SALES AND DISTRIBUTION

MANAGEMENT

Module-II Planning and Managing Sales

MODULE TOUR
2.1 Planning, Sales Forecasting and Budgeting
2.1.1 Strategic Planning
2.1.2 Role of Marketing and Sales
2.1.3 Integrated marketing communication
2.1.4 Sales strategy
2.1.5 Sales Forecasting methods and its accuracy
2.1.6 sales Budget

2.2 Management of Sales Territories and Quotas

2.2.1 Defining sales Territory and its Procedure
2.2.2 Assigning salespeople to Territories and Managing territories
2.2.3 Sales Quota or sales targets
2.1 PLANNING, SALES
FORECASTING AND BUDGETING
 2.1.1 STRATEGIC PLANNING
 Strategic planning includes making decisions about the company’s
long-term objectives and strategies.
 Senior managers are responsible for the development and
implementation of the strategic plan.
 In most large, multiproduct and multi-business organizations,
planning is done at three or four organizational levels:

1) Corporate strategic plan

2) Divisional and/or business units strategic plans

3) Product functional plans

 Organizational Organizational Structure Planning Type
Levels

Corporate Strategic
Planning (long-
Corporate
term)

Division/Business Division/SBU
unit Strategic
Strategic Planning
Business Unit
(SBU)
Product/
Functional
Product/Functional /operational
planning
(Short-term)

Planning at Organizational level

1) CORPORATE STRATEGIC PLANNING
 Corporate strategic planning is developed at the company’s
headquarters to guide the whole organization.
 The planning process includes four steps or planning activities:

1. Developing corporate mission and objectives

2. Defining Strategic Business Units (SBUs)

3. Allocation of resources to SBUs

4. Developing corporate strategies to fill the strategic gap

2) BUSINESS UNIT STRATEGIC PLANNING
 Business Unit (or SBU) Strategic Planning is done by the head of the
business unit by developing long-term mission, objectives and goals, and
strategies in the changing environment.
 The Strategic planning process at SBU includes the following eight
steps:
1. Defining the business unit’s mission
2. Scanning the external environment
3. Analysis of the internal environment
4. Developing long-term objectives and goals
5. Formulating strategies for achieving the objectives and goals
6. Preparing programme or action-plans from the strategies
7. Implementing the strategies and action-plans
8. Monitoring results and taking corrective actions
3) PRODUCT/OPERATIONAL
PLANNING
 Product/operational planning is done for each product within a business
unit.
 It plans the specific procedures or systems required at lower levels of the
organization
 Operational managers normally develop plans for short periods of time
(up to one year).
 They focus on routine tasks such as sales, production, material purchase,
recruiting people, and dispatching goods.
 The functional plans like marketing, production, human resources, and
finance are developed by functional managers to carry out the routine
tasks on day-to-day basis.
2.1.2 ROLE OF MARKETING AND SALES
Organizational Role of Marketing (or Key Tasks Formal Name
Level (and Performed)
Strategy Level)
1. Corporate •Provide information on competition and Corporate
(Corporate customer Marketing
Strategy) •Advocate Customer Orientation
2. Business Unit/ •Provide competition and customer analysis Strategic
SBU/ Division •Develop “competitive advantage” strategy Marketing
(Business Strategy) •Develop target market positioning and product
strategies

3. Functional •Evolve and implement marketing-mix Marketing

i)Marketing strategies to achieve marketing objectives Management
Strategy •Co-ordinate marketing related activities
•Allocate resources

ii) Sales Strategy Classification of accounts, Relationship Strategic sales

strategy, Selling methods (or approaches), sales
channel (or marketing channel) strategy
2.1.3 INTEGRATED MARKETING
COMMUNICATION
 It is the strategic integration of a variety of communication tools such as
advertising, sales promotion, personal selling, public relations, publicity,
and direct marketing.
 The objectives of IMC are to:

1) Use the most cost effective tools to achieve the desired communication

objectives.

2) To ensure strong message consistency, clarity, and sales impact.

