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SALES FORCE MANAGEMENT AND MEASUREMENT

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grapple with the question of how to improve the
Introduction .......................................... 1 productivity of their sales force. In order to
Sales Territories .................................... 2 better appreciate the magnitude of the challenge,
Workload .............................................. 2 this note discusses the “numbers” that drive the
Sales Potential ...................................... 2
Territory Changes .................................. 3
sales-force management process.
Possible Complaints of the Sales Sales-force management can be a
Force to Territory Changes ................ 4 determinant of marketing success and yet this

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Setting Sales Goals ................................ 4 competence is sometimes neglected.
Forecasting Sales ................................... 5
Measuring Sales Results ........................ 6 You’d expect Sales and Marketing to be
Calculating Effectiveness ...................... 7 aligned in any successful organization—
Sales Resulting from Calls to yet in fact the opposite is often true. The
Customers ............................................ 7 reality is that Sales and Marketing need
Sales-Force Compensation .................... 8 to synch up or sink. The two need to be
Salary, bonus, and commission ........... 8
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integrated in order to build customer
Calculating total compensation.......... 10
Pipeline Analysis ................................. 10 relationships, enhance brand, capitalize
The Funnel ........................................... 10 on leads, improve market share, and to
Sales Force Funnel............................. 11 boost revenue.1
Summary.............................................. 12 It stands to reason that sales-force
Exhibits ................................................ 13
management and its different elements should be
Endnotes .............................................. 14
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aligned with the goals and objectives of the

marketing strategy of which it is a part. Conflicts
Introduction can arise in how people are allocated to
territories or in how sales people are rewarded
If one examines the relative costs associated such that the best laid marketing plans can
with managing a direct sales force and compares crumble under their own weight. Plans that
it to other marketing expenses, there would be emphasize a focus on larger key accounts in a
surprise at the percentage of the total marketing
No

small number of segments will fail if

budget that supports the sales effort and the cost management has not thought to hire and train a
of a direct sales force. With the cost of a typical select number of sales people who know how to
business-to-business sales call averaging close to sell at the c-level and have an appreciation for
$500, and with selling cycles that can extend the complexity of calling on a large headquarters
over several years, it is easy to imagine very
large budgets. Along with these numbers comes 1
“Integration between Marketing and Sales”. Best Practice
a concomitant concern for the effective Note by Deborah Athens. On American Marketing
utilization of these precious resources. Firms Association Web site http://www.marketingpower.com
/content16836.php (accessed on May 17, 2005).
Do

This note was prepared by Eric Larson (MBA ’05) and Neil Bendle (MBA ’04) under the supervision of Paul W.
Farris, Landmark Communications Professor of Business Administration and Robert E. Spekman, Tayloe Murphy
Professor of Business Administration. Copyright © 2005 by the University of Virginia Darden School Foundation,
Charlottesville, VA. All rights reserved. To order copies, send an e-mail to sales@dardenpublishing.com. No part of
this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form
or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the
Darden School Foundation.

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account. It is not uncommon for a single person, who is continually calling a customer until they
backed by a team of people, to have worldwide become alienated. An indirect result is the loss

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responsibility for a single company. from sales that could be made in an underserved
territory.
Sales Territories
Unbalanced territories can raise the problem
One of the first decisions made by sales of unfair sales potential between members of the
executives is how many salespeople are needed sales force. This will result in distorted

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to call on potential customers. Typically, this compensation potential and can cause a talented
decision is made in conjunction with the salesperson to leave for a company with better
assignment of salespeople to a region or sales balance and compensation.
territory. Thus, a territory is a salesperson’s
Achieving the correct balance between
battleground; it is the turf that they defend.
territories results in a happier customer,
Territory assignment can be quite a complex
salesperson, and company. It is, however,
process in that it serves to accomplish certain

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primarily a matter of management judgment.
objectives. On one level, the size is often drawn
The main considerations are trying to: (1)
to minimize the travel expenses and time
balance workloads; (2) balance sales potential;
associated with serving one’s customer base
(3) develop compact territories; and (4)
within a specified geography. On another level,
minimize disruptions during the redesign. The
attempts are often made to balance the potential
effect that each of these can have on different
sales that each territory contains so that sales
stakeholders is represented in Exhibit 1.2
efforts and results can be compared easily across
op
regions. Given the nature of certain businesses
Workload
and the concentration of customers, it is a
challenge to balance workloads. Before designing new territories, a sales-
force manager should evaluate the current
For instance, in the medical devices market,
situation. A typical method to determine the
one salesperson could be assigned a city such as
workload for a territory could be calculated as
Philadelphia, Baltimore, or Boston where there
follows:
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are high concentrations of hospitals, medical

