Sales Control – Informal and Formal

Informal control. Circumstances exist in which awareness of the changing situation, and the ability to analyze it are adequate control devices. Effective sales executives have their “fingers on the pulse of the business”—they have an uncanny ability to detect situations that require attention. But the larger a company is, and the higher up in the administra­tive hierarchy the sales executive is, the harder it becomes to use “fingertip” control. As the business grows and the structure of the sales organization becomes more complex, there is a growing need for formal control. For effective management, a growing business needs dependable machinery to provide the facts for making workable decisions and for formulating appropriate policies.

Formal control and written sales policies. Early evidence of the introduction of formal sales controls is the introduction of sales policies in writing. No enterprise, however small, can survive for long without policies, but smaller firms often operate satisfactorily, even though they do not put their policies in writing. As the sales organization grows, the limits within which action is to take place in given situations needs to
be spelled out in detail. A large organization not only has more complex problems than a small organization but there is less chance that everyone will know what to do in every circumstance. The large organization needs written sales and marketing policies to ensure substantial uniformity of action. Uniformity is essential both among different persons handling similar problems and among the same persons handling similar problems at different times. Written policies also conserve executive time. Because policies are written, more time can be used for planning and making decisions on problems not covered by existing policies. Sales execu­tives reserve time for handling “policy exceptions,” and if they encounter enough exceptions of similar nature, a new policy is formulated and is put in writing.

Policy formulation and review. The process of policy formulation and review illustrates the dynamics of executive control. A good policy evolves from thorough study and evaluation of tangible information. However, many sales policies deal with subjects on which quantita­tive data are lacking, especially when management is experimenting with new ideas. When objectives are not set explicitly (because of lack of information), results vary from the standard because of factors (“uncontrollable variations”) beyond the control of the individual being evaluated. Thus, coincident to the scaling down of objectives, sales management reviews the original plans. Eventually, through succes­sive revisions, policies initially based on inadequate data often become appropriate and “good.”

Formal control over sales volume. One formal control, introduced early in the history of a firm, is that over sales volume. Estimating how much of a product can be sold in a specified future period is a prereq­uisite both for planning and control. Sales volume performance is best appraised by comparing it with potential sales volume. The “sales or mar­ket forecast,” therefore, serves as a standard for evaluating sales perfor­mance. However, the periodic forecast of sales is not enough for effective control over sales volume. During the intervals between forecasts, sales management monitors such factors as industry sales trends, activities of competitors, and share-of-the-market percentages. Significant changes in these factors may call for changes in sales objectives, plans, policies, and procedures.

Budgetary control. Ultimately, formal control requires installation of sales budgetary controls and setting up of sales territories. Budgetary control represents an extension of control over sales volume to con­trol over margins and expenses and, hence, over profits. When control reaches this stage, sales management can project individual profit-and- loss statements for such units as sales territories, products, marketing channels, and classes of customers. Through using such estimating devices as standard costs of distribution, sales management sets stan­dards for controlling individual expense items and the gross margin. Through marketing costs analysis, sales management appraises sales performance against predetermined standards. In this way, the soft points, the areas where sales performance is below par, are brought to management’s attention. The net result is to reduce the time between drops in performance and corrective action.

Source: Richard R. Still, Edward W. Cundliff, Normal A. P Govoni, Sandeep Puri (2017), Sales and Distribution Management: Decisions, Strategies, and Cases, Pearson; Sixth edition.