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Potter-Bowen (PB) produces and sells postage meters all through the world. Postage meters print essential postage on envelopes, eradicating requirement to affix stamps. Meter keeps track of postage, the user takes meter's counter to post office and pays money, and post office initializes meter to print postage totalling that amount. Firm presents about 30 different postage systems, ranging from small manual systems (costing the few hundred dollars) to large automated ones (costing up to $75,000).

PB is planned into Research and Development, Manufacturing, and Marketing. Marketing is additional subdivided into 4 sectors: South America, North America, Europe, and Asia. North American marketing sector has sales force planned into 32 regions with roughly 70-200 salespeople per region.

Budgeting process starts with chief financial officer (CFO) and vice president of marketing jointly projecting total sales for next year. Their staffs look at trends of a variety of PB models and project total unit sales by model in each marketing sector. Price increases are predicts and dollar sales per model are computed. North American sector is then given the target number of unites and the target revenue by model for year. Manager of North American sector, Helen Neumann, and her staff then assign division's target units and target revenue by region.
Target unit sales for each model per region are derived by taking region's past percentage sales for that machine times North America's target for that model. For instance, model 6103 has North American target unit sales of 18,500 for next year. Utah region last year sold 4.1% of all model 6103s sold in North America. So, Utah's target of 6103s for next year is 758 units (4.1% x 18,500). Average sales price of 6103 is set at $11,000. Therefore Utah's revenue budget for 6103s is $8,338,000. Given total predicted unit sales, average selling prices, and past sales of each model in all regions, each region is allotted the unit target and revenue budget by model. Region's total revenue budget is sum of individual model's revenue targets.

Each salesperson in region is given unit and revenue target by model by using comparable procedure. If Gary Lindenmeyer (a salesperson in Utah) sold 6% of Utah's 6103s last year, his unit sales target of 6103s next year is 45 units (6% x 758). His total revenue target for 6103s is $495,000 (or 45 x &11,000). Totalling all models gives each salesperson's total revenue budget. Salespeople are paid the fixed salary plus a bonus. Bonus is computed based on table given below:

% of total Revenue Target Achieved Bonus
<90% NO BONUS
90-100% 5% of salary
101-110 10% of salary
111-120 20% of salary
121-130 30% of salary
131-140 40% of salary
141-150 50% of salary
>150% 60% of salary

Critically estimate PB's sales budgeting system and sales force compensation system. describe any potential dysfunctional behaviours that PB's systems are probable to generate?

Business Management, Management Studies

  • Category:- Business Management
  • Reference No.:- M931174

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