schools, and clinics. But another person might Workload (#) = [Current Accounts (#) × Average
find themselves traveling among four or five Time to Service an Active Account (#)] + [Prospects
states in the western part of the United States to (#) × Time Spent Trying To Convert a Prospect into
achieve the same potential. Depending on the an Active Account (#)]3
differences between each territory, salespeople
can either be given too much, or too little work Sales Potential
No

to do. This can lead to the underservicing or To calculate the potential of a territory, it is
overservicing of customers. necessary to collect some key facts about the
Underservicing customers is harmful area covered. Potential can be represented in a
because sales are lost due to a lack of activity at few different ways. The most basic is
all levels—fewer leads are being sought out and population. This is the number of potential
fewer prospects identified. In addition to lost accounts that exist in a territory. In the case of
sales from cultivating fewer new customers, copier sales, this could represent the number of
spending less time with current customers will offices in a territory.
reduce potential sales and could ultimately cause
Do

customers to find another company to do

business with. This all can be caused by a
2
salesperson being stretched too thin. Andris A. Soltners, Prabhakant Sinha, and Greggor A.
Zoltners, The Complete Guide to Accelerating Sales Force
Overservicing, less obviously a problem, Performance (New York: AMACON, 2001), 147.
3
can result in lower sales both directly and The following will be used throughout this note to be clear
indirectly. A direct result would be a salesperson about the form of inputs and results of formulas. ($ Dollar
Value, % Percentage, # Count, R Rating, I Index)

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At the same time sales potential can be More relevant is the time it takes to travel in
decreased by the presence of a dominant the territory. Travel time is a better metric than

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competitor that might “own” a certain region or size because it is a representation of what size
segment of the market. As a result, the potential implies—the time needed to reach each
market size is reduced by the expected value of customer. Depending on the quality of roads,
winning that portion of the market. In this density of traffic, or grouping of businesses,
instance, potential is a less relevant number, and territories of equal area could have very different

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one can now speak of served market (i.e., that travel-time requirements. A salesperson can
portion of the total market that is available to keep track of the necessary time to travel from
your firm). If the market’s absolute size is $50 call to call, which can either be recorded over
million and a key competitor has an 80% share time to find an average travel time in a territory,
of a segment worth $5 million, it follows that the or calculated using specialized computer
likelihood of winning share from that competitor software.4
is quite low, and the size of your served market
The manager’s goal is to balance territories

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becomes the $50 million less the $4 million that
among salespeople. This can be done initially by
is unavailable to your firm
looking at workloads, but it may beneficial to
Yet another way to size the market is to combine potential and size into “Sales
estimate usage based on the size of the Potential/Travel Time” to draw an accurate
population in a territory. For instance, consumer comparison. Once a balanced territory
product retailers might estimate store density assignment has been designed, it should then be
based on the population in a territory. Closely taken to the sales force to gain recommendations
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tied to population is buying power. For copiers, and final approval and buy-in.
this would be based on the sizes of the potential
offices and the wealth of the companies in a Territory Changes
territory. This could also be based on
demographics of the territory if the end users are Salespeople tend to be very protective of
the citizens that populate the territory. their sales territories and do not welcome
change. They have spent a great deal of effort
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Sales Potential ($) = Number of Possible Accounts establishing relationships with buyers from
($) × Buying Power ($) whom they expect a long and fruitful
Buying power is a dollar figure based on association. At the same time, learning the
average office sizes, wealth of companies, habits, requirements, and buying criteria of new
industry sales, or demographics of end-user clients also takes time, and this is energy taken
customers. away from what they get compensated for.
_______________________________________ Despite the impact of the sales force, the
No

primary consideration should be the affect any

Example: There are six small, eight medium,
territory changes have on the customer base.
and two large companies in a territory that have
historically made copier purchases on the Minimizing the disruption to the customers
average of $500, $700, and $1,000 annually. The should be a priority with any change. The other
sales potential for the territory would be: major stakeholder group that is likely object to
the realignment would be the salespeople
Sales Potential = 6 * $500 + 8 × $700 × 2 × $1,000
themselves.
= $10,600
_______________________________________
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Once the workload and sales potential of a

territory are calculated, the other key metric
necessary in comparing territories is Size
Finding. The size of the territory could simply
be measuring the geographic area that it covers.
4
Soltners et al., 154.

