Sales Control & Cost Analysis Dr. Neeraj Dixit Associate Professor IES Management College, Mumbai 1

Contents • Sales Control-Meaning & definition • Types of Sales Control • Steps in deg a Sales Control System • Sales Audit & its Aim • Cost Analysis-Meaning & Definition • Full Cost Approach • Contribution Margin Approach 2

Sales Control-Meaning & Definition • Control is a function of every management to ensure that operations are being carried out as per the plan to achieve the objectives. • Sales control ensures the achievement of personal selling objectives. • Sales control is very essential to ensure proper conduct of sales operations by different functionaries in the field. 3

Types of Sales Control Type of Control

Prime Responsibility

Purpose of Control

Approaches

1

Annual plan control

Top level managers

To examine whether the planned results are being achieved

-Sales analysis  Market shares analysis  Marketing expenses to sales ratio

2

Profitability control

Sales controller

To examine where the company is making or losing money

Customer attitude Tracking profitability by  Product territory  Market share  Trade channel  Order size  Sales audit 4

Steps in Deg a Sales Control System 1. Objective setting 2. Deg different control levels 3. Deg a reporting system and a system 4. Deciding tools and techniques of control 5. Variance analysis and reasons thereof 5

Sales Audit • Sales audit is a comprehensive, systematic, independent and periodic examination of a company’s environment, objectives, strategies and activities to determine problem areas and opportunities and recommend a plan of action to improve the company’s sales performance. The job of sales audit is performed by a sales auditor. 6

The Aim of the Sales Audit 1. Find out the true and accurate position of sales. 2. To exercise control over future planning and over the results of the company. 3. To analyse the past performance and learn from mistakes made in the past 4. To bring alertness to the organization. 5. To award increments, promotions, giving extra rewards in case of exceptional performances and to punish those whose actions have resulted in loss to the company. 7

Modes of Conducting Sales Audit

By internal staff of the company.

By outside auditors like chartered ants or consultants — experts in particular type of business activities. Timely sales audit at a regular interval and follow up of the recommendations as given by the auditors can result in excellent results for future and help in devising timely safeguards. 8

Sales Analysis •

Sales analysis is the detailed examination of sales volume by territory, salesperson, customer, product line, etc. It works on the basic principle that the trends of the total sales volume conceal rather than reveal the market reality. The following methods are used for sales analysis.

1. Sales Analysis by Territory 2. Sales Analysis by Salesperson 3. Sales Analysis by Product Line 4. Sales Analysis by Customer 9

Sales Cost Analysis •

Sales cost analysis is a detailed examination of the costs incurred in the organization and istration of the sales and marketing functions and its impact on sales volume. The following are the important sales costs which should be kept in mind by a sales manager: Cost of goods per rupee of sales Profit per rupee of sales Cost per segment Cost per territory Cost per salesperson Cost per channel member Average cost per order. 10

Cost Analysis-Meaning & Definition Cost analysis is also called as Profitability Analysis or Marketing Cost Analysis. Sales Analysis focuses on the results achieved whereas Cost Analysis looks at the costs incurred in producing those results and whether the returns justify the expenditures. Companies sometimes implement systems and procedures that are intended to increase sales but do not always produce profit increases. The essence of marketing cost analysis is to gather, classify, compare and study marketing cost data so that we can find out whether the returns justify the expenditures. 11

Marketing Cost Analysis • Marketing cost analysis can help identify opportunities for increasing the effectiveness of marketing expenditures. • For a sales manager the key is to understand how costs are allocated so that the true profitability of any customer, geographic area, product or market can be determined. • Any ing system can take the direct cost of supplies and components and add those together to come up with the cost of a product. • The challenge is adding management costs, office supplies, warehousing, IT and other costs. • There are basic 2 approaches to cost allocation: Full cost & Contribution Analysis.

12

Full Cost Approach To understand full cost we have to understand what is direct cost, indirect costs, specific expenses and general expenses. In marketing cost analysis the distinction between costs & expenses is not very clear & they are used interchangeably. A direct cost can be specifically indentified with a product or function. If the product or function were eliminated, the cost would disappear. An example is inventory storage cost for a particular product. An indirect cost is a shared cost because it is tied to several functions or products. Even if one of the products or functions were eliminated, the cost would not be. Example is the travel costs of a Medical Rep, even if 1 product is eliminated the travel cost would remain same.

13

Full Cost Approach • •

•

•

•

•

The expenses reflect the other costs incurred in operating the business, such as the cost of advertising and of maintaining branches. A specific expense can be identified with a specific product or function. Example If a product were eliminated the specific expense of the product manager’s salary need not be incurred. A general expense cannot be identified directly with a specific object of profit measurement such as a territory, salesperson or product. Example, Elimination of 1 product will not eliminate the salary of the Sales Manager. The full cost approach says that all costs should be assigned and somehow ed for in determining the profitability of any segment( territory, product, salesperson) of the business. Under this approach, each unit bears not only its own direct costs but a share of the company’s cost of doing business, referred to as indirect costs. Profit or net income before taxes = sales –cost of goods sold –General istrative & selling expenses

14

Contribution Margin Approach This approach say that it is misleading to allocate costs arbitrarily. Only those costs that can be specifically identified with the segment of the business should be deducted from the revenue produced by the segment to determine how well the segment is doing. The contribution margin approach does not distinguish where the costs are incurred but rather simply whether they are variable or fixed. Sales- Variable costs-Fixed costs= Net Profit or Contribution Margin 15

Numerical •

You are given the following information on two salespeople: Salesperson A earns a $22,000 salary; salesperson B earns $23,000. Both earn 1 percent commission. Advertising costs $ 3 per unit. Shipping expenses are $2 per unit. Order processing costs total $1 per order. Travel expenses amount to $0.50 per call. Your task is to calculate the contribution to profit (loss) made by each salesperson. Sales-person

Number of Calls

Number of Orders

Units Sold

Total Sales

Cost of Goods Sold

A

200

250

15,000

$750,000

$600,000

B

295

230

18,000

900,000

720,000

16

Thank You

17