Sales Management Law and Legal Definition
Sales management refers to the administration of the personal selling a company's product line(s). It includes the planning, implementation, and control of sales programs, as well as recruiting, training, motivating, and evaluating members of the sales force. In a small business, these various functions may be performed by the owner or by the sales manager. The fundamental role of the sales manager is to develop and administer a selling program that effectively contributes to the organization's goals. The sales manager for a small business would likely decide how many salespeople to employ, how best to select and train them, what sort of compensation and incentives to use to motivate them, what type of presentation they should make, and how the sales function should be structured for maximum contact with customers.
Sales management is just one facet of a company's overall marketing mix, which encompasses strategies related to the "four Ps": products, pricing, promotion, and place (distribution). Objectives related to promotion are achieved through three supporting functions: 1) advertising, which includes direct mail, radio, television, and print advertisements, among other media; 2) sales promotion, which includes tools such as coupons, rebates, contests, and samples; and (3) personal selling, which is the domain of the sales manager.
Although the role of sales managers is multidisciplinary in scope, their primary responsibilities are: 1) setting goals for a sales force; 2) planning, budgeting, and organizing a program to achieve those goals; 3) implementing the program; and 4) controlling and evaluating the results. Even when a sales force is already in place, the sales manager will likely view these responsibilities as an ongoing process necessary to adapt to both internal and external changes.
GOAL SETTING
Goal setting is usually based on a company's overall sales goals, modified by the mix of products to be moved. Overall sales goals must be met, of course, but balance must also be maintained. A company that makes three different types of boats, for instance, of which the highest-priced model has the highest profit margins but the lowest-priced boat is easiest to sell, the goal will be structured to move as many of the highest-priced models as possible. Balance between regions also enters the goal-setting process. Sales to some regions may be more difficult (far fewer lakes) but necessary to maintain the company's total volume. If multiple lines are sold (tenting and trailers, for instance), different goals will apply to each category. Goal setting will depend on product mix. In the usual case, past history will be a guide and goals will be set in light of the history—and desires to change past performance—by lifting all sales, high-margin sales, creating sales for new products, etc.
PLANNING, BUDGETING, AND ORGANIZING
After goals are set, the sales manager may accept, or be required to modify, the general approach to sales in the current year. Both ongoing patterns and new ones require budgeting and, occasionally, changes to the organization. Fundamental structural issues are involved such as the distribution channel, the forces to be deployed, and the sales program (incentives, pricing schedules, cooperative advertising programs, etc.) that will be used. A company, for instance, may be engaged in making a transition from direct sales using its own sales branches as distributors to using independent distributors. The planning process in the first year may involve finding and starting three new distributors and closing two company branches and relocating its best sales people. In another operation, the goal may simply require adding four new sales people and training them. In yet another case, the company may have decided to distribute some of its production through a "Big Box," thus creating ill-will among its servicing retailers—and in consequence has decided to offer the retailers a more attractive sales program, higher co-op advertising participation, and high discounts on four occasions if they hold seasonal sales. Finally, in yet another case, no big changes are in the offing, but budgets must be formulated anyway, retiring salespeople replaced, and programs launched in the past continued.
For start-ups, of course, the sales organization must be built from scratch after its general structure has been determined. In such situations planning, budgeting, and organizing take on rather formidable dimensions. The ideal approach is to concentrate on hiring the best possible sales people, to bring them on board as rapidly as possible, and then using them to help with the process.
IMPLEMENTATION
Implementation of the plan will have different emphases depending on whether the operation is up and running or required to be built or rebuilt. Recruiting, training, and setting compensation are primary implementation activities of start-ups or expansions. So are designing sales territories and assigning sales goals to each.
Recruiting
Recruiting salespeople ideally requires understanding of the customers and the market, not least its physical aspects, travel time needed to reach targeted points, and the type of selling involved. Experienced sales managers typically bring such skills to the job or, if brought in from a different field, will make some preliminary field trips to get a feel.