2.1.4 SALES STRATEGY

 Sales managers are responsible for strategic decisions at the account level.
 Sales strategies are developed for each specific customer.
 However, the strategic decisions are typically made by arranging
individual customers into similar categories or groups.
 There are four parts of a sales strategy:

1) Classification of accounts

2) Relationship strategy

3) Selling methods

4) Channel Strategy
1) CLASSIFICATION OF ACCOUNTS

 Within a target market segment, the accounts or specific customers, are

classified into different customer groups.
 Class “A”: High Sales and profit potential
 Class “B”: medium sales and profit potential
 Class “C”: Low sales and profit potential, including prospective customers
and customers who have good relationship with competitors.
 The company developed different sales strategy for each of these
customer groups, as well as for each “A” class customer.
2) RELATIONSHIP STRATEGY

 Buyers and sellers, particularly in business markets, have some kind of

business relationships.

1) Transactional relationship

2) Value-added relationship

3) Collaborative relationship
3) SELLING METHODS

 Sales people should use different selling methods to suit different

relationship strategies.
 These are:

1. Stimulus response method

2. Formula method (AIDA model)

3. Need-satisfaction method (FAB approach)

4. Team Selling Method

 Group Presentation (Need analysis, Introduction, Convincing, Specific

benefits, Well prepared)

5. Consultative selling method (or problem-solution presentation)

3) CHANNEL STRATEGY
 A strategic issue in the sales strategy is to select an appropriate channel
and for covering selling efforts, it is called sales channel.
 Sales managers should ensure that accounts and group of customers
receive effective and efficient sales coverage.
 The various channels are:
1) The company sales force
2) Industrial distributors or dealers
3) Manufacturer’s representatives, independent representatives or agents
4) Telemarketing
5) The Internet
6) Brokers and Commission merchants
2.1.5 SALES FORECASTING
 The purpose of sales forecast is to plan and achieve the forecasted sales in
an effective manner.
 Sales forecast are used by other functions:

1) Manufacturing or production for setting up production capacity and

planning production

2) Finance for raising cash for investment and operations as well as for
profit planning

3) Purchase function for planning their purchases

4) Human resource management for manpower planning

 Thus, sales forecast has a role as a forerunner to all planning activities in
an organization.
 All (total) Sales

Industry Sales
Product
Company Sales
Level
Product lines Sales

Product Variant (Form) Sales

Product Item Sales

Long Range (Term)

Types of
Sales Time
Medium Range (Term)
Forecast Period
Short Range (Term)

World

Nation (India/USA)
Geographic
Region (North/South)
Area
Territory (Branch/District)

Customer
BASIC TERMS USED IN FORECASTING

1. Market Potential: it is the best possible (or maximum) estimated sales of

a given product or service for the entire industry in a given market for a
specific period of time.

2. Market Forecast/Size: it is expected industry sales of a given product or

service at one specific level of industry, marketing expenditure, in a
given market, for a specific period of time.

3. Sales Potential (or company sales potential): it is the best possible (or
maximum) estimated sales of a given product or service for a company
in a given geographical area for a specific period of time.
4. Sales Forecast (or company sales forecast): It is 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 forecast is less than
the sales potential.

5. Sales Budget: the sales revenue budget and the selling expense budget

6. Sales Quota: it is a sales goal set for a marketing unit for a specific
period of time.
FORECASTING APPROACHES

Two basic approaches of forecasting:

1) Top-down (or break-down) approach

2) Bottom-up (or Build-up) approach

1) TOP-DOWN/BREAK-DOWN
APPROACH
 In this approach, typically the company sales forecast is developed at the
business unit (or SBU) level, by using suitable forecasting methods.
 The head of sales/marketing then breaks down the company sales forecast
into region, district, territory, salesperson, and individual customer sales
quotas.
Step:1 Forecast relevant external environmental factors over specified time
period
Step: 2 Forecast industry sales (or market potential) for relevant industry over
specified time period
Step: 3 Company sales potential= Industry sales forecast x Company’s share
of total industry sales in %
Step: 4 Company sales forecast of the product/service under study
Step: 5 Sales/marketing manager’s forecasts for regions, branches, territories,
and customers.
 Some of the methods used for forecasting industry sales are: Delphi
Method and Regression Analysis.
 The last step of breaking down the company sales forecast to different
regions and territories is done based on market potential of different
geographical areas.
 For this, two major methods are available:

1) Market build-up method, primarily used by business marketers

2) Multiple-factor index method, mainly used by consumer marketers

2) BOTTOM-UP/BUILD-UP APPROACH
 Bottom-up or build-up approach starts with the company’s area or branch
managers asking its salespersons to estimate or forecast the sales in their
respective territories.

