By: Tim Donnelly
Deciding how to divide sales territories create the most efficient environment for your sales team is more difficult than just drawing lines on a map.
When you’re looking at the map and figuring out how to split up sales territories, how do you decide which salesperson to send to drive all up and down North Dakota and which one gets to just walk a few blocks around downtown Manhattan?
Deciding how to divide sales territories create the most efficient environment for your sales team is more difficult than just drawing lines on a map. The process requires a good dose of foresight that’s needed to make sure you allow room for the company to grow.
Poorly aligned sales territories can cause low employee morale, lost clients and squandered resources. Experts from the fields of sales management and data analytics share these tips for setting up the best sales territories.
Keep Your Ultimate Goal in Mind When Establishing Sales Territories
Before you start carving up the map and sending your sales team out into the world, take some time to think about what you’re trying to accomplish.
“Start at the top: what is the target revenue, the overall revenue goal?” says Marie Warner, president of Warner Professional Sales. “Given that goal, what are my targets? Once I have those targets, how am I going to sell to them?”
If you’re a start-up, you can’t come right out of the gate hiring a huge sales force. You have to start strategically by meeting revenue goals in small areas and then gradually growing the territories.
“It’s like a chess game,” she says. “Do not do point to point; try to think moves ahead.”
By the time you’ve built up a base with a sales team and some clients, you can start thinking about how to allocate the sales staff.
“When you’ve got 10, 25, 50 salespeople in the field, that’s when you start to look at how to create balanced territories that are matching your investment in salespeople,” says Ralph Rothfelder, president of Mapping Analytics.
Doing some preliminary planning will help you identify the qualities that will help you set up all your sales territories in the future: what kind of clients you’re going after, where they’re located, and how much resources it will take to reach them.
Collect Lots of Data
Many companies these days use some form of analytics software to figure out the best way to establish their sales territories. But experts say the quality of the outcome is only as good as the data you can feed into it.
Most pros say they start by ranking customers or clients into different categories based on the percentage of revenue they generate vs. the time spent servicing them. The “A” clients might be the most reliable ones, the “Bs” and “Cs” might be promising but work-intensive clients, while the rest are require a lot of effort for little return.
Basically, you want to be able to distinguish what makes one account different from another, says Alex Machinis, president CEO and founder of Empower Geographics. Does geography matter at all, or can you deal with clients without putting your sales team behind a windshield?
You should collect data about the location of the customer (whether physical or virtual), how much time a salesperson needs to spend on the phone with them and their order history. Analytics programs can spit out a model to show you what each hypothetical sales area would look like in terms of size and profitability.
“After that it’s a function of what data is important to you to look at with respect to making decisions relevant to territories,” Rothfelder says. “What makes a good territory for you?”
More than half of businesses still use nothing more complicated than an Excel spreadsheet to split up the sales load.
“If it’s complex at all, you really can’t do a good job,” he says. “It’s amazing how many companies, even large ones, are not taking advantage of the tools that are out there to do a much better job.”
Each company needs to decide for itself if it needs to hire an outside consultant to come in and establish the sales territories. But the option to do it in-house is easier than ever: sales territory alignment software used to cost up to $6,000 per company; now you can download it for $29, he says.
Review the Sales Territories Periodically
Sales managers make a common mistake of blaming the territory for a bad salesperson. While a certain member of the team may be better at locking down clients than another, you shouldn’t be messing with the territory boundaries to help the weaker employee.
“One of the biggest helps I convince people of is to try to get away from the quality of the sales reps,” says Phil Brennan, president of Analytics In Focus. “You can hire better sales reps. You want your territories to be balanced. Even if your sales rep isn’t cutting it, don’t give them a smaller territory; get a better sales rep for that territory.”
In addition to undermining your sales team, messing with the territories too often could hurt your relationship with customers in those territories.
“Clients and prospects do not like to see a continuing stream of new faces,” Warner says. “Looking ahead is so key. You have to monitor it but if you continually tweak it you are shooting yourself in the foot.”
You should, however, perform regular maintenance on the territories and you may have to tweak them to make sure they are functioning properly.
Machinis says most companies shouldn’t expect to get it right on the first try and should review territories once a year.
“It takes time to do it right,” he says.
Brennan says when a company is first starting out, its goal should be to create sales territories that stay valid for about a year. Once established, you can go three to five years without having to touch the territories. But the key is planning ahead so that even if you can’t start with the full sales staff you want, you are prepared for growth.
“It’s better to design a year ahead and not fill them until you can afford to than to be realigning every three months,” he says.