Effective Methods of Determining Sales Force Size

In most companies, the sales force is the most critical part of the business; thus determining the sales force size is critical in planning for sales governance. Although the corporate sales team is one of the most valued assets of the company, it can also be expensive to maintain. Increasing the size of the sales force may increase sales volume but at a higher cost to the company. It is therefore necessary to determine the optimal sales force size. The size of the sales force will also affect territory design.

The three most commonly used methods to determine sales force size are as follows:

Breakdown Method

This is the simplest method among the three. In this method, each member of the corporate sales team is assumed to possess the same level of productivity. In order to determine the size of the sales force needed, the total sales figure forecasted for the company is divided by the sales likely to be generated by each individual.

However, this method fails to account for differences in the ability of salespeople and the difference in potential of each market or territory. It treats the sales force as a function of the sales volume, and does not take profitability into account.

Workload Method

The workload method is also known as the buildup method. In this method, the total workload (i.e., the number of hours required to serve the entire market) is estimated. This is divided by the selling time available per salesperson to forecast the size of the sales force. This method is commonly used since it is easy to understand and to recognize the effort required to serve different categories of customers.

However, this method also has some shortcomings. It assumes that all accounts in the same category require the same effort. Other differentiating factors such as cost of servicing, gross margins, etc. are not considered after the accounts are categorized. It also assumes that sales persons are equally efficient, which is generally not true.  One way to overcome this shortcoming is to adjust the sales force size, determined in the last step, for efficiency. The sales force can be classified into different categories based on their efficiency and the actual number of sales persons required can then be calculated with this adjusted number.

Incremental Method

The incremental method is the most precise method to calculate the sales force size. The underlying concept is to compare the marginal profit contribution with the incremental cost for each sales person. The optimal sales force size as per the incremental method is when the marginal profit becomes equal to the marginal cost and the total profit is maximized. Beyond the optimal sales force size, the profit reduces on addition of an extra sales person. Therefore, sales people need to be added as long as the incremental profit exceeds the incremental cost of adding sales people. The main shortcoming associated with this approach is that it is difficult to estimate the additional profit generated by the addition of one salesperson and is therefore difficult to develop.

Thus sales force needs to be properly organized, motivated and compensated in order to have the right size to do the workload, alignment to cover all needs, and keeping them happy and selling. At the end of the day, they are the ones who get the customer to give up their money for the company’s product or service.

To read more articles about sales and marketing, visit www.smstudy.com/articles


Porters Five Forces Model for Evaluating Industry Attractiveness

Porter’s Five Forces model is used to analyze the long-term attractiveness of an industry. Understanding the interaction of these forces with the existing competing organizations helps explain the differences in profitability amongst industries. It also helps a company decide whether or not to enter an industry. If a company already has a presence in a particular industry, then using this model enables strategies that achieve and maintain profitability. A company should be capable of applying its core competencies, business model, or channel network to achieve a competitive advantage in its industry.

Let’s study these five forces one by one:

Threat of New Entrants

New entrants in an industry increase the level of competition as existing players try to defend their market share against them. The higher the threat of new entrants, the lower the attractiveness of an industry. Highly profitable markets tend to attract many new players. However, for new entrants to an industry where established players are taking advantage of economies of scale and high product differentiation, several additional obstacles make entering the industry unattractive, including high upfront investment requirements and the time and cost of establishing distribution channels.

Threat of Substitutes

Substitutes are those products or service that meet the same need as another product but which belong to different industries or product categories. Substitutes provide consumers with choice in industries where demand exceeds supply and, as a result, limit profitability within the industry. If substitutes offer equal or greater benefits at a lower cost, they can make an entire industry obsolete. Conversely, factors such as high conversion costs and low value perception result in a low buyer willingness to convert, and consequently a low threat of substitutes.

Bargaining Power of Customers

Customers generally demand high product quality, low costs, quick delivery, and personalized customer support, among other things. As a result, competition is created in the industry as players in the market try to satisfy these demands. Customers use this competition to obtain the best value. Conversely, a number of factors can reduce the bargaining power of customers, for example, high cost of switching to another supplier, low number of suppliers, fragmented customer segments, lack of substitute products, and low threat of backward integration.

Bargaining Power of Suppliers

Suppliers can impact the cost of production by changing the prices of raw materials or intermediate goods. A significant increase in raw material prices can force smaller businesses or less profitable firms to exit the market, as they are not as well positioned as larger more established and more profitable firms to absorb such drastic price changes. In addition, a number of factors can result in low bargaining power of suppliers, for example, availability of low-cost substitutes, low cost of switching to another supplier, low threat of forward integration that is a situation in which a supplier directly reaches out to the end customer, and a low necessity for the supplier’s product in the organization’s final product.

