Sales Management: Shaping Future Sales Leaders
Chapter 7
Designing and Organizing the
Sales Force
1-1
Learning Objectives
Explain how a firm’s goals affect the organization of its
sales force
Understand that a sales force can be organized in
multiple ways
Explain the advantages and disadvantages of different
sales force organizational structures
Describe the various reporting relationships sales forces
Understand the advantages and disadvantages of
outsourcing a firm’s sales force
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Sales Goals affect Sales Force
organization
Organizational sales structures serve a number of
purposes:
Serving buyers effectively in ways they want to be served
Operating efficiently as measured by cost and customer
satisfaction
Best way to design a sales structure is to
Determine sales activities that must be performed to reach
goals
Create sales structure that affords highest levels of service to
buyers at lowest overall cost
Select, train and manage reps and managers to become
experts in their assigned duties
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Areas Impacted by a Sales Force Structure
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Sales Force Size: Analytical Tools
The Breakdown Approach is used to determine the
number of salespeople needed to generate a forecasted
level of sales. This approach is easy to develop.
However, it is weak conceptually. The concept underlying
the calculations is that sales determine the number of
salespeople needed—putting “the cart before the horse.”
Salesforce size = Forecasted sales / Average sales per person
Sales Force Size: Analytical Tools
The Workload Approach determines how much selling
effort is needed to adequately cover the firm’s market.
Then the number of salespeople required to provide
this amount of selling effort is calculated. This
approach relatively simple to develop and is sound
conceptually.
Total selling effort needed
Number of salespeople =
Average selling effort per
salesperson
Workload Method
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Sales Force Size: Analytical Tools
The Incremental Approach is the most rigorous for calculating
salesforce size. Its compares the marginal profits and marginal
costs associated with each incremental salesperson. The major
advantage is that it quantifies the important relationships between
salesforce size, sales, and costs. However, this method is
difficult to develop, and it cannot be used for new sales forces
where historical data and accurate judgments are not possible.
Sales Force Specialization Continuum
Generalists Specialists
Some specialization Certain selling
All selling activities
of selling activities, activities for certain
and all products to
products, and/or products for certain
all customers
customers customers
Specialized sales structure offers expertise advantages
over generalist sales force
Coordinated to address buyers’ needs
Integrated with other organizational functions
Should You Specialize Your Sales
Force?
Sales specialization improves performance
However:
Specialization is expensive
Must produce results that are greater than investment
Sales specialization is more difficult to manage
Requires greater oversight to align with firm’s strategy
Changing sales assignments are challenging:
Must modify job content and account assignments
This requires substantial planning and investment
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Sales Force Structures
Depends on physical boundaries to organize
Geographical sales force with customer accounts
Sales Structure Interacts with buyers as generalists
Sales activities organized around related product
Product lines or manufacturing divisions
Sales Structure Interacts with buyers as specialists
Reps assigned to customers based on markets or
Market how product is sold
Sales Structure Reps learn more about customer’s specific
business needs and offers customized solutions
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Sales Force Structures
Selling process divided into two or
Functional
more steps performed by specialists
Sales Structure
Combinational Sales force organized based on mix
Sales Structure of product, market, and geographical
factors
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Geographic-Based Structure
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Geographical Sales Structure
PROs CONs
Relatively easy to design Work best when product line is
simple
Minimizes duplication of effort
Can be inefficient
Ensures a specific salesperson
is assigned to each customer
Sales calls more efficiently
scheduled
Territory can be divided or
combined to respond to market
conditions
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Product-Based Structure
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Product Sales Structure
Limitation: can be confusing for buyer
Example: Xerox has 3 separate sales forces
1. Called on same accounts
2. Had little knowledge of each other’s products
3. Confused buyers who had genuine need for Xerox
products
4. Did not cooperate by providing leads and info to each
another
Sales rose with combined force, but rep turnover
increased
Some reps not interested in or able to learn and sell three
separate product lines
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Market-Based Structure
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Market-Based Structure
PROs CONs
Effective strategy when a seller Selling expenses are higher than
wants to penetrate a new market for geographic-based structure
Allows selling firm to vary Multiple reps calling on same client
allocation of sales efforts to
specific industries by adding to or Buyer confusion
reducing the number of Duplication of effort
salespersons slotted in one area to
another Higher expenses
Permits firm to offer specialized
training and develop individualized
sales approaches and applications
by industry
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Functional Sales Structure
Functional Sales Structures
PROs CONs
Selling process divided into Coordinating multiple
steps performed by specialists specialists
Multible sales channel Ensuring smooth transition
Example: grocery from account establishment to
management
Establish account
Manage inventory & orders
Merchandising
7-20
Combination Sales Structures
PROs CONs
Sales force organized based
on mix of product, market, and Expensive