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Possible Complaints of the Sales Force to implement the SMART strategy.7 Goals should
Territory Changes5 be Specific, Measurable, Attainable, Realistic,

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and Time-bound. Specific goals are detailed to a
Potential Favorite Quotation department, a territory, and even a salesperson.
Alignment Block They are clear and applicable to the individual
President’s Cup Paula “How am I going to win the so that the salesperson does not have to derive
salesperson of the year award after their part of the goal. Measurable goals allow the

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you steal my accounts?” salesperson to set an exact target and then track
their progress toward their goal. This is a
Mel the Mellow Manager “If it ain’t broke, don’t fix it.” concrete number like “dollars of sales” or
“percentage increase.” Vague goals like “more”
or “increased” are not effective because of the
Peter the Pessimist “We can’t realign – our account
data are no good. Besides, there’s difficulty in measuring progress. Attainable
no way to measure potential for goals are in the realm of possibility. They can be

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our accounts.” visualized and understood by both the manager
and salesperson. Realistic goals are set high
High-Commission Harry “You’re not touching any account enough to motivate but not so high that the
I earn a 20% commission on.”
salesperson gives up before they even start.
Time-bound goals have an exact time frame in
Chatty Charlie “This is a relationship sell. We
can’t change accounts around.” which they must be met. This applies pressure to
reach them sooner, rather than later, and defines
an end-point when the results should be
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Considering the effect on both the customers checked.
and the sales force is important when making a
beneficial change for the company. A sales-force manager should set the goals
for each direct report with an eye to what the
Setting Sales Goals sales corporation believes possible. Think of the
process cascading so that the totals at the
Setting sales goals has several objectives, all salesperson level represent the disaggregated
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of which must be aligned. Sales goals should sales numbers that are rolled up from the field to
align with the profit and sales objectives of the the region, to the sales force Generally, these are
firm and should support the product plans of the figures passed down to the sales-force manager
product managers, as well as the channel and that must then be divided among the force. The
market plans of their respective managers, and corporation probably uses the previous year’s
should serve to motivate the sales force to direct sales of the product, the previous year’s market
their effort in ways that are consistent with each sales, the previous year’s competitor’s sales, and
No

of the goals previously mentioned. In addition, the company’s current market share to forecast
sales goals can be utilized to emphasize a greater sales for a given year. A sales-force manager
mix of new product sales or can be used to focus will need to reconcile their allocations to
on customer retention as opposed to acquisition. corporate projections.
Our point is that the rule is simple: show how
people are compensated and you will know how A manager will allot sales targets among the
they spend their time. Still, 85% of U.S. sales force in a district using specific measures
companies set goals for their salespeople.6 of individual performances from the previous
year. Of greatest importance are each
Do

Sales should follow some general salesperson’s percentage of sales and their sales
guidelines. At the highest level, a manager can potential (based on territory size/population and
buying power).

7
Jack D. Wilner, 7 Secrets to Successful Sales
5
Soltners, et al., 159. Management, (Boca Raton, Florida: CRC Press LLC,
6
Soltners, et al., 329. 1998), 35–36, 42.

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Once a goal program has been determined, it form of sales totals for an individual salesperson
is important to then take that program and apply with a district being the collection of all the

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it to the previous year. This will allow a sales- territories covered by a sales force.
force manager to see how each member of the
(1) Allocation based on the salesperson’s
sales force would have done if they had their
previous year’s sales:8
goals set using the same philosophy as the
upcoming year. What a manager is checking for Sales Total ($) = Share of District’s Previous Year’s

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is to make sure that, based on their judgment Sales from Salesperson (%) × Forecasted Sales for
from the previous year, each salesperson would District ($)
have been rewarded and “punished” as their (2) Allocation based on salesperson’s
performance warranted. This will indicate that previous year’s sales plus increased sales
the correct allotment method is being used and potential of the territory:9
also help to fine tune the weights if the
weighting method is used. Sales Total ($) = [Salesperson’s Previous Year’s
Sales ($) + Forecasted Sales Increase for District ($)]

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It is also important to reevaluate the sales × Sales Potential of District Located in Salesperson’s
goals during the year to make sure that they are Territory (%)
on track. If it looks like there will be more than
90% or less than 50% achievement of the goal (3) Allocation based on the combination of
before the end of the period, there may be a need the two: a Weighted Method.10 A weight decided
to alter the goal. This will keep the sales force by management must be assigned to both the
from lowering their productivity too early and previous year’s sales total for the salesperson
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from either reaching their goal or giving up and and the sales potential of the territory. The
waiting for next year. A possible rule of thumb weighting decision is really up to the sales-force
is to plan for a success rate of 75% when setting manager’s judgment or desires. For instance,
the goals for your sales force. That will ensure they may want to weight “territory potential”
that enough salespeople reach their reward and highly, but without totally disregarding last
that the reward is sufficiently challenging. year’s sales. Another method is to use regression
(Where “re-budgeting” takes place, ensure it is analysis to establish weights. Weighting can
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properly recorded. It is easy to see that revised help compensate for unbalanced territories.
sales goals become “out of whack” with Weighted Share of Sales Allotment (%) = Share of
financial budgets and senior management District’s Previous Year’s Sales from Salesperson
expectations unless care is taken). (%) × Assigned Weighting (%) + Share of Sales
Remember managers may need to push back Potential of District Located in Territory (%) ×
against the corporation when the sales forecast is Assigned Weighting (%)
No

