The Sales Director of a companys region was concerned that her sales force was not calling on potential new accounts. One of the companys objectives was to open up new accounts and not rely too heavily on repeat business. She felt the sales force was hesitant to call on new accounts because it involved considerably more effort and it was easier for them to sell to their existing accounts. She came up with an additional incentive program. She would pay $800 dollars to any seller who would secure a face-to-face sales meeting with a potential new account, regardless if a sale was made or not. The $800 would be paid for each meeting completed. In addition, she asked each seller to send in a report indicating the number of new face-to-face, sales calls with new prospects each quarter. Some important data includes:

There are 4 sellers

The sales close rate (number of sales to new account /number of face-to-face calls to new accounts) on meetings with potential new customers has averaged 35% historically

The average annual sale is $10,000 on new accounts, with an average profit of $4,000

Over the course of the year, there were 80 face-to-face meetings with new prospects by the entire sales force. Each seller completed about 20 calls. However, the close rate was only 20% for this group of new sales prospects!

The profit on each sale was at the average

The average earnings for a seller had been about $50,000 annually, including commissions

Administration of the new program would cost $20,000 per year

Questions:

1. Did the program prove profitable for the year? If so, by how much; if not, how much did the program lose?

2. How many sales would have to be made, at the average sales profit, to break even?

3. If the historical close rate of 35% was achieved, what would have been the profit or loss?

4. Excluding the high administration costs, what possibly went wrong in your opinion?

5. What ideas do have that could have strengthened the programs effectiveness? Or, suggest a different approach to secure new accounts via incentives.