Fundamentals of Selling 13th Edition by Charles Futrell

Exercise 2

Rob's final conference was with the service manager to discuss the objectives for the coming year. Basically, the service manager feels a strong need to increase service support to the sales force. Customer complaints are on the rise because the service staff growth has not kept pace with sales. Each of five service reps is budgeted at $40,000 for salary and travel expenses. Supervision and other expenses run about $50,000. In the past, a four-to-one ratio of sales to service reps was adequate, but now that the terminal population has grown, the service manager wants the ratio to be three to one and is determined to implement this strategy next year. Rob tends to agree with him. In addition to the above expenses, the service manager estimates that he will need $30,000 for new servicing tools and equipment.
One of the big problems facing the service department manager is the heavy load of service calls that must be handled within 24 hours, especially with increased sales projected. This could be alleviated by additional service reps.
The service manager feels that, in addition to staffing up, the total number of calls can be cut significantly by having the staff sell maintenance contracts to customers. This will provide some additional revenue, but a planned maintenance program will head off service calls before they occur and, equally important, will enable the staff to plan their schedules more efficiently. Right now, the service manager's staff is handling about 7,400 calls per year, and this will rise in proportion to the projected sales increase. However, if the sales manager can achieve this new maintenance program and get it implemented, he feels strongly that the overall number of calls required can be cut by 25 percent.
The sales manager anticipates needing about six months to design the program and get it kicked off. The manager is also planning on hiring the new service people immediately; about a month will be needed to hire and train them.
What would be the net profit if sales
a. remained at $10 million and budgeted expenses increased to the projected levels
b. increased to $14 million and budgeted expenses increased to the projected levels