Sales Control & Cost Analysis

Dr. Neeraj Dixit

Associate Professor
IES Management College, Mumbai
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Contents
Sales Control-Meaning & definition
Types of Sales Control
Steps in designing a Sales Control
System
Sales Audit & its Aim
Cost Analysis-Meaning & Definition
Full Cost Approach
Contribution Margin Approach
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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.
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Types of Sales Control

Type of Control

Prime
Responsibility

Purpose of Control

Approaches

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

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
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Steps in Designing a Sales

Control System
1. Objective setting
2. Designing different control levels
3. Designing a reporting system and a
feedback system
4. Deciding tools and techniques of control
5. Variance analysis and reasons thereof
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Sales Audit
Sales audit is a comprehensive,
systematic, independent and periodic
examination of a companys
environment, objectives, strategies and
activities to determine problem areas
and opportunities and recommend a
plan of action to improve the companys
sales performance. The job of sales
audit is performed by a sales auditor.
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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.
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Modes of Conducting
Sales Audit

By internal staff of the company.

By outside auditors like chartered accountants 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.
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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
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Sales Cost Analysis

Sales cost analysis is a detailed examination of the costs incurred in

the organization and administration 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.
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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.
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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 accounting 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.

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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.

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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
managers 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 accounted 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 companys cost of doing business, referred to as indirect
costs.
Profit or net income before taxes = sales cost of goods sold General
administrative & selling expenses

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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
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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

200

250

15,000

$750,000

$600,000

295

230

18,000

900,000

720,000

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Thank You

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