MANAGEMENT OF SALES TERRITORIES AND QUOTAS
MANAGEMENT OF SALES
TERRITORIES AND QUOTAS
Topics to be covered:
Defining Sales Territory Procedure for Designing Sales
Territories Assigning Salespeople to Territories Managing Territorial Coverage Sales Quotas
Defining Sales Territory
Consists of existing and potential customers assigned to a SP
Territory may or may not have geographic boundaries
Keyword: Customers; not geographical area
Eg. LI policies, small companies Most organisations – allot as per
geographic territories
Reasons for Setting up or Reviewing Sales Territories
Increase market coverage Control selling expenses Better evaluation of sales force
performance Improve customer relations Increase sales force effectiveness Improve co-ordination Benefit salespeople and the company
Reasons for not setting up Sales Territories A small company with one or few
salesperson(s) selling in a local market Personal contacts or relationships is the
basis of making the sales The sales people are demotivated due to
restrictions of sales territories Mgmt. may be unaware of the advantages
of developing sales territories or may not know how to set up sales territories
PROCEDURE FOR DESIGNING SALES TERRITORIES
Sales and profit performances are linked to well designed sales territories
Equal opportunity (or sales potential) and equal sales force workload for all sales territories
Practically difficult to achieve….difference taken care of when sales quotas are assigned
Procedure for Designing Sales Territories
Select a control
unit
Find
location and potential of customers
Decide
basic territories
Use Build up
method
Use Breakd
own metho
d
Select a Control Unit Select a geographical base, called control unit…to
be used in territory analysis States, metros (or metropolis), cities, districts,
towns, pin-code areas, industrial estates and major customers
Try selecting the smallest control unit – a) the control units market potential and the company sales potential should be possible to calculate b) adjustments (additions or deletions) of control units should be possible when tentative boundaries are modified to make final boundaries
In India – States, districts, tehsils/talukas, towns, villages…statistical data available for district or town
Find location and Potential of Customers Find the location and sales potential of present
(company sales analysis) and prospective customers (telephone directory/MR) in each control unit
Estimate the sales potential for all customers in each geographical control unit
Market potential/forecast….sales potential is company’s share of market potential
Classify customers based on their sales or profit potential
ABC Analysis – A- 70% sales/profit potential, B- upto 20%, C- balance 10%
Decide Basic Territories Use of Build up method or Breakdown method Build up method equalises the workload of SP
used by manufacturers of industrial products and services
Used by companies that want selective distribution strategy
Break down method equalises the sales potential of territoriesUsed by manufacturers of consumer
products/servicesUsed by firms that want to adopt intensive
distribution strategy
Build up method
Decide call
frequencies
Calculate total
number of calls in each
control unit
Estimate workload capacity
of a sales
person
Make tentative territorie
s
Develop final
territories
IllustrationDistrict – X District - Y
Customer type
Call frequency per month
No. of customers
No. of calls per year
No. of customers
No. of call per year
A 4 3 144 4 192
B 2 7 168 8 192
C 1 20 240 28 336
30 552 40 720
Decide call frequencies – how many times a customer is visited by the company’s SP per year
Call frequency influenced by factors like customer’s sales/profit potential, cost of visiting the customers, buying behavior of the customer, the nature of product/service
Calculate the total number of calls in each control unit – District X = 552, District Y= 720
Estimate workload capacity of a SP – estimated by multiplying average number of calls a SP can make in a working day by no. of working days in a year
Eg.
