Measuring the Effectiveness of the Sales Force

Probably for as long as there have been sales forces, managers have sought ways to determine whether they are effective or not. In the past, salespeople were evaluated on the basis of their sales—that is, did they reach their sales quotas? As the role of the sales force changed from being purely concerned with selling to becoming more involved in marketing and more responsible for maintaining customer relationships,managers recognized the need for expanding evaluative criteria beyond just the achievement of sales goals. The evaluation criteria of today are vastly different from those in the past. Sure, sales are still important, but now other measures are gaining in importance as well.

One of the more often discussed measures is ROI (return on investment).More and more top executives are asking their sales managers for accountability—as in “Are we getting the returns we seek from the sales force?” The idea is that by measuring the impact of programs designed to aid the selling process as well as measuring sales closures, the marketing team can be more effective and efficient. Unfortunately, it isn’t always that easy. In a survey conducted in 2002 of companies with a marketing budget of $1 million or more, 56 percent indicated they had no system for measuring the ROI on their marketing investments. As noted by David Reibstein of the University of Pennsylvania’s Wharton School of Business, “In marketing,benefits like advertising impact aren’t easily put into dollar returns. It takes a leap of faith to come up with a number.” Marketers know that it is often difficult to separate advertising, promotions, and other communications efforts from the selling effort.

Then what about ranking them? Many of the largest firms in America, including GE, Ford, and Microsoft, rank employees by categorizing them as top 20 percent, bottom 10 percent, and the like,with the top getting highly rewarded and the bottom likely to be let go. Others use A, B, or C grades,with two straight C’s constituting grounds for dismissal. Cruel? While Jack Welch, ex-CEO of GE, and Dick Grote, president of Grote Consulting (a performance management company in Texas), don’t think so, eight Ford employees did, and they filed a class-action lawsuit claiming discrimination. A study of 17 large companies, conducted by the American Productivity and Quality Center, corroborated the positions of Grote and Welch, concluding that forced rankings were the most effective way to identify and reward core competencies. Whether rankings outweigh discrimination is still to be seen, however, and may have to be decided in the courts rather than the marketing office.

How about sales per employee as a measure of effectiveness?, for example, uses sales per employee to compare the relative performance of its sales forces.A steady rise in sales per employee is a sign of improving efficiency. Siebel Systems also employees this system, releasing the lowest-performing 10 percent of its employees. Altera, Bea Systems, and Sun Microsystems also use measures of sales generated by employees to determine if they are operating “fat” or “lean.” James S. Pepitone, chairman of Pepitone,Berkshire, Piaget Worldwide, a management firm based in Dallas, is not sold on the concept.He considers it a relative metric, arguing that “it only has meaning in comparison to itself” and should be used only as an internal benchmark, and a ballpark figure, confounded by numerous other factors.

Well, then,what about quotas? Perhaps we should go to the old reliable and set sales targets and goals.Many companies are scrapping sales quota systems in favor of compensation packages that promote new behaviors among salespeople (like maintaining customer relationships), arguing that the old system doesn’t work anymore. Salespeople have both positive and negative attitudes toward quota dropping.While some feel that it may reduce their sales effectiveness and motivation, others recognize that in today’s customer relationship world, providing service and keeping old customers are as important as finding new ones. They are glad to see the importance of sales quotas diminished. Then what’s a company to do? Many successful companies now use a combination of measures. For example, Siebel Systems—yes, the same company mentioned above—notes that approximately 40 percent of each salesperson’s incentive compensation is based on his or her customers’ reported satisfaction with service and implementation of products purchased. Nortel, eBay, and AT&T employ similar measures. At JD Edwards, up to 20 percent of a sales rep’s earnings are based on two such surveys per year.Many other companies are also moving away from traditional quotabased systems, combining sales goals with less traditional measures such as customer satisfaction, repeat business, profitable revenues, and internal communications. Other measures include prospecting, qualifying, and generating sign-ups to the company’s website.Regardless of what measures are being employed— and there are many more than those mentioned here— the days of the sales quota–based system are on the way out. And no one could be happier than the salespeople themselves.

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