too aggressive. If it looks like each person will Sales Total ($) = Weighted % of Sales Allotment
need to increase their output by an implausible (%) × Forecasted sales for District ($)
amount, then the purpose of setting the goal is
lost. It is important to discuss with the sales
force how they feel about the goals that are set
to see if there is buy-in or outright resistance.
While the sales force needs to be pushed, too
much pressure can cause the company to lose
valuable salespeople.
Do

Forecasting Sales
There are three main ways of allotting the
company forecast among the sales force. Each
method tries to set fairly the goals that are 8
Soltners et al., 346.
achievable and in line with the territory and 9
Soltners et al., 348.
previous year’s results. These are goals in the 10
Soltners et al., 350.

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_____________________________________ are driven by the length of the selling cycle, the
complexity of the buying process, and the

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11
Example: A salesperson had previous year’s
number of people who are part of the
sales of $1,620, which represented 18% of the
buying/decision-making process. While
sales in the district and was responsible for a
contribution margin is a critical number to
territory with a sales potential of 12% of the
measure, the ability to influence the buying
district. The following are three ways to
process might be a key first step, since being
calculate the sales goal (SG) of a salesperson

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perceived as a problem-solver/consultant is a
when a corporate-dictated $10,000 sales goal
necessary first step to gaining the confidence of
(increase of $1,000) for the upcoming year is put
the buyer. The challenge becomes finding a way
in place:
to measure salesperson behaviors that will evoke
(1) Sales goal based on salesperson’s the level of confidence needed to be taken
previous year’s sales = 18% × $10,000 = $1,800 seriously as a potential trusted partner.
(2) Sales goal based on salesperson’s When analyzing the performance of a

yo
previous year’s sales plus increased sales salesperson, there are a number of metrics that
potential of the territory = $1,620 + 12% × can be compared. These metrics tell more about
$1,000 = $1,740 salespeople than just the obvious—amount of
(3) Weighted average based on 50% product sold. While this is an important
previous years sales and 50% sales potential = measure, there are other measures that are also
18% × 50% + 12% × 50% = 15% important to an organization.
While overall sales and revenue are good
op
Sales goal = (15%) × ($10,000) = $1,500
_______________________________________ indicators of success, it is generally the
contribution that is more vital. This is the
Measuring Sales Results amount of money the company is actually
Performance is a difficult concept to making on each sale after costs are subtracted. If
measure—what does it entail? That is, sales salespeople are selling many low-margin items
performance is far more than booking a sale with a big price tag, they may be costing the
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during the quarter. In fact, when the link company money by not selling other products
between effort and outcome cannot be easily with a higher margin per sale.
traced, sales performance is difficult to measure. The effectiveness of a salesperson is the key
If the selling cycle for a product or service is in measure when analyzing performance. While
excess of two years and the selling responsibility this metric can take many different forms, it is
is diffused over a global sales team, it is easy to the role of the sales manager to get the most out
envision the difficulty in rewarding individuals. of each salesperson by maximizing the
No

There is a debate regarding the use of appropriate measure of effectiveness.

outcome measures such as sales booked or Calculating the effectiveness of a
contribution earned and the use of more salesperson is not difficult, but it does require
behavioral measures that do not record sales per keeping track of a few important numbers.
se. Yet, it is well established that certain Fortunately, these are statistics that are
behaviors are likely to lead to a sale over time. commonly recorded in the sales industry.
This is true especially as the sales effort shifts to
consultation. The most important is the amount of each
sale (in a dollar figure) and the contribution
Do

The measures of performance are tied to the from that sale. It may also be important to keep
sales process and the marketing strategy. Is the track of which items are sold if the salesperson
goal to convert a new customer to your products has been instructed to push a certain product
or is the goal to gain greater share of an existing line. Less-obvious information required is the
customers product mix? Effectiveness measures statistics on “Number of Calls Made”
(combination of face-to-face and phone
11
Soltners et al., 348–351. meetings), “Total Accounts Active,” and “Total