Competitive Rivalry

This concept refers to the intensity of competition among existing organizations in an industry. A high degree of competition reduces industry profitability, thereby making the industry less attractive for potential new entrants. There are some factors that can result in a low level of competition, for example, high fixed costs, high level of product differentiation, high customer conversion costs, and the existence of a monopoly, duopoly, or oligopoly.

What you did not know about web analytics

Online businesses, or businesses that have websites, generally use some sort of tool to track analytics, but most of the time these businesses haven’t maximized the potential of web analytics. Analytics aren’t just to see how many people have visited your site. Companies must delve into the world of analytics and utilize all of the benefits that come from properly deciphering an analytics report in order to decrease bounce rates and increase sales.

According to Digital Marketing, book 2 of the SMstudy Guide®, a basic definition for analytics, is “to evaluate and better understand the value and impact of available digital channels and digital marketing activities. Web analytics involves the collection, measurement, analysis, and reporting of web data for the purposes of understanding and optimizing web usage. Analyzing such data helps a company to assess and improve the effectiveness of its website.”

You can use analytics reports to track web traffic in order to determine where and how to invest marketing time and dollars. Ask yourself, “Is your traffic coming from other websites (referrals), social media or search engines (paid/organic)?” says Mike Wolfe, CEO of WAM Enterprises, a digital marketing agency. “Knowing where traffic comes from can help you understand where to invest more time and money to increase traffic.”

You can also view a visitor’s location; information that can help to build a campaign to target a specific audience. This information is helpful to determine specific geographical regions that are not showing interest in your website. A marketing team can then generate a plan to create interest in those regions. Discounts, special deals, and incentives are great ways to increase engagement and reach disengaged target areas.

It is important to know where people enter your site and where they leave it. The analytics report will show what keywords people used and the search engine that led them to your website. The report also shows how long the person was on your website and what page they exited from. This can be helpful to determine which pages are causing people to lose interest. Once this information is found, a company can update the pages to be more engaging and interesting. The report also includes where the customers go when they leave a website, so you can see what competitors are taking your business and why.

As stated in Digital Marketing, “Web analytics also enables a company to assess the effectiveness of specific mobile marketing campaigns and channels, including mobile advertising, mobile search marketing, and traditional desktop channels, and identify those that appeal to the target audience and work best for the business.”

With the help of web analytics companies can create a website that fits the consumer’s needs in order to maximize reach, reputation, and relationship with their potential or current customers.

For more resources and information visit www.SMstudy.com.

Understanding Customer-Perceived Features and Price Analysis

Customer-perceived features and price analysis are important indicators of how well the company’s product is perceived in the target market. These analyses help the company understand the product features that the customer perceives as good, as well as the features that need improvement.

They also provide an understanding of how customers perceive the product pricing in comparison with competition. They can also indicate whether the efforts to increase value for a particular feature are headed in the right direction. The scores can be calculated using a comparison of all, a select few, or individual competitors. The customer-perceived features and price analysis should preferably be done separately for the product features and the price.

The customer-perceived features analysis can be done using these following steps:

  1. The customers of both the company and competing companies are asked to list product features, other than price, that are important in their purchasing decisions. The senior management or corporate sales team can also add to the list of features, based on their knowledge of the products and customers.
  2. The various features are weighted. This can be done through a survey or from senior management inputs, based on their understanding of the importance of the features.
  3. The customers are then asked to rate the features of the products or services offered by the company, as well as the features of their competitors’ products and services.
  4. Finally, the score on each feature is divided by the competitors’ score. This is called the product feature ratio for that feature. For each product feature, a ratio of less than one indicates that the particular product feature is perceived lower in quality than the competition’s; a ratio greater than one indicates that the product feature is perceived better than the competition’s.
  5. After getting the ratios for each of the product features, ratios are then multiplied by the weights for each attribute and added together to get the overall customer-perceived score for all the product features of the company’s product. An overall customer-perceived features score of 100 indicates a position of relative parity with the completion for the overall product. A score greater than 100 indicates that the product is perceived to be better than the competition’s with respect to overall product features.

The customer-perceived price analysis is similar to the process used for customer-perceived features analysis, and helps the company understand how the product price is perceived with respect to competitors’ prices. However, instead of product features, the calculation uses attributes that affect perceptions of a product’s overall cost.

The customer-perceived price analysis is intended to illustrate customer perception of where a company’s pricing sits relative to the prices of their competitors in areas where the product or service has several pricing factors.

