Effective sales territory planning is essential to sales rep success and a company hitting its revenue targets. With so much at stake, it can seem like a daunting challenge.
There are so many considerations and potential minefields. How do you ensure you have enough coverage? Do you have enough sales people to cover the territories? Will reps have enough territory to make their quota? Will the process be seen as objective and fair to your sales teams?
Get it wrong and you’ll have disgruntled reps upset with territories that didn’t support their quota. They’ll head for the doors and you’ll have to hire more reps. The company misses out on opportunities and won’t make its numbers.
When it comes to territory planning, many businesses feel they could do better. According to the CSO Insights 2018 Sales Optimization Study, 57% of 300 survey respondents believe their territory modeling needs improvement or a major redesign.
So how do you get it right? How do assure sales reps their territories are fair? Here are five tips for successful territory planning.
1. Determine your total addressable market
The first step to effective territory planning is understanding the total addressable market (TAM) your company will target. This is the total revenue annual revenue a company could make with a product or service if it achieves 100 percent market share.
The TAM provides a baseline to map out territories based on the accounts in a given territory that could purchase your company’s solution. This will help you figure out if the pool of potential customers in a given territory is sufficient to meet a quota.. Integral to understanding your TAM is knowing your ideal customer profile. Who is your company’s target audience? For example, it might be high-tech firms or companies with more than $1 billion in revenue.
2. Define your territories
There are different ways to segment the sales team to cover the market. Organizations most commonly assign territories based on geography: Reps are matched to accounts based on their location. This method helps reduce travel, keeping expenses down. With regional knowledge, reps can more easily develop a rapport with customers.
However, geography is not the only way. Another way to segment the team is by industry. In this model, the rep is a subject matter expert who will be assigned, for example, to all high-tech accounts.
In a large sales force, these different types of territories can be overlaid. The complexity is necessary to meet a company’s multiple goals.
Make sure you have an incentive compensation system that can handle different types of territories overlaid on top of each other with ease.
3. Leverage data
Technology can provide insight into historical sales data and other metrics to determine potential revenue in a specific territory. Using data — and being transparent about it — will assure reps that territories are fair. They’ll be motivated to excel.
Too often, reps are handed territories without any data, leaving them suspicious and apt to blame the territory assignment if they don’t make their quota and hit their goals. Data-fueled territory planning provides them with confidence that the segmentation is objective and gives each of them an equal opportunity to succeed.
4. Combine with quota planning
Quota planning should be done at the same time as territory planning. They go hand in hand. If quotas and territories don’t work together, they will both fail.
For example, if a rep is given a $1 million dollar quota, make sure there’s enough territory so they can reach that and more. Keep in mind that no one can win 100 percent of the business for all accounts in a territory in one year. Gaining 10 percent of the market is a more reasonable expectation. That will help sales reps feel more comfortable with their territories and quotas.
5. Work collaboratively with sales managers
When planning territories, sales operations must work side by side with sales managers. After all, they have the most knowledge about the territories and the reps. Get their input. Managers might suggest adding or subtracting a state to a territory, for example. Having managers on board with the plan will help get buy-in from the sales reps.
Managers should consider talking to reps about the territory plan before it’s officially rolled out to give reps an opportunity to have input. This also gives reps time to plan for any changes to their territory, and they can hit the ground running.
By collaborating with sales managers and sales reps, and being transparent about the process, you put the sales team and each rep in a position to excel and the company on a path to increased profitability.
Learn how to improve the territory and quota-setting process with automation.