Keeping a lid on sales expenses.

Few foundries have a fixed limit on the expenses of their salespeople, and almost rio one uses a per diem allowance. But nearly all managers feel that expense reports are higher than necessary and that, in these tough times, better controls are needed. After all, plant operating costs are being carefully scrutinized, and there is no reason why those of sales should be held sacred.

Most foundry managers freely admit they don't have the control they wish they had over mounting sales expenses. Even though they would like these expenses cut, managers are afraid that doing so will affect their salespeople's attitudes and stifle their performance.

Tightening controls on sales expenses does indeed pose some ticklish problems, including the sales manager believing that firmer controls would be self-defeating. Behind the manager's reluctance is the burden of added paperwork, reported expenitures, and a willingness to accept inflated costs as recognition of a salesperson's hard work and personal sacrifice during extensive travel.

Nevertheless, many sales managers are concerned about rising sales expenses and are increasingly looking to top management for guidance in laying down ground rules to keep costs in line.

How to Control Expenses

The first step in controlling your salespeople's expenses is to draft written rules covering expense account policies, spelling out just what you consider normal. First-class or coach flights? Taxis to and from the airport or buses? Over liberal auto expenses? Who is to be entertained and how often? How about the salesperson's own entertainment bills? Make it clear that you are not suggesting changes in policy but that certain steps must be taken to reduce expenses and tighten future control without affecting productivity of the sales force.

Second, assemble yearly data on every salesperson's expenses. Compare these expenses to sales performance in order to construct an expense-to-sales ratio for each salesperson. Although it is impossible to apply such ratios to all territories and salespeople, norms can be established for comparing current performance with the past or with reasonably similar territories, sales situations or other criteria. If your cost system provides profit by job, you can then equate sales expenses with profit contribution for each salesperson to derive a meaningful ratio of expenses to sales profitability.

Third, establish an incentive program that rewards salespeople either for keeping expenses to a minimum or achieving a higher dollar profit contribution for the expenses they do incur. Such programs need not be elaborate, and care must be taken that they do not reduce selling productivity.

Any compensation plan based solely on a reduction in expenses could be dangerous because the reduction might come from fewer calls rather than improved performance. Over-budget situations could even involve deductions from sales bonuses as an additional incentive to hold the expense line.

Fourth, establish a sales expense budget for each salesperson so that your salespeople become aware that their expenses are being monitored on a monthly basis and variances reported. It is guaranteed that your salespeople won't like this idea at first, but they will soon get used to it and begin to plan their expenses more effectively.

Plan in Advance

Fifth, have your salespeople produce careful itineraries, which will force them to arrange trips well in advance. When salespeople are poor self-managers, they should have guidance on how expenses are to be controlled and their time managed more efficiently. On the other hand, increasing the productivity of salespeople eases the pain of higher sales expenses.

Sixth, urge your salespeople to use telephones more often and to establish specific requirements before making actual sales calls-particularly distant ones.

Seventh, arrange for people to use their cars for shorter trips. Short airline flights should be abolished because of their high cost per mile. Book all airline flights through a travel agent as far in advance as possible to get the best rates. Doing this can frequently cut airline fares by 50%.

Last, take a close took at your customer entertainment bill with an eye toward substantially reducing nonproductive entertainment outings. It is a rare foundry that cannot cut this budget by 10% with no adverse effects.

One final observation about cutting sales expenses-. Because inflation can be counted on to keep call costs on the rise, the chances for cost-reducing changes to become permanent policy will go up the more these changes hold expenses down.

In your efforts to keep a lid on rising sales expenses, most vital of all is not to turn the job over to someone who does not understand the human factors involved. Otherwise, you could do more harm than good.