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Evaluation: Sales Volume Analysis
Evaluation: Sales Volume Analysis
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Perry Marshall is a Google AdWords expert who runs a successful marketing consulting firm. He says that a
key to his success is turning away customers! In fact, this is something that he not only does himself, he also
encourages his clients to do the same. “We’re all tempted to waste our time trying to please all of our
customers instead of the most lucrative ones,” says Marshall, who categorizes customers into the three
groups.
First, there is the top 20 percent of customers who generate 80 percent of the profits.
Second, there is the middle group that generates the rest of the profits.
The third group is the bottom 10 to 20 percent of customers that actually cost money to service.
His advice is to “…paddle away from the 20 percent of your customers who cause problems, and focus on
the 20 percent who buy the most from you.” Marshall’s advice is a consequence of the 80/20 principle, which
this chapter covers in detail. To identify the top customers that this principle refers to, sales managers must
conduct an analysis of sales volume.
This analysis is part of a three-step process that involves planning, implementation and evaluation of
performance. Plans are made; they are put into operation; and the results are evaluated. The new plans for
the next cycle are prepared, based in part on what was discovered in the preceding evaluation.
Source ( Rich 2017)
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Chapter 11 3. Misdirected Marketing Effort
• 80/20 Principle
1. Sales Volume Analysis 4. Basis for Analyzing Sales Volume
and Planning • Total sales volume
• The endless cycle of • Sales by territories
interdependent activities • Sales by products
• Marketing audit • Sales by customer classifications
• Customer probability cube
2. Evaluation process
• What happened 5. Sales Force Automation (SFA)
• Why it happened
• What to do about it
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Sales Volume Analysis
and Planning 3
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Evaluation Planning
• Planning comes first, and • Compare goals • Set goals
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To Illustrate, let’s assume that an organization has done a good job of strategic sales force planning.
But without an effective evaluation, management cannot tell
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Marketing Audit
• A comprehensive, periodic review and evaluation of the
marketing functions in an organization
• Expensive, time-consuming, and difficult, but the rewards
are great
• A traditional (accounting) audit is an after-the-fact review
• A marketing audit is a decision-making aid that should
anticipate future situations
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The Evaluation Process
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Components of Performance Evaluation
SVA + MCA = MPA
• Sales volume analysis (SVA) is a careful study of a company’s Covered in Chapter 14
records as summarized in the net sales section of its profit- (current chapter)
and-loss statement
• Marketing cost analysis (MCA) is a study of the marketing
expenses to determine the profitability of various marketing
Covered in Chapter 15
segments in the organization
• Together, the SVA and MPA constitute a marketing profitability
analysis (MPA)
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80/20 Principle
• 80% of sales comes from 20% of the
customers
Also applied to other marketing units, so:
80% of sales also tends to come from 20% of…
orders, territories, salespeople, products, etc.
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80/20 Principle
Let’s say a $10 million company has ten sales regions across
the country, and the following two are the biggest:
• New England region, which generates $4 million in sales
• Western region, which generates $3 million in sales
Question: Does the 80/20 Principle apply?
Answer:
• Not quite. It’s actually a 70/20 Principle as 70% of sales comes from
20% of the regions
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Bases for Analyzing Sales Volume
•Total Sales Volume
•Sales by Territories
•Sales by Products
•Sales by Customer Classifications
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Information Used In Analysis of Total Sales Volume
Colorado Ski Company
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Analysis of Territorial Sales Volume in
Five-Territory Western Division, Colorado Ski Company
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Analysis of Product Sales Performance in Two Territories
Colorado Ski Company
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Customer Q4
Q3
Probability Q2
Q1 0.9 0.1 0.6 0.2
Cube C1 0.9 0.1 0.6 0.2
Customers
C2
...
Cn
P1 P2 P3 P4
Products
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Sales Force Automation
• Typically a single part of an overall CRM (Customer
Relationship Management) system
• Analyzes information from a variety of the firm’s
different business functions (e.g. sales, marketing,
accounting, purchasing, manufacturing).
• Salespeople are sometimes resistant to SFA initiatives.
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