Step: 1 Salespersons’ sales forecast of individual customers

Step: 2 Combined into Area/Branch sales forecasts

Step: 3 Combined into Regional/Zonal sales forecasts

Step: 4 Combined into company sales forecast

SALES FORECASTING METHODS

Executive Opinion

Delphi Method

Qualitative Sales Force Composite

Methods
Survey of Buyers’ Intentions

Test Marketing

Moving Average

Exponential Smoothing

Quantitative Decomposition
Methods
Naïve/Ratio Method

Regression Analysis

Econometric Analysis
1) EXECUTIVE OPINION METHOD
 The method includes getting the views of top executives of the company
regarding future sales.
 The sales forecasts are made either by taking the average of all the
executives’ individual opinion or through discussions among the
executives.
 Some executives’ opinion may be supported by the use of forecasting
methods, and other executives may form their opinion based on
experience, judgement, and intuition.
 The Advantages: Forecasting can be done quickly and easily, less
expensive than other methods, very popular, particularly among small and
medium-sized companies.
 The Disadvantages: Unscientific, subjective, difficult to break-down the
forecast into subunits of the organization.
2) DELPHI METHOD
 This method is similar to the executive opinion method, and was developed by
R. Corporation during the late 1940s.
 The procedure includes selection of panel of experts from within and outside
the organization.
 A coordinator asks each expert separately to make a forecast on some matter.
 Each member of the expert panel submits in writing his/her forecast secretly.
 The coordinator summarizes these forecasts into a report that is sent to each
panel member.
 The experts are then asked to make another prediction separately on the same
matter, with the knowledge of the forecasts of the other experts on the panel.
 This process is repeated until the panel of experts arrive at some consensus.
 The basic relief in this method is that experts, without any pressure or influence
will develop a more accurate prediction of the future
 Advantages: objective forecast that is accurate, useful for technology, new
product, and industry sales forecast, both long and short term forecasting
possible.

 Disadvantages: difficulty getting a panel of experts, longer time for getting

consensus, break-down of forecast into products or territories is not possible.
3) SALESFORCE COMPOSITE METHOD
 This method involves salespeople to estimate their future sales.
 It is an example of bottom-up approach and is also called a “grass-roots”
approach.
 Each salesperson estimates in his/her territory how much quantity or value
existing and potential customers will buy of each of the company’s products
and/or services.
 Sales representatives make the sales estimate in consultation with customers
and sales supervisors, and/or based on their experience and intuition.
 The company sales forecast is made up (composite) of all the salespersons’
sales forecast.
 Advantages: forecasting is done by salespeople who are closest to the market
and have better insight into sales trends than any other group in the company,
Detailed sales estimate broken down by customer, product, sales representative
and territory are possible,
Involvement of salespeople.

 Disadvantages: Sales forecast are often pessimistic or optimistic, as

salespeople are not trained in forecasting,
If sales forecast are used to set sales quota, which are linked to incentive
schemes, salespeople may deliberately underestimate the demand,
Many salespersons are not interested in sales forecasting, and prefer to spend
time in the field meeting customers.
4) SURVEY OF BUYERS’ INTENTIONS
METHOD
 This method is sometimes called as market research or market survey.
 It includes asking existing and potential customers about their likely
purchases of the company’s product and services for the forecast period.
 The information collected from buyers help the company to make effective
decisions not only in sales and marketing areas, but also on production,
research and development.
 Advantages: useful in forecasting sales for industrial products, consumer
durables, and new products.
It also gives customers’ reasons for buying or not buying.
Relatively inexpensive and fast, when only a few customers are involved.

 Disadvantages: Sometimes buyers are unwilling to reveal their plans.

Buyers are sometimes over optimistic.
Expensive and time-consuming in consumer non-durable markets where
consumers are very large in number.
5) TEST MARKETING METHOD
 This method is useful for forecasting sales for a new product, which has no
historical sales figures.
 It can also be used for estimating sales for an established product in a new
territory.
 Major methods used for consumer-product market testing include:

1) Full-blown test markets (2 to 6 cities, max. 1 year, trial and repurchase rate)

2) Controlled test marketing (some amount of money, purchasing behaviour)

3) Simulated test marketing (brand familiarity)

 Advantages: Their usefulness for forecasting the sales of new or modified
products.
In deciding whether a company should go ahead for a national launch of a new
product, without spending a huge amount.