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Accounts in the Territory.” The latter two are While looking at Customer Service survey
necessary in calculating the buying power of a scores is straightforward, it may difficult to

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territory. gather enough accurate data to use. Often,
customers won’t fill out the surveys or will only
A major problem with performance review
do so when there is a problem. A small sample
is a tendency to rely on only one or two
size or prevalence of negative responses can
metrics. A complete review of a salesperson
distort the results.
should include as many of the above metrics

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as possible. A salesperson that makes $30,000
Calculating Effectiveness
per call can be more valuable than one that
makes $50,000 per call. If only the “$ Sales Besides just looking at total sales or total
per Call” is used, then it might be overlooked contribution, there are other ways of looking at
that the “$ Sales per Potential Account” is the data to draw deeper meaning. The basic idea
greater for the salesperson making less per of effectiveness is represented by the following
call. Another problem is focusing on just formula:12

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contribution. If a salesperson is in a small Effectiveness (I) = Sales ($) / Contacts with Clients (#)
territory, they could have a low total
contribution but a very high “$ Sales per Common derivatives of this are:
Buying Power.” When this is true it may be Effectiveness (I) = Sales ($) / Calls (#)
time to increase the size of the territory for
this salesperson. Another error that could be Effectiveness (I) = Sales ($) / Potential Accounts (#)
made would be to reward a salesperson that Effectiveness (I) = $ Sales ($) / Active Accounts (#)
op
increased their “$ Sales per Active Account.”
This could be done by just eliminating the Effectiveness (I) = $ Sales ($) / Buying Power ($)
weaker accounts without adding any Each formula can be useful when comparing
additional sales. salespeople from different territories. Of course
More difficult are metrics relating to even a seemingly telling figure like “Total
customer service; there are no concrete numbers Sales” can be skewed in a district where certain
tC

to look at other than customer complaints or salespeople have larger territories with more
retention rates. Each of those is telling, but how potential accounts or greater buying power.
can a sales manager quantify the service being Different formulas give specific insight into the
given to customers that are not leaving or performance of the salesperson.
complaining? One possible way is to develop a If the “Sales per Call” is low, a salesperson
survey with an itemized scale to put some might need training to get the customer making
numbers to the opinions. Once enough of these larger purchases, or more training on closing
No

surveys are completed, an average score for skills. If the “Sales per Potential Account” or
different service metrics can be calculated. “Sales per Buying Power” metric is low, the
Then, when compared against sales figures, a salesperson may not be doing enough to seek out
company can correlate sales with customer new accounts in the territory. Each is based on
service and grade salesperson performance. the entire territory and includes possible
_______________________________________ customers along with current customers. More
Example: This is an example of how a time spent on leads and prospecting could help
customer’s opinion could be translated to a to raise this value. The “Sales per Active
metric. Account” is a good indicator of how effective
Do

Please circle the level of service your business the salesperson is at getting the most out of a
received from our sales staff after shipment of customer.
the industrial mixer: While it is important to get the most out of
1 2 3 4 5 6 7 8 9 10 every call, salespeople are not going to reach
Extremely Poor Satisfactory Extremely Good
_______________________________________ 12
Soltners et al., 21.

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their goals in just one call. There is a certain Sales-Force Compensation
amount of effort that is required to complete

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The topics of goal setting and compensation
sales. This can be represented graphically:13
must be addressed simultaneously. The issues
related to compensation range from questions
Sales Resulting from Calls to Customers
regarding what form of compensation is
appropriate for the selling task, to setting the
Sales ($) / Potential
metrics against which performance will be

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Account (#)
based, to finding the level of bonus, salary or
commission that achieves the financial targets of
the firm. As a general rule, as the linkage
between performance and sales behavior
becomes less direct and causality is less easily
observed, the less useful are compensation
models that rely heavily on a commission-based

yo
structure. Commission works best when sales
effort can be linked directly to a sale. For
instance, sales person X calls on a customer and
Calls (#) / Potential
the order is written on the spot. Yet, if the
Account (#)
salesperson spends months developing the
account, and her colleagues in other divisions
Although more attention and time paid to a and functions have also called on different
op
customer can increase sales, there is a point of people in the buying organization to coordinate a
diminishing returns for placing more calls to the systems-sell or configure a total solution, it
same customers. Eventually, the incremental becomes more difficult to attribute sales effort to
business created by each call is worth less than the work of one person. Perhaps now a bonus
the full cost making the call. structure building on a team incentive becomes
One other performance metric of importance the more relevant approach to reward results.
tC