The manager may seek candidates through advertising, college recruiting, company sources, and employment agencies. Another excellent source of salespeople is—other salespeople. In this field, to be one is to know one. Sales recruiting has special characteristics difficult to describe in analytical terms—especially in the small business environment where relationships tend to be closer. But, indeed, in all areas of sales, managers rely a great deal on their experience of sales to find people who have the special knack. Generalizations are dangerous, but good sales people have good communications skills, enjoy human contact, are disciplined, can tolerate rejection with good humor, respond to rewards, and have a high level of energy—often needed because sales may be tiring, may require many hours of standing, and occasionally physical effort in demonstrating products. In technical sales, an engineering background is often required in addition to favorable personality traits. Generalizations are dangerous because experienced people in this business know that often the outwardly least likely people turn out to be great producers whereas those who seem ideal miserably fail. Not everything can be determined by administering personality tests. Good sales people have something in common with entrepreneurs; both categories are notoriously diverse.
Training
After recruiting a suitable sales force, the manager must determine how much and what type of training to provide. Most sales training emphasizes product, company, and industry knowledge. Only about 25 percent of the average company training program, in fact, addresses selling techniques. Because of the high cost, many small businesses try to limit the amount of training they provide. The average cost of training a person to sell industrial products, for example, commonly exceeds $30,000. Sales managers can achieve many benefits with competent training programs, however. For instance, research indicates that training reduces employee turnover, thereby lowering the effective cost of hiring new workers. Good training can also improve customer relations, increase employee morale, and boost sales. Common training methods include lectures, cases studies, role playing, demonstrations, on-the-job training, and self-study courses. Ideally, training should be an ongoing process that continually reinforces the company's goals.
Compensation
After the sales force is in place, the manager must devise a means of compensating individuals. The ideal system of compensation reaches a balance between the needs of the person (income, recognition, prestige, etc.) and the goals of the company (controlling costs, boosting market share, increasing cash flow, etc.), so that a salesperson may achieve both through the same means. Most approaches to sales force compensation utilize a combination of salary and commission or salary and bonus. Salary gives a sales manager added control over the salesperson's activities, while commission provides the salesperson with greater motivation to sell.
Although financial rewards are the primary means of motivating workers, most sales organizations also employ other motivational techniques. Good sales managers recognize that salespeople have needs other than the basic ones satisfied by money. For example, they want to feel they are part of a winning team, that their jobs are secure, and that their efforts and contributions to the organization are recognized. Methods of meeting those needs include contests, vacations, and other performance-based prizes, in addition to self-improvement benefits such as tuition for graduate school. Another tool managers commonly use to stimulate their salespeople is quotas. Quotas, which can be set for factors such as the number of calls made per day, expenses consumed per month, or the number of new customers added annually, give salespeople a standard against which they can measure success.
Designing Territories and Allocating Sales Efforts
In addition to recruiting, training, and motivating a sales force to achieve the company's goals, sales managers at most small businesses must decide how to designate sales territories and allocate the efforts of the sales team. Territories are geographic areas assigned to individual salespeople. The advantages of establishing territories are that they improve coverage of the market, reduce wasteful overlap of sales efforts, and allow each salesperson to define personal responsibility and judge individual success. However, many types of businesses, such as real estate and insurance companies, do not use territories.
Allocating people to different territories is an important sales management task. Typically, the top few territories produce a disproportionately high sales volume. This occurs because managers usually create smaller areas for trainees, medium-sized territories for more experienced team members, and larger areas for senior sellers. A drawback of that strategy, however, is that it becomes difficult to compare performance across territories. An alternate approach is to divide regions by existing and potential customer base. A number of computer programs exist to help sales managers effectively create territories according to their goals. Good scheduling and routing of sales calls can reduce waiting and travel time. Other common methods of reducing the costs associated with sales calls include contacting numerous customers at once during trade shows, and using telemarketing to qualify prospects before sending a salesperson to make a personal call.
