The Sales Director of a companys region was concerned that her sales force was not calling on
Question:
The Sales Director of a company’s region was concerned that her sales force was not calling on potential new accounts. One of the company’s objectives was to open up new accounts and not rely too heavily on repeat business. She felt the sales force was hesitant to call on new accounts because it involved considerably more effort and it was easier for them to sell to their existing accounts. She came up with an additional incentive program. She would pay $800 dollars to any seller who would secure a face-to-face sales meeting with a potential new account, regardless if a sale was made or not. The $800 would be paid for each meeting completed. In addition, she asked each seller to send in a report indicating the number of new face-to-face, sales call with new prospects each quarter.
Some important data includes:
There are 4 sellers
The sales close rate (number of sales to new account /number of face-to-face calls to new accounts) on meetings with potential new customers has averaged 35% historically
The average annual sale is $10,000 on new accounts, with an average profit of $4,000
Over the course of the year, there were 80 face-to-face meetings with new prospects by the entire sales force. Each seller completed about 20 calls. However, the close rate was only 20% for this group of new sales prospects!
The profit on each sale was at the average
The average earnings for a seller had been about $50,000 annually, including commissions
Administration of the new program would cost $20,000 per year
Questions:
Did the program prove profitable for the year? If so, by how much; if not, how much did the program lose?
Managerial Accounting Decision Making and Performance Management
ISBN: 978-0273764489
4th edition
Authors: Ray Proctor