To read more articles about sales and marketing, visit www.smstudy.com/articles

Catching an Academic Wave with VMEdu

It’s not like riding a Tsunami.

But it is exciting, exhilarating and breath-taking to get in early on one of the disruptions that are rapidly reshaping the world we swim in.

Disruptions that wipe the landscape clear are dramatic and threatening. And they are rare. Disruptive inventions and practices in business and industry happen gradually; so gradually, in fact, that they often seem inevitable. This is a point bestselling author Hugh Howey made in a recent article about the state of publishing: “All manner of publishing has been greatly disrupted, but it’s often hard to see because what has changed is what’s now missing from our lives. And these missing things have not disappeared all at once. Rather, it’s been a gradual vanishing.”[1]

The world of publishing—which Howey says includes such products as encyclopedias, maps, those liner notes in albums and CDs, how-to books, instructions enclosed in products, newspapers, magazines and novels—provides an excellent example of the disruption that is now going on in education and training.

Michael Horn, in a piece on Forbes.com, described the disruption this way: “Much of the growth of online learning isn’t just in accredited higher education institutions, but in unaccredited institutions that are hired to do a similar ‘job’ as that of many accredited higher education institutions—advance adult learners in their career pathways. These organizations don’t need accreditation per se though, as they will ultimately develop their reputations from the success of their students with employers.” He cites research done in this regard by Michelle R. Weise and Clayton M. Christensen of the Christensen Institute.

Horn’s suggestion is that schools of higher learning should enhance their online presences and offerings. He gives examples of partnerships that colleges, universities, corporate entities and training organizations can make as a way of turning his suggestion into a reality. One of the companies facilitating this disruption in education and professional training is VMEdu, Inc. This company has a global reach with more than 750 partners in its VMEdu Authorized Training Partner network. It is expanding this with the launch of its VMEdu Authorized Content Partners (V.A.C.P.) program.

In discussing the digital disruption of the publishing industry, Howey says, “In just about every measurable way, these have been great developments.” The V.A.C.P. program brings an enhanced Learning Management System (LMS) and other great developments arising from disruptive innovations in adult education and training to any organization that has created courses related to any field of adult learning in any language; or is already using another LMS to host their courses.

The V.A.C.P. program enables content providers—educational institutions, training companies and those with an expertise worth sharing—the ability to launch courses on their own websites for free, get their own mobile app, sell their courses to the VMEdu Partner Network, offer Sales and Marketing courses on SMstudy, and efficiently track student progress.

Looking at the changes in publishing, Howey says, “It’s difficult to find anything to complain about with this transition, unless you are a middleman who no longer provides a service commensurable with your cost. This is an important point, the act of offering a service that matches your cost.” Educational providers and trainers are very familiar with the costs of some of their products. Student loan debt in America is almost infamous. VMEdu says, “There is no cost associated with creating or uploading your courses, and zero licensing fees.”

The same goes for certain mobile apps for partner courses: “VMEdu will take care of all expenses related to creating, maintaining and upgrading your mobile apps—you pay only $1 per student per month for every student accessing your courses through the mobile app.” This is an example of where the company earns its income.

Last year, Amazon paid out over $140,000,000 to authors in its Kindle Unlimited program. That doesn’t count the dollars paid for book sales,” says Howey. The disruption of traditional publishing is enabling those who create the works to share a much larger portion of the revenues they generate. Through VMEdu’s cloud-based LMS, the same is happening for adult and professional education providers.

For those considering an educational venture into the new cloud-based ocean of opportunity, come on in; the water is fine.

Surf the VMEdu website and learn more about its V.A.C.P. program: Benefits of Becoming a V.A.C.P.

[1] Howey, Hugh. (2/2/16) “The State of the Industry.” The Wayfinder. Retrieved on 2/3/16 fromhttp://www.hughhowey.com/the-state-of-the-industry/

Channel Performance Measurement: A Close Overview

Channel performance measurement is a key activity when a sales organization employs different types of channel partners. In more complex multi-channel structures, it becomes even more important due to the number of people, processes, and roles involved. The performance of a channel can be measured across multiple dimensions. The parameters that are measured usually are effectiveness, efficiency, productivity, equity and profitability of the channel.

The various channels have different purposes in the value chain; however, each task needs to support the overall corporate goals. As the number of channel partners increases, it is difficult to ensure that the channel partners are performing their specific roles as effectively as required. For example, the goal of a business might be to increase the number of strategic accounts. However, in order to gather maximum possible commission, channel partners might be engaged in getting the maximum number of accounts possible with total disregard towards prioritizing the acquisition of strategic accounts. It is therefore important to audit the channel partners and incentivize them for activities that are aligned with the corporate goals. The channel performance should also be judged on the ability to fulfill given tasks. A few carefully chosen metrics can give a good indication of the performance of each channel.

