SPEAKER: Good sales territory design provides territories that have more or less equal opportunity or sales potential for all sales professionals. This ensures that sales reps morale is high and they feel motivated to do their best, because they have a fair opportunity to do well. There are six steps for designing an effective sales territory. These steps include selecting a control unit, defining a location, establishing basic territories, assigning sales representatives, developing coverage plans, and evaluating the effectiveness of a territory.
The first step in designing territories is to select what's referred to as a control unit. In a geographic territory, a control unit might be a country, a state, or zip code area that is used as a basis for defining the territories. For example, a rep might have all the businesses located in the 90210 zip code. Or a rep might be assigned a territory of three states, Washington, Oregon, and Idaho, for example. In the case of a territory that is not based on geography, the control unit might be an industry, such as all of the insurance companies in the United States.
The second step in designing territories involves determining the potential sales in each of the control units. The company most likely has a record of current customers located within the control unit and knows the historical sales generated by those customers. In addition, the potential of new customers must be assessed. And while perhaps a little more difficult, this can be done by consulting associations, trade journals, credit rating firms, the sales staff, or other sources.
Determining basic territories means that the sales manager considers the potential of the basic control units and then divides them into territories. There are two methods to do this-- the breakdown method and the buildup method. The breakdown method means that the sales manager takes the entire market-- say the United States-- and divides it into more or less equal territories based on sales potential. If the control unit is determined by states, then the sales manager divides the country into more or less equal territories based on sales potential. So California might be one territory, while Washington, Idaho, and Oregon might be combined into one territory, because the potential of those three states for the company's sales might be more or less equal to the sales potential for California.
The build up method determines territories by combining small geographic areas that would be manageable for a sales rep based on the number of sales calls that he or she can make. This method equalizes workload more so than sales potential. Computer software is also available for assigning territories.
Once the territories have been defined, then individual sales reps are assigned to each territory. Each rep has his or her own level of experience and set of skills. So they are not necessarily equal in their ability to generate sales, although the territories have been defined with the assumption that all sales reps are equal.
When assigning the reps to the territories, the sales manager may take into consideration specific skills or strengths of the reps and match them to the territories. For example, some may be better at developing relationships with large accounts versus small businesses. So a sales manager might assign a rep to a territory where the large accounts are located. Or a rep may be effective at cold calling, so a manager might consider that when assigning a rep to a territory with a lot of uncharted ground.
Some firms determinate routing plan for sales reps to follow when making their sales calls. This works if the territory is defined geographically. Just as you are familiar with the GPS system in your vehicle, you can appreciate that this type of management would make sales reps more productive in covering their territories and managing their time.
In any management system, evaluation is required to ensure that the system is working optimally. Over time, sales managers will see whether their determination of sales potential was accurate and whether the sales territories have been evenly and fairly defined. They will see how effectively they've assigned the reps to the territories. Some adjustments may be required.
This can be tricky if you see that you've assigned a sales rep to a lucrative territory, and then you want to take back some of it give it to someone who may have a territory with less potential. This can cause dissatisfaction and lower morale. So it's important to be fair and communicate well with reps when you revise or just territory assignments. Changing market conditions can also affect territory performance.