How to measure the sales force?

A manufacturing company serving mainly clients in the food sector began selling to a multinational in the cosmetics industry. Because this new sector had higher quality requirements, the account executive adjusted the product specifications and sold them to the multinational at a much higher price.

The salesperson handling the account dedicated a lot of time to this business, as it was demanding and required more attention than the others under his responsibility. However, the volumes purchased by the new client were small compared to the company’s average account size. For this reason, the executive’s performance was criticized by his superiors, who saw the cosmetics company as nothing more than a small client that demanded a lot and contributed little.

The trap of traditional indicators
When companies focus on traditional volume or sales indicators to measure their sales force’s performance, they may overlook profitable business simply because its volume potential is not significant. Sales executives know that differentiated products (which usually provide the highest contribution to the business) are harder to sell than basic ones. They also know that offering a higher discount generally increases the chances of boosting order volume.

​This is why, when the commercial team is measured by volume sold, what grows most are sales of low-value products and, in cases where prices are set by the sales team, margins also tend to decrease. Volume indicators do not necessarily aim to improve business profitability; it is possible to grow volume while the company’s profitability declines.

Many companies have realized that volume and sales indicators are not sufficient for a comprehensive evaluation of sales force performance. To achieve this, they have complemented the assessment with other indicators such as receivables collection, number of orders, visits made, sales to new clients, among others. This is positive, as the job of sales executives is not only to bring volume but also to manage it, improve it, ensure customer satisfaction, and much more. All these indicators ultimately aim at one objective: maintaining or improving the company’s profitability through sales.

One single indicator is enough
However, using multiple indicators to measure sales force performance creates very complex systems where some indicators even become redundant. The gross contribution collected in absolute terms (not percentage) is an indicator that summarizes successful sales force performance. Its importance lies in the fact that it simultaneously measures volume, price, variable cost, and receivables from the products sold. If the sales force is rewarded for improving the gross contribution collected from their sales, they are motivated to enhance the company’s profitability, which should be the company’s main objective.

Returning to the case at the beginning of this article, the multinational in the cosmetics sector became a favored client for the company —not because volume increased, but because client relevance began to be measured based on gross contribution. Despite the low volume and the extra cost of producing with adjusted quality levels, the price premium negotiated by the account executive was such that the gross contribution of this business made it one of the company’s top five most important accounts.

In summary...
Measuring the sales force by the growth in gross contribution collected guarantees their motivation to secure profitable business for the company. Focusing on units, revenue, receivables, orders, and new clients, among many others, adds complexity to performance evaluation and does not necessarily guarantee achievement of the company’s main objective: increasing profitability. Good sales management will be reflected in improved gross contribution collected for the company.