You are looking for growth, and it is time to add sales territory optimisation into your planning process. The business is growing beyond the traditional boundaries of state lines, and you need to apply a more focused and analytical approach to growth. So let’s look at why and how you change territories to achieve growth.
Topics covered
- What is a territory split/change
- What will you gain from splitting territories?
- Important drivers for sales territory changes
- Best practice in sales territory optimisation
What is a territory split/change?
As businesses grow or their product mix changes over time, the allocation of sales territories needs to be reviewed. The sales territories may need to be split or changed in such a way as to provide sufficient representation and the number of customers-potential customers for each salesperson.
Most companies’ sales management undertake a territory realignment “season” in Q3 as they plan for the upcoming financial or calendar year.
Types of sales territory realignments
There are three common methods of splitting territories, and they are:
1. Splitting is dividing the territory into two or more new areas. This is often used when companies are in a growth phase.
2. Dissolving a territory is merging two or more territories into a single geographic alignment. This approach is applied when companies are reaching market saturation.
3. Re-optimisation or realignment is done when new sales representatives are hired, and your goal is to maximise sales potential.
Let’s go a little deeper into applying these three methods of sales territory optimisation.
Why should you split your sales territories?
Growth– Your company may be in a growth phase, and you have identified new customers or new products are going to be released. With the growth from sales opportunities mapped out, it may be time to add new sales territories. Unfortunately, all businesses are bound by fixed geographical boundaries, and the only way to deliver growth is by splitting geographic regions.
Customer needs – Your customers may have a high demand for servicing, monopolising the sales representative’s time. The splitting of territories gives the existing representatives more time to service existing customers and continue acquiring new business.
Loss of market share – Your business may be attacked by competitors that are capturing market share. The best approach is to go on the offensive and hire more sales representatives to recapture share where viable. The other method, which is not ideal, is you scale back and adjust your cost of sales, accepting the reduced market share.
What will you gain from splitting territories?
Better market coverage – In sales, your goal is to unlock maximum sales revenue potential and minimise the cost of sales and customer acquisition. The process of splitting or realignment of sales territories directly impacts the yield and results. Experienced sales leaders realise that you can often generate more sales revenue in more compact territories. These compact territories also provide a lower cost of service and higher customer retention.
Shorter travel times – Sales representatives need to maximise their face-to-face time with customers. Where driving time is reduced in a compact territory through route optimisation, you have an immediate upturn in face-time with customers and potential customers. The more time spent by sales representatives selling to high-profit customers directly results in higher sales revenue.
Improved customer relationships and more sales visits – Customer retention increases providing a barrier to competitor approaches. The sales representatives enjoy having more time in sales visits to negotiate and improve business outcomes.
Important drivers for sales territory changes
Workload – Optimising territories is about maximising the capacity of your field sales team and the results from sales visits. Sales leaders need to understand the average influence value each sales representative has with their customers. Will more time with higher value customers deliver more results? Does the territory have sufficient higher-value customers or potential customers to support the sales goals?
When planning any changes to a territory, it must be underpinned with a series of workload metrics to validate the changes being considered. The sales leader’s goal is to decrease sales travel time to provide more work time and balance the workload across territories. The changes must achieve equity of effort and sales potential.
Capturing sales potential – Your existing sales territory may generate $1,000,000 in revenue with the current sales representative. By analysing the territory’s potential, you assess sales revenue can increase to $1,500,000. The existing sales representative, however, may be at their full capacity of time and travel.
Therefore, a new resource is required to secure the additional $500,000 in untapped sales revenue. Now you have two salespeople generating $750,000 with the capacity to take on more new customers.
Balancing territory new and existing business – It is a consistent challenge for sales leaders to ensure that each of the sales territories has a good balance of existing accounts and prospective new account numbers. The often overlooked metric for organising sales representatives is account call frequencies.
Not all accounts require monthly calls; new businesses can require additional calls to win the business. There needs to be scrutiny of each account call numbers and how many calls are available for new business. Over-servicing of existing accounts is equally destructive to growth as under-servicing.
How the business benefits from territory splits/realignments
Sales representatives are more engaged and motivated when sales territories are more equitable with increased selling time and less drive time.
- Customer retention increases with more focused customer service.
- CFOs are pleased as the cost of sales decreases.
- Sales leaders have increased revenue potential, increasing overall sales engagement.
- Business management and stakeholders benefit from higher profitability and market share.
Best practice in sales territory optimisation
Conduct a what-if analysis before making changes – Scenario planning is critical to any territory changes to ensure growth and profitability. With robust data-driven metrics to use in customer and call numbers, you can test different options on alignment design. Having sound data on territories and customer profiling is critical to scenario sales territory planning too.
Use territory centres – To achieve sales territory optimisation, placing your sales representatives in an ideal location is another important factor in territory optimisation. Again, territory centres offer you a guide. There are two types of territory centres.
1. A geographic centre. It is the actual centre of the territory.
2. A weighted centre. Bases the centre on the area of the highest concentration of accounts. It is an optimal centre requiring minimal travel effort to service the highest number of accounts.
Both these approaches optimise territories and can also aid in reducing costs and improving sales performance.
Incorporate customer account exceptions – In your territory design scenario planning, it is good practice to incorporate customer account exceptions in sales territory management. Sales leaders must always strive to minimise the disruption to customers and their sales representatives. It is important not to damage key relationships by transferring accounts to new salespeople. The realignment of territories must have the option to “lock in” accounts, ensuring relationships are retained.
Another consideration is “holdbacks” when you are transferring accounts. This is where there is a transition period of a quarter or two quarters (depending on the account size and value) where both sales representatives manage the customer account/s to ensure a smooth handover. The account is transferred after the agreed time has passed.
Preparing to announce changes to sales territories – Account ownership changes can result in pushback from sales representatives. Therefore, it is important that they are taken through the rationale and metrics of the proposed changes. This allows them to evaluate how equitable the changes are and where the benefit will be for their delivery of sales quota and earnings. Resistance to change is avoidable with smoother and more informed communication.
We can provide a full analysis using tools to validate potential growth and expansion if you are considering sales territory reviews. Contact the office for more details.
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