Average no. of calls a SP makes in a day = 5
Based on
average travel time of 30 mins. per call,
average length of one hour for each call,
8 working hours per day
If no. of working days in a year = 250,
Estimated workload capacity for SP per year = 250 * 5 = 1250 calls Make tentative territories
Group (gather)adjoining control units (which share borders) until yearly no. of calls needed in those control units equals the total no. of calls a SP can make (workload of a SP)
District X + District Y = 552 + 720 = 1272 calls per year which is nearly equal to the 1250 calls of normal workload of a SP
Develop final territories - if workload not equalised, adding or removing of certain control units is done
Breakdown method
Estimate company
sales potential for total
market
Forecast sales
potential for each control
unit
Estimate sales
volume expected from each salesperso
n
Make tentative
sales territorie
s
Develop final
territories
Estimate the company sales potential for total market – use sales forecasting methods
Forecast sales potential for each control unit – Multiply the total sales potential of the company by a multiple factor buying index of each control unit
Say for Pune/ Product X – Factors influencing sales are population, personal income an retail sales which have certain weightage… multiple factor index can be ascertained and hence sales potential for each control unit
Estimate the sales volume expected from each salesperson – study past sales as well as cost and profitability analysis
eg. Direct selling cost for next year estimated at Rs. 6 lacs.
Cost of goods sold estimated 60% of sales
Expected profit – 15% of sales
Min. sales expected from each SP is
Profit = sales – cost of sales – direct selling cost
0.15X = X – 0.6X – 600000 where X is sales
X= 24,00,000
Using his judgment, SM decides Sales per SP to be a little over twice the sales figure @ Rs. 50,00,000 per annum
Make tentative sales territories – by combining adjoining control units (which share a border) until sales potential of each territory is equal to or greater than the expected sales volume from each SP
Develop final territories – final objective to achieve equal sales potential of territories
Assigning Salespeople to Territories For designing of territories, assumption
that SP have equal selling abilities and each SP will perform equally well in his territory
SP differ in selling abilities and effectiveness
One SP may succeed in one territory and fail in another
Affected by factors like socio – cultural characteristics of customers
Relative ability of SalespeopleEvaluation
Able to evaluate each SP and decide on an “Ability index”
Relative evaluations
Evaluation factors
Weightage (A) Evaluation (B) Salesperson score: (A) * (B)
Product knowledge
0.15 0.9 0.135
Market knowledge
0.10 0.8 0.080
Past sales performance
0.40 1.0 0.400
Communication 0.15 0.8 0.120
Selling skills 0.20 0.9 0.180
1.00 0.915
Salesperson’s Effectiveness in a territoryComparing the SP’s social, cultural and physical
characteristics with those of the territoryEasy if SP is familiar with the local language and customs of
the territorySM has to match SP to territories to maximise sales and profit
potential of territoriesAlso depends on the relationship of the SP with the customers
Use of IT in Territory ManagementGIS (Geographic Information System) technology is used and
can be integrated with a company’s enterprise information system framework
Softwares such as Arc Editor, Arc GIS, Arc GIS Data Models, Arc GIS Survey Analyst – capable of running simulations and optimising territorial design
Easier and more combinations, more accurateHigh cost and no considerations to geographic obstacles like
rivers, mountains, etc.
Managing Territorial Coverage How SP should cover the assigned
sales territory?? Routing – planning of efficient routes for
the salespeople Scheduling the SP’s time Using Time management tools
Routing
Is a travel plan or pattern used by a SP for making customer calls in a territory
Reduction in travel time and cost by excluding backtracking and criss-crossing by SP in their territory
Improvement in territory coverage, as SP reduce their travel time and increase selling time
Sometimes it reduces SP’s flexibility and initiative
Procedure for setting up a routing plan To identify the present and prospective
customers on a territory map Classify each customer into high, medium and
low sales potential Decide call frequency of each class of customer Route plan should be built around location of
high potential customers Routing patterns – Straight line / Hopscotch,
Circular, Clover leaf Minimise the travel cost / Maxmise the selling
time
Application and Importance of Routing Degree of importance to the application
of routing depends on The nature of the productThe type of the salespeopleFMCG, Creative selling ….???
Scheduling Planning a SP’s specific time of visits to customers Allocation of time
“Time and Activity Analysis” Customer calls
Call Norms – with existing customers and prospective customers
eg. 80% time with existing customers, 20% with prospects, stop after 4 unsuccessful calls
How Salespeople Spend Their Time
Salespeople’s tasks Time spent (%)
Administrative tasks 15
Service calls 12
Face-to-face selling 32
Waiting/travelling 21
Telephone selling 19
Total 100
Time Management Tools
Hi-tech equipmentsDesktop, laptop, PCs, video cassettes
recorders, CDs, Email, fax, teleconferences, videophones, cellphones, pagers
Inside Sales peopleSales assistantsTechnical supportTelemarketing
SALES QUOTASTarget setting ……!
