Control Process: Analysis of Sales Volume, Costs, and Profitability
1. What is the Sales Control Process?
Planning a sales target is useless if nobody checks whether the sales team actually achieved it!
The Sales Control Process is how a Sales Manager monitors, measures, and evaluates the actual sales performance, selling costs, and profits against pre-set targets (quotas and budgets), and takes corrective action wherever performance falls short.
To evaluate whether the sales department is truly successful, management cannot just look at total sales revenue — because high sales do NOT automatically mean high profit! Therefore, a Sales Manager performs three levels of analysis:
- Analysis of Sales Volume (How much did we sell?)
- Analysis of Marketing & Selling Costs (How much did we spend to sell it?)
- Profitability Analysis (How much actual profit did we earn?)
2. Analysis of Sales Volume
Sales Volume Analysis is a detailed study of a company’s actual sales figures (in Rupees or in physical units) broken down by different segments to see where sales are strong and where they are weak.
Types / Breakdowns of Sales Volume Analysis:
- Total Sales Volume Analysis: Studying the company’s overall sales trend over the last 3–5 years and comparing it with industry growth (Market Share = (Company Sales ÷ Total Industry Sales) × 100).
- Sales Analysis by Territory (Region-wise): Comparing actual sales vs. quota for each city/state (e.g., Indore vs. Bhopal vs. Jabalpur).
- Sales Analysis by Salesperson: Checking which sales executives achieved 100%+ of their quota and which ones are lagging behind.
- Sales Analysis by Product / Pack Size: Finding out which specific products or pack sizes (e.g., ₹10 pack vs. ₹100 family pack) are selling fast and which are dead stock.
- Sales Analysis by Customer / Account Type: Comparing sales across wholesalers, supermarkets, institutional buyers, and online channels.
Two Famous Principles in Sales Volume Analysis:
💡 Example of the Iceberg Principle:
Suppose a company’s overall target is ₹100 Lakhs and actual total sales are ₹105 Lakhs. On the surface (tip of the iceberg), the CEO is happy!
But when we break it down by territory: Indore sold ₹75 Lakhs (Target ₹50L), while Bhopal sold only ₹30 Lakhs (Target ₹50L)! The huge success in Indore hid the serious failure in Bhopal. Detailed Sales Volume Analysis exposes this hidden problem!
3. Analysis of Marketing and Selling Costs
Sometimes a salesperson brings in ₹10 Lakhs of sales, but spends ₹3 Lakhs on luxury hotels, flights, and heavy discounts to get those orders! Marketing Cost Analysis checks whether selling expenses are justified.
Step-by-Step Procedure of Cost Analysis:
- Step 1 — Reclassify “Natural Expenses” into “Functional Expenses”:
- In accounting books, expenses are recorded in Natural Accounts like Salaries, Rent, Printing, Travel, Electricity.
- For sales control, these are regrouped into Functional Accounts based on purpose:
- Direct Selling Costs (Salesmen salaries, commissions, travel)
- Advertising & Sales Promotion Costs
- Warehousing & Storage Costs
- Order Processing & Billing Costs
- Transportation & Delivery Costs
- Step 2 — Separate Direct vs. Indirect (Shared) Costs:
- Direct Costs: Can be directly traced to one territory or salesperson (e.g., Rahul’s travel bill in Indore).
- Indirect / Shared Costs: Common expenses shared by all territories (e.g., National TV ad or Head Office rent), which must be allocated fairly.
- Step 3 — Calculate Expense-to-Sales Ratios:
Selling Expense Ratio (%) = (Total Selling Expenses ÷ Total Net Sales) × 100 If the target expense ratio is 8% of sales, and a territory is spending 16%, the manager investigates the overspending immediately.
4. Profitability Analysis (Full Cost vs. Contribution Approach)
Combining Sales Volume Analysis and Cost Analysis gives us Profitability Analysis — measuring the net profit contribution of each territory, product, customer group, or salesperson.
There are two main accounting approaches used for Profitability Analysis:
| Basis | 1. Full Cost (Net Profit) Approach | 2. Contribution Margin Approach |
|---|---|---|
| How it works | Deducts both Direct Costs AND a share of Indirect/Overhead Costs from the territory’s sales revenue. | Deducts ONLY Direct Controllable Costs of that territory from its Gross Margin. |
| Formula | Net Profit = Gross Margin − Direct Costs − Allocated Overheads | Contribution = Gross Margin − Direct Controllable Costs |
| Advantage | Shows the final net profit after covering all company overheads. | Much fairer & more accurate! Doesn’t punish a branch manager for Head Office expenses they cannot control. |
| Disadvantage | Allocating Head Office overheads (like CEO salary) to territories is arbitrary and causes arguments. | Does not show final net profit after fixed company overheads. |
Simple Example Formula Structure (Contribution Approach):
- Gross Sales Revenue (e.g., ₹10,00,000)
- Less: Cost of Goods Sold (COGS) (e.g., ₹6,00,000)
- = Gross Profit Margin (₹4,00,000)
- Less: Direct Selling Expenses of Territory (Salesman salary, travel, local ads = ₹1,50,000)
- = Net Profit Contribution of Territory (₹2,50,000)
💡 DAVV Exam Tip
Question (10 Marks): “Explain the Sales Control Process. How are Sales Volume, Costs, and Profitability analyzed by a Sales Manager?”
- Draw the 4-Step Sales Control Process diagram.
- Under Sales Volume Analysis, explain the Iceberg Principle and 80/20 Pareto Rule with a simple numerical example — examiners love seeing the Iceberg Principle!
- Under Cost & Profitability Analysis, distinguish between Natural vs. Functional Accounts and Full Cost vs. Contribution Margin Approach.