The channel performance measurement is primarily a four-step process.

  1. Define the Sales Objectives
  2. Determine Channel Performance Metrics
  3. Set Channel Partner Targets
  4. Manage Channel Performance

1. Define Sales Objectives

The first step in channel performance measurement is to define the sales objectives for the company. These objectives are outlined and discussed in sales meetings to ensure a shared understanding between members of the marketing and sales teams.

2. Determine Channel Performance Metrics

Evaluating the performance of a distribution channel depends largely on the agreed upon performance metrics. Choosing the right number and type of performance metrics can help to monitor and improve the performance of channel partners. These metrics provide an understanding of how well the channel partner is doing in reaching its performance targets.

Though it is possible to evaluate a channel on hundreds of performance metrics, this would make reporting and analysis of the performance a cumbersome job. When determining channel performance metrics, a key performance driver, such as sales or units sold, should be chosen to identify and measure the most important tasks. A series of performance metrics are then decided based on the key performance driver.

3. Set Channel Partner Targets

After overall sales objectives are defined, it is important to assign specific targets to each of the channel partners to ensure they are in alignment with the overall objectives. Properly set targets provide a benchmark to measure channel success, monitor performance, and take corrective action to meet expectations. Each channel partner has a specific role towards fulfilling the overall sales objectives. Performance targets should be set to reflect the channel partner’s contribution to the overall objectives

4. Manage Channel Performance

This is the final step in channel performance measurement. It uses the agreed upon goals, assigned performance targets, and identified performance metrics to manage channel performance on an on-going basis and to identify the performance shortfalls of the channel partners. During this step, management gains an understanding of the strengths and weaknesses of each channel. Management can then take corrective action to ensure efficient performance of the channel.

The success of a channel and its efficiency are determined by the efficiency of channel intermediaries in delivering goods and services to customers and the quality of services offered in the process. Developing a comprehensive marketing plan that provides clear and concise direction about marketing activities and strategy is critical to the organization’s success.

To learn more about Channel Performance Measurement, visit www.SMstudy.com

Innovative Internet-Enabled Business Models

In this digital age, businesses that fail to operate online risk going offline for good.

The growing popularity of smartphones, tablets and digital media provides opportunities for a company not only to use fragmented new-age marketing effectively to promote existing products, but also to come up with innovative business models where product demo, customer acquisition and order fulfillment can take place online.

Innovative business models might include the following:

Online Marketplaces—Several e-commerce companies have created global online marketplaces for selling books, consumer goods and other products. In such business models, customer acquisition is usually initiated through the company’s website. The company coordinates with its multiple suppliers to source products; samples, demos and product reviews are provided on the website; customers make their purchases online; and items are shipped directly to customers.

Here is an example of Online Marketplaces:

  • Book publishing and retail businesses, which historically gained much success using traditional business models, have been significantly affected by the advent of online marketplaces such as Amazon, eBay, Alibaba and Flipkart.

Online Services—Online services have significantly impacted many traditional product and service industries by transforming existing business models and creating new ways to conduct business.

Here are examples of Online Services:

  • Global Positioning Systems (GPS) and online maps have made physical maps redundant.
  • Online learning tools have gained popularity and, at times, can complement or even replace physical classroom training.

Online Networking—The Internet has made the world a smaller place. People can now access their networks at all times. These changes have significantly impacted the way in which people communicate with each other and, in turn, have created new possibilities for innovative business models.

Here is an example of Online Networking:

  • Social media channels such as LinkedIn, Twitter, WhatsApp, Facebook and Google+ have significantly changed the way in which people communicate with each other.

Business Models Using Smartphones and Tablets—Smartphones and tablets are Internet-enabled devices that allow people to have an ongoing connection to the Internet. Since individuals usually carry their smartphones and tablets with them, mobile apps are becoming increasingly popular. Innovative business models based on the use of mobile devices can disrupt several existing business models—more so in industries that rely on other forms of communications and networking.

Here are examples of Business Models Using Smartphones and Tablets:

  • Social media channels such as Instagram, Twitter, Facebook and LinkedIn provide mobile apps that enable users to easily share photos and updates or chat with friends.
  • Some mobile apps allow users to locate nearby restaurants, read reviews and also post reviews about their experiences.

In terms of business, the popularity of the Internet has fueled the “adapt or die” landscape more than ever. Business models that integrate online marketplaces, online services and online networking, and that allow for compatibility with smartphones and tablets, offer businesses excellent opportunities for sustained success.