is sales compared to expenses. While there is no best answer, there are

Sales for Expenses (%) = Expenses ($) / Sales ($) certain rules that do apply. Rule 1: Make the
compensation plan easily understood so that the
If this value is high for one salesperson in salesperson understands what behaviors are
comparison to other members of the sales force, expected, what the sales objectives are, and what
it may indicate the salesperson has poor control outcomes lead to financial reward. Rule 2: Don’t
of their expenses. Examples of poor expense play games. State the compensation plan and
control could be making too many trips to the
No

don’t change it. This is especially true if the plan

client when not necessary, overproducing is changed to lessen the potential gain for the
product pamphlets, or hosting too many free sales force. Rule 3: Try to set metrics that are
dinners. Another possible reason for expenses to objective. If metrics must be subjective, make
be a high percentage of sales could be poor sure the process is transparent and that the sales
closing; they may not deliver desired sales after force is clear about what the rules are and how
spending significant money on a potential success is measured. Rule 4: Think about non-
customer. financial incentives such as recognition
programs.
Do

Keep in mind that compensation cannot be

treated in isolation and that it is part of a sales
performance measurement plan. As such, the
plan should:
 Achieve sales objectives
 Control expenses
13
Milford Teaching Guide, Exhibit H

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 Develop customer support and such as a bonus or commission. In the case of a
encourage greater interaction with bonus, the salesperson will get a lump sum for

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customers reaching certain target levels of sales. With a
 Communicate with company commission, the incentive is incremental and
 Foster non-selling behaviors that use comes with each sale. In order to give
and apply technical knowledge incentives, it is important to be able to
 Encourage sales people to work accurately measure the role the salesperson

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internally as part of team. plays in each sale. The higher the level of
causality that can be attributed to the
Simply put, the good news and bad news salesperson, the better the incentive system.
about compensation plans is that they work.
Sales compensation should drive the appropriate (3) A variety of metrics can be used to
behavior among the sales force that is aligned measure a salesperson’s performance. The
with it and the marketing strategy of the firm. company will need to establish objectives and
The incentive plan needs to align the design their metrics around these goals. Metrics

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salesperson’s activities with the firm’s can gauge the salesperson’s success compared
objectives.14 to: the past, by measuring percent growth over
the previous year; the present, by ranking
A good plan can be either based on the past salespeople based on current results; or the
(growth), the present (comparison with others), future, by measuring percentage of goal
or the future (% of goal achieved).15 achieved. The sales manager can also choose on
Salary, bonus, and commission what level to focus the incentive plan. It could
op
be company-wide (e.g., home improvement
When designing a compensation plan for a tools), division-wide (e.g., cordless tools), or a
sales force, there are four key areas: level of pay, single product line (e.g., screwdrivers). Again, it
mix between salary and incentive, measures of is the firm’s objectives that will determine the
performance, and the performance-payout focus of the incentive program. Lastly, a time
relationships.16 period should be defined for measuring the
performance of each salesperson.
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(1) The level of pay, or compensation, is the

amount the company plans on paying the (4) If an incentive program is instituted,
salesperson at the end of the year. This is usually there needs to be a defined performance-payout
thought of as a range, because the results will relationship. This can take many forms as long
vary if there are bonuses or a commission plan. as it is clear and communicated well to the sales
Compensation levels are usually determined by force. Having a simple system will allow the
the availability of salespeople. The number of sales force to set individual goals for the year.
salespeople looking for work (with a product
No

This will motivate them to sell more when they

that is easier to sell), or the difficulty of selling can clearly see the path that must be followed to
the product play a key role. If selling requires get to each incentive.
high levels of knowledge due to industry
complexity or requires multi-lingual ability, Common measurements used in incentive
there may be fewer available salespeople and a plans are total sales, total contribution, market
need to have a higher level of pay. share, customer retention, and customer
complaints.17 Because it is a system that rewards
(2) The mix between salary and incentive is a salesperson for reaching a certain goal, the
the way a company chooses to allocate actual target must also be defined at the
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compensation. The salary is a guaranteed beginning of the year (or other time period).
amount of money that the salesperson will make Continual tracking of these metrics will help
in a year. The incentive can take multiple forms both the salesperson and the company plan for
year-end compensation.
14
Soltners et al., 273.
15
Soltners et al., 292.
16 17
Soltners et al., 278. Soltners et al., 284.

