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Popular Exam Question on Average Performance Ratios

Explore the importance of accurate calculation of Average Return on Marketing Effort (ROME) in a multi-market scenario. In this case study, a firm records profits from three markets—home, domestic, and foreign. Common misconceptions about averaging ROME can lead to incorrect conclusions. We will break down the profits per market and compare the incorrect method of averaging to the correct calculation. Gain insights into effective sales force productivity measurement by analyzing profit contributions from a detailed breakdown of salesmen performance.

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Popular Exam Question on Average Performance Ratios

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  1. Popular Exam Question on Average Performance Ratios Ted Mitchell

  2. You have a firm that is selling in three markets • In each market you are recording the profit from the sales force effort (ROME) as a measure of sales force productivity. • Home market: Profit $150k, ROME = $30k/salesman • Domestic market:Profit: $100k, ROME= $20k/salesman • Foreign market:Profit $90K, ROME= $5k/salesman • What is the average return per salesman (ROME) for your firm?

  3. The popular wrong answer is • Wrong average ROME =($30k/salesman + $20k/salesman +$5k/salesman)/3 • $55k/salesman/3 = $18.3k/salesmen

  4. You have a firm that is selling in three markets • In each market you are recording the profit from the sales force effort (ROME) as a measure of sales force productivity. • First Expand the DataProfit = ROME x (No. of Salesmen) • Home market: Profit $150k, ROME = $30k/salesman • Domestic market:Profit: $100k, ROME= $20k/salesman • Foreign market:Profit $90K, ROME= $5k/salesman

  5. First Expand the Datainto all the components Profit = ROME x (No. of Salesmen) • Home market: Profit $150k, ROME = $30k/salesman • $150k = $30k x 5 salesmen • Domestic market:Profit: $100k, ROME= $20k/salesman$100k = $20k x 5 salesmen • Foreign market:Profit $90K, ROME= $15k/salesman • $90k = $5k x 18 salesmen

  6. Profit ??????/salesperson $30k/salesperson $150k $20k/salesperson $100k $5k/salesperson $90k 18 5 Salesmen

  7. Second find total effort and total profit • Home market: $150k = 30k x 5 salesmen • Domestic market:$100k = 20k x 5 salesmen • Foreign market:$90k = $15k x 18 salesmen • Total market: $340k = ROME x 28 salesmen • Third Calculate the Average ROME • Average ROME = $340k/28 • Average ROME = $12.14k/salesman

  8. $340k Profit $12.14k/salesperson $30k/salesperson $150k $20k/salesperson $100k $5k/salesperson $90k 18 28 5 Salesmen

  9. Compare the wrong • ROME = 18.3/salesperson • to the correct answer • ROME 12.14/salesperson

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