Page 56 - DMGT205_SALES_MANAGEMENT

Sales Management

Notes
Example: If we have 10 salesmen already, then on adding one extra salesman the sales
volume, cost of goods (60% of sales) and gross margin (40% of sales) vary as depicted in the
following table.

No. of Sales volume Cost of goods Gross margin
salesmen in Rupees Sold 60% 40%
11 250,000 150,000 100,000
12 200,000 120,000 80,000
13 150,000 90,000 60,000
14 100,000 60,000 40,000

Suppose all salesmen receive a salary and travelling expense of 20,000 + 15,000 and 6% commission
on sales. The net profit will vary according to the following table.

No. of salesmen Gross margin Sal.+T.A.+Comm. Net profit
11 100,000 35,000 + 15,000 50,000
12 80,000 35,000 + 12,000 33,000
13 60,000 35,000 + 9,000 16,000
14 40,000 35,000 + 6,000 –1,000

Thus we see that the 14th salesman is not feasible as there is a loss of 1000 if he is included in the
sales force.

Limitations of Incremental Method

It fails to account for competitive reaction and long term investment of personal selling effort.

4.8.2 Sales Potential Method

Here the management considers what an average sales person with an average performance
will accomplish. Thus the amount of sales that will be made by the salesman. We then find out
the forecasted sales volume(s). We divide the total sales volumes by the work which one sales
person can do. Then S/P will give the number of sales person required. In this method we also
make allowances for the rate of turnover of sales person.

This is the easiest of all the methods. The formula for this method is
N = S/P
Where,
N = Number of sales persons

S = Forecasted sales volume
P = Estimated sales productivity of one person
If S = 100,000 and P = 10,000 then N = S / P = 10

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