MKT: Exam #2 - Prof Selling

Revenue

Revenue = units sold x price

Profit

Profit = revenue - total costs

Profitability

Ability to use resources to generate revenue in excess of expenses. Revenue is increased by selling more products or selling products at a higher price

Setting & Negotiating Prices

Working out the costs associated with a product and adding an amount to ensure the product makes a profit that’s valuable relative to the seller’s opportunity cost.

Seller’s Opportunity Cost

The value of what a seller gives up in pursuing a particular sale (investment)

Fixed vs. Variable Cost

Fixed Costs: remain the same (salaries, rents, insurance)

Variable Costs: vary depending on the number of units (raw materials, sales commissions, delivery costs)

Markup Pricing

Pricing tactic in which marketers add a certain amount, usually a percentage, to the cost of the product to set the final price. Not effective at maximizing profits.

Markup Pricing = unit cost of product + (desired % return x unit cost)

Strategic Pricing

• Proactively creating conditions for better and more profitable pricing outcomes. Must understand the value to the customer vs. the firm’s cost to serve customers.

• Salespeople can provide marketing research on pricing, negotiate, and align compensation with profit.

Predictive Analysis

The use of data, statistical algorithms, and machine-learning techniques to identify the likelihood of future outcomes based on historical data

Lead Scoring

The company numerically rates its best prospective customers to optimize selling situations.

CRM Tools: Profitability Analysis

Measures the profit generated - contribution of regions, products, channels, and customer segments. Helps salespeople determine where to prioritize their efforts.

CRM Tools: Customer-Acquisition Analysis

Measures costs related to gaining new customers - marketing, advertising, public relations, sales. Gain customers at low cost, get current customers interested in more, and collect customer details to maintain relationships/deliver information.

CRM Tools: Individual Customer Profitability

Measures the profit a firm makes from a customer over a specific time. Gather and manage customer profitability information and manage activities around customer engagement.

Deceptive vs. Predatory Pricing

Deceptive Pricing: an illegal practice that involves intentionally misleading customers with price promotions

Predatory Pricing: a practice of first setting prices low with the intention of reducing competition and then raising them to normal levels.

Price Discrimination

Practice of charging different customers different prices for the same product. Illegal if it injures competition, prohibited under the Robinson-Patman Act.

Incentive Pay

Typically based on the achievement of sales goals, referred to as a sales quota

Base Salary

A fixed amount of money paid to an employee by an employer in return for work performed. Doesn’t include benefits, bonuses, or any other potential compensation. Needs to be balanced with other incentives.

Straight Commission vs. Recoverable Draw

Straight Commission: contains no base salary; based on sales/gross profit

Recoverable Draw: paid at regular intervals; the salesperson “pays back” the draw after the commission is earned.

Bonuses

Lump sum paid for achievement of sales quotas. Usually paid at the end of the year for meeting and exceeding goals (benefits businesses). The shift to expensive CRM systems cut sales reps’ commissions.

Compensation Mix

Mix of fixed earnings and incentive pay (salary + commissions + bonuses). The ratio is usually between 60% fixed / 40% variable & 80% fixed / 20% variable.

Salary-Only Compensation

Take-home earnings each month are set regardless of how much a rep sells. Ideal for sales teams where sales and marketing work together.

Advantages: simpler for organizations to calculate, less anxiety, attractive for reps who want a fixed income, and ideal for industries where reps don’t know when a sale will close.

Disadvantages: less motivation and may leave for higher commission jobs

Absolute vs. Relative Commission

Absolute Commission: orgs pay reps when they reach specific targets/milestones.

Relative Commission: bases pay on performance against a present target (quota)

Base Salary Plus Commission

Most common plan, the industry standard, is 60% base salary and 40% variable split. The firm gets greater clarity into its expenses and can hire motivated salespeople and fulfill some “nonselling” tasks

Gross Margin Commission

Based on profit, not sales amount. Considers revenue the priority, salespeople have control over pricing, and the organization tracks gross margins. Discourages discounting on price and promotes sales of more profitable products.

Careers in Sales Management

Regional Sales Manager: leads teams of reps and account managers; sets quotas, analyzes data, coordinates training, and manages territories. Requires 3 years of experience.

Director of Sales: more strategic role. Sets objectives, forecasts, and quotas; maintains sales volume; and hires talent.

VP of Sales: contributes to overall growth and strategy of the sales organization. Recruits talent and leads sales strategy.

Grit

Perseverance and passion for long-term goals. The “strength of mind” to maintain “real optimism” while not letting failures slow you down. Must take failure as an opportunity to “learn and grow.”

Fixed Mindset

The personal belief that your character, intelligence, and creativity are unchanging and that success reflects innate talents. (e.g., “Some people are just born better salespeople than others”)

Growth Mindset

The personal belief that your traits can change over time and that failure helps you learn and improve (e.g., “Selling is a skill you can develop, regardless of natural talent or personality”)

Strike a Power Pose

Body movements can influence feelings; power movements can make you feel more powerful; observe how you naturally move when you feel confident, and your body will adopt these gestures.

Sales EQ

Self-awareness and self-management are “personal competence” skills. Social awareness and relationship management abilities are “social competence” skills.

10,000-Hour Rule

Guideline that 10,000 hours of specialized practice time are needed in order for someone to become a world-class performer

Pomodoro Technique

A time-chunking method that uses time to break down work into intervals, traditionally 25 minutes in length, separated by short breaks.