geographical factors Can result in duplicate sales
Work best when market is efforts
large, product mix complex,
and customers require different
applications
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Comparison of
Sales Organization Structures
Organizational
Structure Advantages Disadvantages
• Low Cost
• Limited specialization
• No geographic duplication
• Lack of management
Geographic • No customer duplication
control over product or
• Fewer management levels
customer emphasis
• Salespeople become experts
• High cost
in product attr. & applications
Product • Geographic duplication
• Management control over
• Customer duplication
selling effort
Comparison of
Sales Organization Structures
Organizational
Structure Advantages Disadvantages
• Salespeople develop
better understanding of
unique customer needs • High cost
Market • Management control over • Geographic duplication
selling allocated to different
markets
• Geographic duplication
• Efficiency in performing
Functional selling activities
• Customer duplication
• Need for coordination
Customer and Product Determinants
of Sales Force Specialization
Customer Needs Different
Market- Product/Market-
Driven Driven
Simple Specialization Specialization Complex
Product Range of
Offering Geography- Product- Products
Driven Driven
Specialization Specialization
Customer Needs Similar
Key Accounts
Key Accounts: customers that are large in terms
of sales revenue and profitability and
strategically important for the future of the firm
80/20 Rule: 80% of a firm’s total business and
profits are derived from 20% of its customers
Large, strategic accounts require higher levels of
service and deeper buyer-seller relationships
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Key Account Structures
Use Existing Force
Sales force structure is simplified
All accounts are managed under a
single organizational structure
CONs
Reps may take short-term view
Reps may not understand broader,
overall needs of key acc’t
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Key Account Structures
Assign Execs
Assigning sales and marketing
executives to manage key accounts
makes sense for smaller firms that
cannot afford separate sales effort
CONs
Can take a lot of time, leaving less
time for other duties, like managing
sales force
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Key Account Structures
Create Separate
Create separate sales structures to
serve most important customers
Integrates marketing and sales for key
accounts under one organizational
structure
CONs
Establishing distinct sales channels for
major acc’ts is more costly
Duplication of effort
Financial viability if key acc’ts lost
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Span of Control
Span of control: number of individuals that report
directly to a sales manager
Span of Control Ratios (Rep:Manager)
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Span of Control vs. Management Levels
Flat Sales Organization
National
Management Levels
Sales
Manager
District District District District District
Sales Sales Sales Sales Sales
Manager Manager Manager Manager Manager
Span of Control
Span of Control vs. Management Levels
Tall Sales Organization
National Sales
Manager
Management Levels
Regional Sales Regional Sales
Manager Manager
District District District District District District
Sales Sales Sales Sales Sales Sales
Manager Manager Manager Manager Manager Manager
Span of Control
Company Salesperson or Sales Agent?
Salesperson Sales agent
When it’s important to When potential sales
control sales effort, product revenue is low in a territory
or related technology is When revenue will take
new, buyers need high years to become substantial
level of service
When qualified sales agents
Company exerts greater already operate in the area
control over sales force
efforts When it’s not feasible for
company sales force to
Greater control over who is cover entire market (e.g.,
hired National Semiconductor,
Advanced Micro Systems)
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Use of Sales Agents
Common for manufacturers to use
sales agents when entering new
territories with low or unknown sales
volumes
Selling costs (commissions) incurred only
when product or service is sold
Advantages
An “in-place” or existing sales force
Established buyer relationships
Little (or no) fixed costs
Experienced sales personnel
Lower costs per sales call
Long-term stability in the territory
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Relationship Between Company Sales
Managers and Agents
Selling firm can contract with mfg’s agent or
wholesaler’s sales force to manage accounts in
geographical regions
Example: company sales force manages larger, more
profitable territories and also contract with agents to service
less developed, less profitable geographical territories
(insurance companies)
Company sales mgr has little direct control over agents other
than dissolving the agency relationship
Sales mgr must motivate agents by appealing to self-interests
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Company Salesperson or Sales Agent?
Break-even analysis: compares fixed and variable costs
associated with the two types of reps
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Conflict Between Firm and Sales
Person/Selling Agent
Caselet 7.1 ( Page 156)
Questions
What are the benefits of partnering with independent
reps, as opposed to a company sales force? Can a
case be made for finding a way to retain JP’s current
salespeople instead of hiring sales agents to replace
them?
Why would the turnover rate be significantly lower for
JP if it hired sales agents?
What type of resistance might JP encounter from its
current sales reps if it hired sales agents?
How might JP integrate an independent rep strategy
with its existing company sales force?
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Caselet 7.2 (page 157)
Questions
Even though IMC’s cost per call would decrease, what
other costs should Jones consider when making her
decision?
Do you think some of the countries Jones was thinking
about offshoring to would result in potentially less caller
dissatisfaction than others?
What criteria would you recommend that Jones
consider when selecting a potential offshore location?
What other factors should Jones weigh as she ponders
this major shift in customer service responsibilities?
7-40
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