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Timing is a major consideration with In this system, the first bonus would kick in
incentive plans. The data needs to be collected in at a level approximately half way to the sales

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a timely fashion so that both the salesperson and goal for the year, and then the second bonus will
the company know where they are in relation to be awarded when the goal is met.
their goals and can alter their behavior as
In a commission system, the following
appropriate. The actual timeframe that the plan
would represent the compensation for a
covers is also important. If a company tries to
salesperson:

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reward with weekly incentives, it could be an
expensive program to administer—too time Compensation ($) = Salary ($) + [Sales ($) *
consuming for both the company and the Commission (%)]
salespeople. A period that is too long runs the It should be noted that theoretically the
risk of having forecasts and goals that are salary could go as low as $0 in a 100%
drastically inaccurate. This could result in the commission position. Many jurisdictions place
sales force being paid too much or too little. One limits on such schemes, however. Managers

yo
option is to mix the plan so that it rewards for should ensure that the plan they decide upon
both a simple metric like “Calls per Week” and a complies with any local employment law.
more complicated metric like “Market Share
Achieved” per year. There is also a way to combine the two concepts
by either awarding bonuses on top of
Another complication of using an incentive commissions at certain sales levels or by
program is the issue of being able to assign increasing the commission percentage at certain
causality to individual salespeople. This can sales levels.
op
become a problem in a number of instances, _______________________________________
especially team-work—it is difficult to figure
out which member of the team deserves what Example: Tina makes a commission of 2% on
reward. In this instance, it might be better to each sale up to $1,000,000 and then 3% on each
reward the entire team with equal bonuses for sale after that. Her salary is $20,000 per year.
meeting a goal. Her compensation for a year when she sold
$1,200,000 worth of product would be:
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One last concern is that when an incentive

program is implemented, it may reward the Compensation = $20,000 + (.02)*($1,000,000) +
wrong salespeople. In order to avoid this, the (.03)*($200,000) = $46,000
sales manager would want to take any newly _______________________________________
proposed incentive program and apply it to the
previous year as if it had been in place. A good Once the compensation plan for the sales
plan will usually reward the salespeople that the force has been created, the sales-force manager
No

manager knows to be best. may want to reevaluate the size of the sales
force. Based on forecasts for sales in the coming
Calculating total compensation year, there may be room to hire more sales
There is considerable freedom in designing a people or a need to cut back on the size of the
compensation system. The key is to start with a force. If a value is known for expected sales, a
forecast for sales and a range wherein the formula to determine the breakeven number of
salesperson’s compensation should fall. Once employees with no expected profit would be as
that is determined, there are many ways to follows:
motivate the salesperson. Breakeven Number of Employees (#) = Sales ($) *
Do

For a multi-bonus system, the following [Margin (%) - Commission (%)] / [Salary ($) +
could represent the compensation for a Expenses ($) + Bonus ($)]
salesperson:
Pipeline Analysis
Compensation ($) = Salary ($) + Bonus 1 ($) +
Bonus 2 ($) Pipeline analysis is used to keep track of all
potential customers and current customers so as

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infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.
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to forecast short-term sales and sales-force estimate that 25 of the 100 warm leads present in
workload. the sales funnel will be converted to sales within

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two months.
When salespeople determine that a potential
customer could be a prospect (known as a In order to conceptualize what the sales
suspect) due to their willingness and ability to funnel represents, it is helpful to draw a diagram
buy, they need to confirm that the prospect has that shows the pipeline of work that a
the authority to make the purchase. A salesperson is dealing with at any one time. It is

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salesperson should take the necessary time when likely that at any point in the year all phases of
prospecting to verify that the customers they are the pipeline will have customers. As the diagram
dealing with can make the purchase decision illustrates, while there may be a large number of
without additional approval. (Companies should cold and warm leads, the number that actually
beware of overprospecting. If the incremental makes purchases is only a percentage of the
contribution a customer is bringing to the original leads.
company is less than the cost of acquiring that

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customer, the prospecting is producing a Sales-Force Funnel
negative result for the salesperson. The
salesperson should use the customer lifetime Cold Leads Interest
value when making this determination. Trying to Creation
increase the pre-purchase numbers is not Warm Leads
worthwhile if the numbers down the pipeline do
not also rise.)
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Prospects Pre-
The Funnel purchase
1st Meeting
A convenient way to forecast sales in the
short term and also keep an eye on the sales-
force activity is to create a sales funnel,
represented graphically by a pipeline of data 2nd Meeting
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stored electronically. Purchase