 Disadvantages: For some of the methods like full-blown test market and
controlled test marketing, where there are possibilities of the information on
new products going to competitors, there are chances of spoilage of the test
marketing.
If re-purchase period is long, particularly for consumer durables, it is difficult
for the company to wait to measure test results.
6) MOVING AVERAGE METHOD

 This is relatively simple method that develops a company forecast by

calculating the average company sales for previous years.
 The formula used is:
Sales Forecast for next year = Actual sales average for past years
No. of years

 If a company operates in a stable environment, a short two or three year

average may be most useful.
 However, If a firm is in an industry with cyclical variations, the moving
average should use data equal to the length of a cycle or a longer averaging
period.
 Advantages: Relatively simple method.
Easy to calculate.
Widely used for short-term and medium-term sales forecasts.

 Disadvantages: Unable to predict a downturn or upturn in the market.

Cannot predict long-term sales forecast accurately.
Historical data is needed.
7) EXPONENTIAL SMOOTHING METHOD
 By using the exponential smoothing equation, the forecaster can allow sales
in certain periods to influence the sales forecast more than sales in other
periods.
 The equation of exponential smoothing method is as follows:
Sales forecast for next year= (L) (actual sales this year) + (1-L) (this year’s
sales forecast)
where (L) is a smoothing constant, or probability weighing factor
 The forecaster decides the value of the smoothing constant based on: review
of sales data, knowledge and observation about the conditions in the
forecasted period and conditions in previous period, and intuition.
 For instance, a smoothing constant (L) with a high value of (0.7) or (0.8)
allows most recent periods of actual sales to influence sales forecast more
than sales in earlier periods,
Whereas a smoothing constant with a low value of (0.2) or (0.3) allows
earlier periods of actual sales to influence forecasted sales more than sales
in recent periods.
 The smoothing constant (L) can range from something greater than zero to
something less than 1.

 Advantages: simple to operate, forecaster’s knowledge or intuition can be used

in forecasting, useful method when sales data have a trend or a seasonal
pattern, immediate response to a upturn or downturn in sales, used by many
firms.

 Disadvantages: Smoothing constant is somewhat arbitrary,

Long-term and new product forecasting are not possible.
8) DECOMPOSITION METHOD

 In this method the company’s previous periods sales data is broken down
into four major components, such as Trend, Cycle, Seasonal, and erratic
events.
 These components are then recombined to produce the sales forecast.
 Cyclic and erratic events are included in the calculation of annual sales
forecast.
 However, the seasonal component is used for forecasting sales for less than a
year, likely quarterly or monthly sales forecast.

 Advantages: It is conceptually sound.

 Disadvantages: Difficult and complex statistical methods are needed to break

down sales data into various components.
Historical data is needed.
9) NAIVE/RATIO METHOD
 It is based on the assumption that what happened in the immediate past will
continue to happened in the immediate future.

Sales forecast Actual sales Actual sales of this year

= of this year x
for next year
Actual Sales of last year
 Advantages: simple to calculate, requires less data, accuracy is good for
short-term forecast.

 Disadvantages: it cannot be used for forecasting sales for forecasting sales

for long-term periods and new products, accuracy of sales forecast would
be less, if past sales fluctuate considerably.
10) REGRESSION ANALYSIS

 This is a statistical forecasting method that is used to predict sales, called as

dependent variable “Y”.
 The company then identifies causal (cause and effect) relationship between
the company sales and the independent variables, which influence the sales.
 To show relationship between paired data, we use a scatter diagram, the
simple method is to draw a freehand line on the plotted points, keeping in
mind to minimize the distances of all the points from the line.
 A more accurate method of finding the “best-fitting line” is to use the least-
squares formula for a straight line, y=a+bx, where “a” is the intercept of the
line on Y-axis, and “b” is the slope or trend of the line.
 To forecast the effect of several independent variables on the company sales,
the method used is called “Multiple Regression Analysis”
 Advantages: high forecasting accuracy if the relationship between variables
are stable, objective method, can predict turning points of the company’s
sales.
 Disadvantages: Technically complex, can be expensive and time consuming,
use of computer and software packages are essential.
11) ECONOMETRIC ANALYSIS

 In this method, many regression equations are built to forecast industry sales,
general economic conditions, or future events. The procedure followed is as
follows:

To find out which factors or variables influence sales and the relationships
between sales and these factors as well as the interrelationships between the
factors, develop a number of regression equations representing these
relationships.

A forecast is prepared by solving these equations on a computer.

