Get Off My Turf: Assigning Sales Territories

A territory is a salesperson’s battleground; it’s the turf that he or she defends.

As one of the first decisions that many sales executives make, territory assignment can be quite a complex process, serving several goals — and stakeholders — at once.

Leaders often draw up territories to minimize the time and travel expense of serving customers in a particular geography. At the same time, they try to balance the potential sales in each territory so they can easily compare sales efforts and results across regions.

For instance, say you manage a salesforce in the medical devices market. You might assign a sales rep to a city such as Philadelphia, Baltimore or Boston, where there are high concentrations of hospitals, medical schools and clinics. But another rep might travel among four or five states in the western part of the United States to achieve the same potential.

Without that balance, you may be assigning salespeople too much or too little work to do, leading to the underservicing or overservicing of your customers.

Underservicing customers is harmful because sales are lost due to a lack of activity at all levels — fewer leads are sought out and fewer prospects identified. Spending less time with current customers will also reduce potential sales and could ultimately cause customers to find another company with which to do business. This all can be caused by a salesperson being stretched too thin.

Overservicing, less obviously a problem, can result in lower sales both directly and indirectly. A direct result would be a salesperson who is continually calling a customer until they become alienated. An indirect result is the loss from sales that could be made in an underserved territory.

Unbalanced territories can raise the problem of unfair sales potential between members of the sales force. This will result in distorted compensation potential and can cause a talented salesperson to leave for a company with better balance and compensation.

Achieving the correct balance between territories results in a happier customer, salesperson and company. It is, however, primarily a matter of management judgment. The main considerations are trying to:

• Balance workloads
• Balance sales potential
• Develop compact territories
• Minimize disruptions during redesign

Balance Workloads

Before designing new territories, you should evaluate the current situation. Here’s one way to calculate the workload for a given territory:

Workload  = [Current Accounts  x Average Time to Service an Active Account]  + [Prospects  x Time Spent Trying to Convert a Prospect Into an Active Account]

Balance Sales Potential

To calculate the potential of a territory, you need to collect some key facts about the area. The most basic is population, meaning the number of potential accounts in a territory. In the case of copier sales, this could represent the number of offices in a territory.

A dominant competitor might “own” a region or segment of the market, decreasing the sales potential. You’ll need to reduce the potential by the expected value of winning that portion of the market. If the market’s absolute size if $50 million and a key competitor has an 80 percent share of a segment worth $5 million, the likelihood of winning share from that competitor is quite low, and the size of your served market becomes the $50 million less the $4 million that is unavailable to your firm.

Develop Compact Territories

Also consider the time it takes to travel in the territory. Travel time is a better metric than size because it is a representation of what size implies — the time needed to reach each customer. Depending on the quality of roads, density of traffic or grouping of businesses, territories of the same area could have very different travel-time requirements. A salesperson can keep track of the necessary time to travel from call to call, which can either be recorded over time to find an average travel time in a territory, or calculated using specialized computer software.

Minimize Disruptions

Salespeople tend to be very protective of their sales territories and do not welcome change. They have spent a great deal of effort establishing relationships with buyers and expect a long and fruitful association with them. At the same time, learning the habits, requirements and buying criteria of new clients also takes time, and this energy takes away from what they get compensated for. Despite the impact of the sale force, the primary consideration should be the effect any territory changes have on the customer base.

Minimizing the disruption to the customers should be a priority with any change. The other major stakeholder group that is likely object to realignment would be the salespeople themselves.
 

Considering the effect on both the customers and the sales force is important when making a beneficial change for the company.

Balanced territory assignment is one metric that can lead to an efficient and motivated sales force, which can in turn lead to positive results throughout the organization.

This post is adapted from the technical note Sales Force Management and Measurement (Darden Business Publishing) by Eric Larson (MBA ’05), Neil Bendle (MBA ’04) and Darden Professors Paul W. Farris and Robert E. Spekman.