Process followed by established companies is

as under:
1) Estimate next year’s total market demand, or
industry sales forecast, using sales forecasting
methods
2) Decide the company’s estimated market share
for next year
3) Company’s next year sales forecast= (1) x (2)
4) Find each territory’s percentage share out of
the total company sales in the previous year
5) Territory sales quota = (3) x (4)