 Advantage: accurate forecast of economic conditions and industry sales are
possible.
 Disadvantage: a large volume of data is required representing the various
factors.
HOW TO IMPROVE FORECASTING
ACCURACY?

1) Use multiple forecasting methods

2) Identify suitable methods

3) Develop a few factors

4) Obtain a range of forecasts

5) Use computer hardware and software tools

2.1.6 SALES BUDGET
 A sales budget consists of estimates of expected volume of sales and
selling expenses.
 The sales manager is responsible for preparing three detailed budgets:

1) The sales volume budget

2) The Selling-expense budget

3) The Administrative budget of the sales department

 The sales volume budget, which is derived from the sales forecast, is
broken down into

(a) Product-wise quantities, the average selling price per unit, and sales
revenue,

(b) Territory-wise quantities to be sold and sales revenue

(c) Customer-wise and salesperson-wise sales volume quota during yearly,

quarterly, and monthly budget period.
 The selling-expense budget includes expenditure for personal selling
activities, such as the salaries, commissions and other expenses for the
Salesforce.
 Any plans for increase in numbers of salespeople must also be included in
this budget.
 The Administrative Budget of the sales department should include salaries
of territory sales managers, sales supervisors, their secretaries and office
staff.
 The budget should also include operating expense like rent, power,
supplies, office equipment, and general overhead.
PURPOSES OF THE SALES BUDGET

1) Planning

2) Co-ordination

3) Control
METHODS USED FOR DECIDING SALES
EXPENDITURE BUDGET

1) Percentage of sales method

2) Executive judgement method

3) Objective and task method

SALES BUDGET PROCESS

Step: 1 Review Situation

Step: 2 Communication

Step: 3 Subordinate Budgets

Step: 4 Approval of the sales budget

Step: 5 Involvement of other departments

2.2 MANAGEMENT OF SALES
TERRITORIES AND QUOTAS
2.2.1 SALES TERRITORY
 A sales territory consists of existing and potential customers assigned to a
salesperson.
 The territory may or may not have geographic boundaries.
 Hence, in defining a sales territory the keyword is customers, instead of
geographical area.
 In most organizations, it is beneficial to allot salespeople to geographic
territories, consisting of present and potential customers.
MAJOR REASONS / BENEFITS OF SALES
TERRITORIES
1. Increase market / customer coverage

2. Control selling expenses and time

3. Enable better evaluation of Salesforce performance

4. Improve customer relationships

5. Increase Salesforce effectiveness

6. Improve sales and profit performance

PROCEDURE FOR DESIGNING SALES
TERRITORIES
Use Build-Up
Method

Find Location
Select a Control Decide basic OR
and Potential of
Unit territories
Customers

Use Break-
Down Method
STEP: 1 SELECT A CONTROL UNIT
 The sales manager should select the smallest control unit.
 The reasons are: 1) the control units’ market potential and the company
sales potential should be possible to calculate, 2) adjustments of control
units should be possible when tentative territory boundaries are modified
to make final territories.
 Commonly used control units are States, metros (or metropolis), cities,
districts, towns, pin-code areas, industrial estates, and major customers.
STEP: 2 FIND LOCATION AND POTENTIAL
OF CUSTOMERS
 The next step is to find the location and sales potential of present and
prospective customers in each control unit.
 Information of present customers should be available from the company’s
sales analysis.
 The information on prospective customers can be obtained not only from
the company’s salespeople, but also from telephone directories, and
market research studies.
 After the present and potential customers are identified, the company
should estimate the total sales potential for all customers in each
geographical control unit.
 After the sales potential of control units are calculated, it is necessary to
classify the customers based on their sales and or profits potential. (ABC
Analysis).
STEP: 3 DECIDE BASIC TERRITORIES
 This decision can be taken by using either Build-up method or Break
down method.
 Build-up method equalizes the workload of salespeople and is commonly
used by manufacturers of industrial products and services or by
companies that want selective distribution strategy.
 Break-down method equalizes the sales potential of territories, and is
popularly used by manufacturers of consumer products and services or by
firms that want to adopt intensive distribution strategy.
 Build-up Method (equalize the workload of salespeople)

Calculate Estimate Make

Decide Call total workload Develop final
tentative
Frequencies customer capacity of a Territories
territories
calls in each salesperson
control unit

Break-down Method (equalize sales potential of territories)