3rd Meeting
The concept of the funnel comes from a
simple principle: From a large number of
possible customers, only a much smaller number Delivery
will actually make purchases. After each stage Post-
of customer interaction, fewer potential Support purchase
customers remain. Keeping track of the number
No

of customers at each stage allows a sales-force

manager to balance the workload within the Interest creation
team and make an accurate forecast of not only
sales, but salesperson workload in the near This can take the form of activities such as
future. trade shows, direct mail, or advertising, and can
also include the sales force actively identifying
In order to keep the funnel populated specific targets to add to the pool of potential
correctly, each salesperson must keep and share customers (generating leads).
records of where all of their potential and Cold Lead: A lead that has not specifically
Do

current customers are in the purchase process. expressed interest. These could come from
Aggregated, this information represents a mailing lists, the phone book, business listings
database of sales-force activities. Using (for B2B), etc.
assumptions such as historical sales data allows
predictions of future sales. For example, if 25% Warm Lead: A lead that is expected to be
of warm leads are usually converted to sales responsive. They may have registered through a
within two months, the sales manager can

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infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.
 -12- UV1417

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Web site or requested product information, for Pipeline Analysis is vital when there are
example. possible issues with inventory or concerns that

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Pre-purchase: This stage involves goals are not being met. This can be done
identifying prospects from among cold and manually or through the use of specialized
warm leads. Typically, initial meetings allow the software. The following example illustrates this
salesperson to explain product features and bottom-up forecasting:
benefits, and to cooperate in problem solving ____________________________________

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with the customer. The desired result is not a
sale but the identification of a prospect and the Example: Using the sales funnel above, the
scheduling of another meeting. number of sales that will need fulfillment in the
Prospect: A potential customer who has next five months can be predicted.
been identified as a likely buyer, possessing the Historical Averages:
ability and willingness to buy. This includes
current customers that will need to make future  2% of cold calls are converted to sales in

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purchases. five months
Prospecting: A process by which  14% of warm calls are converted to sales
salespeople acquire the information they need to in four months
ensure that their prospects and clients will
 25% of prospects are converted to sales in
benefit and ensure that they have enough
three months
information to make an intelligent sales
presentation.18  36% of customers having a pre-purchase
op
Purchase: Once a prospect has been meeting are converted to sales in two
identified and commits for additional calls, there months
will be further contact. In these meetings, more
 53% of customers having a purchase
traditional selling occurs—persuading,
meeting are converted to sales in a month.
negotiating, or bidding. If a purchase is agreed
upon, the salesperson will close the deal— Upcoming Sales = [(56 + 79) × 2%] + [(30 + 51) ×
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possibly requiring proposals/contracts/orders. 14%] + [(19 + 33) × 25%] + [(5 + 16) × 36%)] + [(8
Post-purchase: After purchase, there + 4) × 53%] = 41
remains considerable work to be done. This Note: This example is just for one product.
might include delivery of the product or service, Often there could be a need for multiple sales
installation, collection of payments, training, and funnels for different products or product lines.
ongoing customer support. Additionally, a sale could apply to a single item
Once a sales force is able to visualize the different or to thousands of items. In the latter case, it
No

stages represented in the funnel, they will then be would be appropriate to use “Average Sale
able to accurately keep track of their customers Size/Customer” for forecasting.
and accounts. An electronic solution utilizes a ____________________________________
database or spreadsheet. If the file is kept on a Summary
shared drive, any member of the sales force can
update the data on a regular basis. This also allows Understanding how a sales force works can
the sales manager to view the progress of the team be a vital skill for marketers. This note outlines a
at any point in time. Exhibit 2 is an example of a number of ways of using metrics to inform
spreadsheet form of a sales funnel. The manager sales-force decisions. An efficient, well
Do

can then use the information stored in the sales motivated sales force can make a major
funnel and her/his experience and assumptions to difference in marketing success.
prepare for sales in the near future.

18
Eli Jones, Carl Stevens, and Larry Chonko, Selling
ASAP: Art, Science, Agility, Performance, (Mason, Ohio:
South Western, 2005), 176.

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Exhibit 1

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Balancing Sales Territories

Stakeholder Issue Balance Balance Sales Minimize Develop Compact

Work-load Potential Disruption Territories

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Customers Responsiveness X X

Relationships X

Salespeople Earnings opportunities X

Manageable workload X X

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Reduced uncertainty X

Control of overnights X

Firm Sales results X X X

Effort control X
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Motivation X X X X

Travel cost control X

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Exhibit 2
Example of Spreadsheet Funnel

Interest Creation Pre-purchase Purchase Post-purchase

No

Salesperson Cold Warm Prospects 1st/2nd 2nd/3rd Delivery Support

Leads Leads Meeting Meeting

Sandy 56 30 19 5 8 7 25

Bob 79 51 33 16 4 14 35
Do

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infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.