Management by Objectives Management by Objectives (MBO)(MBO)

Lecture #16Lecture #16

MBO ExampleMBO Example Sales Representative “Pat”Sales Representative “Pat”

Pat’s SalaryPat’s Salary Actual Salary in ‘06: $35,000Actual Salary in ‘06: $35,000

Desired Salary in ‘07: $40,000Desired Salary in ‘07: $40,000

$5,000 increase in income is a 14% $5,000 increase in income is a 14% increaseincrease

Pat’s ‘06 Sales ActivitiesPat’s ‘06 Sales Activities Annual (Weekly)Annual (Weekly)

1887 Selling Calls 1887 Selling Calls (38/week)(38/week)

1348 Sales Presentations 1348 Sales Presentations (27)(27) 642 Closes 642 Closes (13)(13) 107 Sales107 Sales (2.14)(2.14)

Definitions of TermsDefinitions of Terms Selling CallsSelling Calls Sales PresentationsSales Presentations ClosesCloses SalesSales

Selling CallsSelling Calls Face to face introductionFace to face introduction

Attempt to secure an appointment Attempt to secure an appointment for a Sales Presentationfor a Sales Presentation

Sales PresentationSales Presentation Sit down interview to present Sit down interview to present

company’s products/servicescompany’s products/services

Could be fact find, or an attempt to Could be fact find, or an attempt to sellsell

CloseClose Ask the prospect to buyAsk the prospect to buy

SaleSale A contract is signedA contract is signed

Pat’s ‘06 Sales ActivitiesPat’s ‘06 Sales Activities Annual (Weekly)Annual (Weekly)

1887 Selling Calls 1887 Selling Calls (38/week)(38/week)

1348 Sales Presentations 1348 Sales Presentations (27)(27) 642 Closes 642 Closes (13)(13) 107 Sales 107 Sales (2.14)(2.14)

Pat’s ’06 Sales ResultsPat’s ’06 Sales Results $640,000 in sales$640,000 in sales

Average of $6,000 per saleAverage of $6,000 per sale

$35,000 in commission$35,000 in commission

First OptionFirst Option To increase commission by 14%, Pat To increase commission by 14%, Pat

could increase sales activities by could increase sales activities by 14%14%

Pat’s ’07 Activity PlanPat’s ’07 Activity Plan AnnualAnnual (Weekly)(Weekly)

2152 Selling Calls 2152 Selling Calls (43)(43) 1537 Sales Presentations 1537 Sales Presentations (31)(31) 732 Closes 732 Closes (15)(15) 122 Sales 122 Sales (2.44)(2.44)

Pat’s ’07 Plan ResultsPat’s ’07 Plan Results $732,000 in sales$732,000 in sales

Average of $6,000 in salesAverage of $6,000 in sales

$40,000 in commission$40,000 in commission

Second OptionSecond Option Examine Pat’s performance record Examine Pat’s performance record

for possible improvement in sales for possible improvement in sales techniquetechnique

Weekly Ratio AnalysisWeekly Ratio Analysis 38 – 27 – 13 – 2.14 38 – 27 – 13 – 2.14 (Pat’s ’06)(Pat’s ’06)

43 – 31 – 15 – 2.44 43 – 31 – 15 – 2.44 (Pat’s ’07)(Pat’s ’07)

30 – 20 – 10 – 2 30 – 20 – 10 – 2 (Company Std)(Company Std)

Compare Actual to StdCompare Actual to Std Ratio of Selling Calls to Sales Ratio of Selling Calls to Sales

PresentationsPresentations

Ratio of Sales Presentations to ClosesRatio of Sales Presentations to Closes

Ratio of Closes to SalesRatio of Closes to Sales

Selling Calls: Sales Selling Calls: Sales PresentationsPresentations

’’06 Actual: 38 –> 27 06 Actual: 38 –> 27 ( 1 -> .71)( 1 -> .71)

Standard: 30 –> 20 Standard: 30 –> 20 (1 -> .667)(1 -> .667)

Actual is above StandardActual is above Standard

Not a deficient area for PatNot a deficient area for Pat

Sales Presentations: ClosesSales Presentations: Closes

’’06 Actual: 27 -> 13 06 Actual: 27 -> 13 (1 -> .48)(1 -> .48)

Standard: 20 -> 10 Standard: 20 -> 10 (1 -> .5)(1 -> .5)

Actual is just about at StandardActual is just about at Standard

Not a deficient area for PatNot a deficient area for Pat

Closes: SalesCloses: Sales ’’06 Actual: 13 -> 2.14 06 Actual: 13 -> 2.14 (1 -> .16)(1 -> .16)

Standard: 10 -> 2 Standard: 10 -> 2 (1 -> .2)(1 -> .2)

Actual is below standardActual is below standard

An area for improvement for PatAn area for improvement for Pat

If Up to Standard…If Up to Standard… ’’06 Sales would have been more06 Sales would have been more

Actual: 642 Closes -> 107 SalesActual: 642 Closes -> 107 Sales

At Std: 642 Closes -> 128 SalesAt Std: 642 Closes -> 128 Sales

If Up to Standard…If Up to Standard… 128 Sales at $6,000 each sale results 128 Sales at $6,000 each sale results

in a total of $768,000 in sales, which in a total of $768,000 in sales, which yields about $42,400 in commissionyields about $42,400 in commission

Third OptionThird Option Increase size of average saleIncrease size of average sale

Sell bigger ticket items or servicesSell bigger ticket items or services

Fourth OptionFourth Option Sell higher commission items or Sell higher commission items or

servicesservices

MBO HighlightsMBO Highlights Desired salary in ’07 was Pat’s input, Desired salary in ’07 was Pat’s input,

not the sales manager’snot the sales manager’s

Getting to that goal of $40,000 was Getting to that goal of $40,000 was achieved by Pat and sales manager achieved by Pat and sales manager working together, using Pat’s working together, using Pat’s performance dataperformance data