Forecast Estimate sales

Estimate
sales Make Develop final
company sales volume
potential for tentative Territories
potential for expected from
each control territories
total market each
unit salesperson
 2.2.2 ASSIGNING SALES PEOPLE TO
TERRITORIES AND MANAGING TERRITORIES
2.2.3 SALES QUOTAS & SALES TARGETS
 Sales quotas are sales goals or targets set by a company for its marketing /
sales units for a time period.
 Marketing / sales units are regions, branches, territories, salespeople, and
intermediaries.
 Sales quotas can be set on sales volume, expense, profit margin, activity,
customer satisfaction, and combination.
 Annual sales quotas for each marketing unit are broken down to quarterly
and monthly quotas.
 Generally, company sales budget is broken down to sales quotas for
various marketing units.
OBJECTIVES OF QUOTAS

1. To use quotas as performance standards or performance goals.

2. To control performance.

3. To motivate people by linking quotas to compensation plans.

4. To identify strengths and weaknesses of the company.

TYPES OF QUOTAS
Organizations set many types of sales quotas:

(1) Sales volume

(2) Financial

(3) Activity

(4) Combination
1) SALES VOLUME QUOTAS
 Most companies have sales volume quotas for individual salespersons,
distributors, retailers, geographical areas, or products, for a specific
period of time.
 For effective control, sales volume quota should be set for the smallest
marketing units, such as salesperson, districts/ branches, product
items/brands.
 Similar approach is used for setting sales volume quotas for products for
specific time periods.
 Sales volume quotas can be stated in:
1. Rupees / dollars sales volume quotas are appropriate when salespeople
are required to sell many products.
2. Unit sales volume quotas are suitable a) when Salespeople are selling a
few products, b) Prices of the product fluctuate rapidly, c) Price of each
product / service is high.
3. Point sales volume quotas are appropriate when the company wants
salespeople to sell products that contribute more to profits.
2) FINANCIAL QUOTAS
 Financial quotas are the goals set to control gross margin or profit
contribution, and expenses of various marketing (or sales) units, such as
sales territories, salespeople, and products.

1) Gross-margin / Net-profit quotas

 Calculate gross margin by subtracting ‘cost of goods sold’ (i.e. cost of
manufacturing) from sales volume. Sales managers are not responsible for
cost of manufacturing.
 Net profit quotas are generally accepted by sales mangers as it is
calculated by subtracting direct selling expenses from the gross margin.

2) 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.
3) ACTIVITY QUOTAS
 Many companies set activity quotas so as to direct salespeople to carry out
important job related activities.
 These activities are useful for achieving performance targets of
salespeople.
 The process of deciding activity quotas includes:
1) Defining the important activities
2) Finding out the time required for carrying out these activities
3) Deciding the priorities to be given among the various activities
4) Deciding the quotas or frequency for important activities

 These are set when salespeople perform both selling and non-selling
activities
 For effective implementation, activity quotas are combined with sales
volume and financial quotas
 E.G. Calling on high potential customers, payment collection from
defaulting customers
4) COMBINATION QUOTAS
 It is Used when companies want to control Salesforce performance on key
selling and non-selling activities.
 Typically use ‘points’ as a common measure to resolve the problem of
different measures used by various types of quotas
METHODS FOR SETTING SALES QUOTAS
 Several methods are used for establishing sales quotas
 In practice, companies use more than one of the following methods to
increase their confidence in sales quotas

1) Total market estimates

2) Territory potential

3) Past sales experience

4) Executive judgement

5) Salespeople’s estimates

6) Compensation plan
1) TOTAL MARKET ESTIMATES METHOD
 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 and approaches.

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)

2) 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 and approaches.

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
3) 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.
4) EXECUTIVE JUDGEMENT 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
5) SALESPEOPLE ESTIMATES 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
6) 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)
 Sales quotas should not be based only on this method, because it would
“put the cart before the horse”
INSIGHT INTO SETTING &
ADMINISTRATION OF SALES QUOTAS
 Set realistic quotas.
 Understand problems in setting quotas.
 Ensure salespeople understand quotas.
• By allowing salespeople to participate in the process
• By continuous feedback to salespeople on their performance compared
to quotas
 Have flexibility in administering quotas.
• Change quotas in cases of major changes in market demand or company
strategies
 Use monthly or quarterly quotas for incentives and annual quotas for
performance evaluation.
 Select a few quotas that have relationships with marketing environment and
sales situations.
T H A N K
O U . . ! !
Y