SALES FORCE EXPENSES AND

TRANSPORTATION

By:Mary Mae F. BagacJennifer M. Salazar

SALES FORCE EXPENSES AND STRATEGIC PLANNING

Expense account policy is

one element in a firm’s strategic marketing plan.

firms use expense account policy as a strategic tool for recruiting sales people

INTERNAL REVENUE SERVICE

REGULATIONS

Income tax laws significantly affect the travel, entertainment, and gift expenses of salespeople.

LEGITIMATE TRAVEL AND BUSINESS

EXPENSES• Management should specify in

writing the expenses for which the company will pay not only the broad expense categories, such as transportation or lodging, but also the details within each category.

Salesperson allowable items to reimburse

• (1) for business expenses incurred in connection with work and

(2) for personal expenditures that would not have been necessary otherwise.

CHARATERISTIC OF A SOUND EXPENSE PLAN

• NO NET GAIN or LOSS FOR THE RepsThe expense plan should be

designed so that employees neither profit nor lose. A sales rep should net the same income working on the road as at home, an ideal difficult to achieve in practice.

CHARATERISTIC OF A SOUND EXPENSE PLAN...cont...

• The practice of compensating people by way of the expense account is unwise for at least two reasons.

1. it is poor management

2. the practice encourages people to violate tax laws.

CHARATERISTIC OF A SOUND EXPENSE PLAN

• Sales reps should be able to maintain approximately the same standard of living on the road as at home. they should not have to sacrifice comfort to stay within expense limits .

Equitable Treatment of the Reps

CHARATERISTIC OF A SOUND EXPENSE PLAN

• A good expense plan should not hamper the performance of selling duties, nor should it curtail activities beneficial to the company.

No Curtailment of Beneficial Activities

CHARATERISTIC OF A SOUND EXPENSE PLAN

• A sound expense control plan should be simple and economical to administer.

Simple and Economical to Administer

CHARATERISTIC OF A SOUND EXPENSE PLAN

• A good expense plan should prevent misunderstandings between management and sales force

Avoid Disputes

CHARATERISTIC OF A SOUND EXPENSE PLAN

• A good plan controls expenses and curtails padding

Company Control of Expenses and Elimination of Padding

METHODS OF CONTROLLING EXPENSES

• Salespeople Pay Own Expenses

Salespeople paid by a straight commission usually pay their own expenses for two reason. First ,management is willing to pay certain percentage of sales for the field sales function .

Second ,some people paid a straight commissions are tempted to cheat on an expense account during periods of lean sales

METHODS OF CONTROLLING EXPENSES

• The most widely used method of expense control is to reimburse sales representatives for all legitimate business and travel costs incurred while on company business.

Unlimited – Payment Plans

 METHODS OF CONTROLLING

EXPENSES

• Two widely used expense – control plans each limit the payments to the sales reps. One such plan places a limit on the amount to be reimbursed for each expense item.

Limited Payment Plan

 METHODS OF CONTROLLING

EXPENSES

• Management may set limits on items such as food and lodging, for example , but place no ceiling on transportation .

• Another combination method is an expense-quota plan. Under this system, management sets a limit on the total allowable expense, but the ceiling is related to some other item on the operating statement ,such as net sales

Combination Plans

Control of Sales Force Transportation

Transportation Expense

A business expense incurred by an employee or self-employed taxpayer while away from home in a travel status.

Ownership of the Automobiles

The final decision rests on a consideration of the following factors:

Size of sales force Availability of

centralized maintenance and storage facilities

Unusual design required Control of car’s

operating condition

Personal preferences

Annual mileage Operating Cost Investments Administrative

problems

Size of sales force With a small sales force,

simplicity and economy are achieved either by having salespeople use their own cars or by leasing cars for them.

Only when its sales force is large does a company generally find it advantageous to own the cars.

Availability of centralized maintenance and storage facilities If company

maintains centralized vehicle storage and repair facilities, it is in a good position to furnish the sales force with cars.

Unusual design required

Some companies require that the cars used by their sales people be a special color, have a specially constructed body, or carry some form of company advertising.

Control of car’s operating condition

The company probably provides later-model cars than the average salesperson’s own car.

Personal preferences

Some reps may not want to drive their own cars for company business, or they may not have suitable cars.

Annual mileage

The more miles driven, the more advantageous it becomes for the company to own the cars.

Operating Cost

It depends to a great extent on rental costs, number of miles driven, and method of reimbursing the sales force.

Investments

If the company is not in a strong financial position or does not want to make the investment, it can lease cars or have the salespeople provide their own.

Administrative problems

One major administrative question that comes up when the company furnishes cars is whether they should be available for the reps’ personal use and if so, to what extent.

Leasing is the easiest way to put the sales force on wheels.

Reimbursement Plans for Employee-Owned Cars

Three Separate Types of Expenditures

Variable Costs Fixed Costs Miscellaneous Expenses

Three separate types of expenditures

Variable Costs generally related directly to the number of miles driven.

Fixed Costs related to time rather than miles driven.

Miscellaneous Expenses difficult to standardize and not incorporated into one of the ordinary automobile expense-control plans.

Fixed-Allowance Plans based on mileage and another on a period of time.

Flexible-Allowance Plansa plan that combines an allowance per time period with a mileage rate.

• A graduated-mileage rate plan pays a different allowance per mile depending on the total miles driven in a time period.

Other Methods of Expense Control

Training and Enforcement

Credit Cards The Expense Bank

Account Change in Nature of

Entertainment Careful Travel

Planning

Training and Enforcement

management should teach the sales reps how the company expects them to spend its money.

Credit Cards• Many firms use credit

cards to control various expense items.

The Expense Bank Account

Some firms place a certain sum, in a checking account for each representative.

Change in Nature of Entertainment The costs of entertaining

customers have skyrocketed to ridiculous levels in many areas.

Telemarketing

• The sales rep automatically determines whether a telephone call can substitute for a personal visit.

Careful Travel Planning

• With the help of a travel manager, plus careful routing and planning in advance, much business can be accomplished on each trip along with reduced travel costs.