CONTROLLING AND EVALUATING
After the sales plan has been implemented, the sales manager's responsibility becomes controlling and evaluating the program. During this stage, the sales manager compares the original goals and objectives with the actual accomplishments of the sales force. The performance of each individual is compared with goals or quotas, looking at elements such as expenses, sales volume, customer satisfaction, and cash flow.
An important consideration for the sales manager is profitability. Indeed, simple sales figures may not reflect an accurate image of the performance of the sales force. The manager must dig deeper by analyzing expenses, price-cutting initiatives, and long-term contracts with customers that will impact future income. An in-depth analysis of these and related influences will help the manager to determine true performance based on profits. For use in future goal-setting and planning efforts, the manager may also evaluate sales trends by different factors, such as product line, volume, territory, and market. After the manager analyzes and evaluates the achievements of the sales force, that information is used to make corrections to the current strategy and sales program. In other words, the sales manager returns to the initial goal-setting stage.
ENVIRONMENTS AND STRATEGIES
The goals and plans adopted by the sales manager will be greatly influenced by the company's industry orientation, competitive position, and market strategy. The basic industry orientations available to a firm include industrial goods, consumer durables, consumer nondurables, and services. Companies that manufacture industrial goods or sell highly technical services tend to be heavily dependent on personal selling as a marketing tool. Sales managers in those organizations characteristically focus on customer service and education and employ and train a relatively high-level sales force. In contrast, sales managers that sell consumer durables will likely integrate the efforts of their sales force into related advertising and promotional initiatives. Sales management efforts related to consumer nondurables and consumer services will generally emphasize volume sales, a comparatively low-caliber sales force, and an emphasis on high-volume customers. In certain types of service activities, e.g., consulting, market research, and advertising, sales are very often conducted by high-level executives or the principals who actually supervise the work to be performed—for example senior researchers or account executives.
REGULATION
Besides markets and industries, another chief environmental influence on the sales management process is government regulation. Indeed, selling activities at companies are regulated by a multitude of state and federal laws designed to protect consumers, foster competitive markets, and discourage unfair business practices.
Chief among anti-trust provisions affecting sales managers is the Robinson-Patman Act, which prohibits companies from engaging in price or service discrimination. In other words, a firm cannot offer special incentives to large customers based solely on volume, because such practices tend to hurt smaller customers. Companies can give discounts to buyers, but only if those incentives are based on real savings gleaned from manufacturing and distribution processes.
Similarly, the Sherman Act makes it illegal for a seller to force a buyer to purchase one product (or service) in order to get the opportunity to purchase another product—a practice referred to as a "tying agreement." A long-distance telephone company, for instance, cannot require its customers to purchase its telephone equipment as a prerequisite to buying its long-distance service. The Sherman Act also regulates reciprocal dealing arrangements, whereby companies agree to buy products from each other. Reciprocal dealing is considered anti-competitive because large buyers and sellers tend to have an unfair advantage over their smaller competitors.
Several consumer protection regulations also impact sales managers. The Fair Packaging and Labeling Act of 1966, for example, restricts deceptive labeling, and the Truth in Lending Act requires sellers to fully disclose all finance charges incorporated into consumer credit agreements. Cooling-off laws, which commonly exist at the state level, allow buyers to cancel contracts made with door-to-door sellers within a certain time frame. Additionally, the Federal Trade Commission (FTC) requires door-to-door sellers who work for companies engaged in interstate trade to clearly announce their purpose when calling on prospects.
BIBLIOGRAPHY
Calvin, Robert J. Sales Management. McGraw-Hill, 2001.
Cichelli, David J. Compensating the Sales Force: A Practical Guide to Designing Winning Sales Compensation Plans. McGraw-Hill, 2004.
"Sales Force Control." Journal of Personal Selling & Sales Management. Winter 2005.
"Sales Management Functions—analysis—planning—strategy—implementation—decision making—quotas." Journal of Personal Selling & Sales Management. Winter 2005.
Simpkins, Robert A. The Secrets of Great Sales Management. AMACOM, 2004.
Hillstrom, Northern Lights
updated by Magee, ECDI
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