What are Sales Quotas? Sales goals / Quantitative objectives Set by company For its marketing units For certain period of time Annual quotas can be broken down to quarterly
and monthly quotas Sales quotas developed from annual marketing
plan Sales forecast ---- Sales budget (Sales volume
and selling expenses)---- Sales quotas for regions and territories
Objective of Quotas
Making available performance standards Controlling performance Motivating people Identifying strengths and weaknesses
Types of Quotas
Sales volume quotas Financial quotas Activity quotas Combination quotas
SALES VOLUME QUOTAS
Should be set for individual product items and brands rather than entire product linesRupees/dollars sales volumeUnit sales volumePoint sales volume
FINANCIAL QUOTAS
Gross margin or profit contribution quotaProfits are more important than sales
volume Expense quota
Usually used with sales volume quotas to keep selling expenses in line with sales volume
Selling expenses – travelling, food, lodging, customer entertainment expenses
ACTIVITY QUOTAS To carry out important job related activities
Defining the important activitiesFinding out the time required to carry out these
activitiesDeciding the priorities to be given among the
various activitiesDeciding the quota or frequency for important
activities Set when SP carry out important non-selling
activities also such as payment collection and getting market information
Activity quota for a Lighting Products Company
Activities of a SP Time reqd. (mins.)
Priority Quotas (frequency)
Calling on present biz. Customers classified into A,B,C
For A = 60 minB= 30 minC= 15-20 min
148
4 calls per month2 calls per month1 call per month
Calling on ‘hot’ prospects 30-6- min 3 5 calls in two months
Calling on retailers 20-30 min 2 Av. 2 calls per month
Payment collection from payment overdue customers
15 min 5 Av. 1 call per month
Obtaining and reporting market information
Inf. Gathering = 10min/customerReporting = 30mins. Each week
6
7
During sales calls, 4 times a month
COMBINATION QUOTAS Set combination quotas when you want to
control salesforce performance on both key selling and non-selling activities
Typically uses ‘points’ as common measure to overcome the problem of different measures used by various quotas
Evaluate SP performance in selling various products of the company
Weights are decided based on profitability of products
Evaluation of Salespeople with Combination Quotas
Type of Quota Quota Actual Percent Quota
Weight %Quota * Weight
For Salesperson - Srinivas
Sales Volume (Rs.) 45000000 42750000 95 3 285
Selling Expenses (Rs.) 450000 495000 90 1 110
New Customers (Nos.) 24 29 120 2 240
6 635
Total Point Score 615/6=102.5
For Salesperson - Pradeep
Sales Volume (Rs.) 42500000 44625000 95 3 315
Selling Expenses (Rs.) 425000 446250 95 1 95
New Customers (Nos.) 30 24 80 2 160
6 580
Total Point Score 570/6=95
METHODS OF SETTING SALES QUOTAS Territory potential Past sales experience Total market estimates Executive judgment Salespeople’s estimates Compensation plan
Insights into setting and Administration of Sales Quotas
Set realistic quotas Understand problems in setting quotas Ensure salespeople understand quotas
Participation in quota-setting Continuous feedback Flexibility in administrating quotas
Relationship between Quota selection and marketing environment If many new salespeople in company, it is proper to
have one or two activity quotas to ensure that SP do the right things
When company’s products are in the growth stage of product life cycle, or in a high growth economy, quotas should be on % growth in sales or %growth in market share
When company’s product/service is in maturity stage, sales growth is limited and profitability quotas is used
When the objective is to increase sales from existing customers, quotas should have sales growth and customer satisfaction/service
Companies not using Quotas Some companies do not use sales quotas Focus on nos. reduces customer service…
which impacts long term biz. In terms of repeat buy
In Seller’s market Some times words like goals and objectives
are used instead of quota Should have strong reason for not using
sales quota…else organization goal cannot be achieved!!