The Importance of Territory Design.pdf

The Importance of Territory Design

© 2012 Mapping Analytics (585) 271-6490 www.mappinganalytics.com 1

The Importance of Territory Design

A Mapping Analytics White Paper The puzzle surrounding territory design is not in whether it is a productive activity. Much research has shown that it is, with several noted researchers in the field (Andris Zoltners, the Aberdeen Group, the Sales Management Association) all noting, in one way or another that the ‘proper’ design of sales territories can have a significant impact on overall organization performance. The puzzle is in the lack of actual territory design being executed by sales managers across many industries, revenue levels and sales management hierarchies.

Mapping Analytics undertook a research study in 2011 to understand and quantify activity in this area.

Sales territory design is an act of directing sales resources toward sales opportunity. The definition of that opportunity is dependent upon the organization. The resources the organization has to deploy will determine the extent to which design can be honed for greatest effectiveness. That said, all organizations gain from the idea of placing the organizations most expensive asset, a sales person, in a situation where he has access to opportunity on an equitable basis, providing comparable opportunity to salespeople to be successful.

Using simple, yet sophisticated software tools, and models that go beyond geography, accounts, and salespeople, it is now possible to create and maintain territories that increase sales per rep, provide better coverage, and reduce turnover. This is an opportunity for those in sales management to make territory design a strategic component and a competitive advantage for their sales organizations. However, the study shows that territory design and management are misunderstood and undervalued as means of sales optimization.

Territory design can

increase sales

productivity by as much

as 10% per year,

improve sales force

morale, reduce travel

costs and drive times. It

should be a primary

consideration in overall

sales optimization

strategies.

http://www.mapppinganalytics.com/


The Study

Mapping Analytics fielded a survey in June 2011 to gain an understanding of corporate practices relative to Sales Territory Management (STM). Two research methods were ultimately employed to achieve the study goals. The first was a survey executed through SurveyMonkey. Respondents were recruited from one of the following sources:

• Sales territory customers and prospects from Mapping Analytics CRM system

• Requests posted in approximately 15 different sales related LinkedIn sites

• 10,000 emails sent to VP Sales, National Sales Managers and Directors of Sales Operations from the Selling Power subscribers list

When the survey was closed, there were 300 respondents, of which approximately 200 completed the entire survey.

The second method employed was the interview of 10 sales/sales operations managers. These interviews were used to obtain qualitative, in-depth information to supplement the information gained from the survey.

Respondents vary by company size, by number of sales representatives, business focus (business vs consumer) and by their role in the company. Approximately half of the respondents were in organizations where the revenue was under $50 million, with 25% of the sample speaking for organizations greater than $500 million.

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

< $5 million $5 million -$50 million

$50 million -$500 million

> $500 million

Respondents by Company Size



Of those respondents that provided the number of territories/ representatives, it is not surprising that larger organizations have more representatives.

Although many different titles were given, sales management and sales operations were the primary roles. In a few companies, the finance and IT departments have a role in the creation and/or development of sales territories.

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

< $5 million $5 million -$50 million

$50 million -$500 million

> $500 million

Number of Territories by Revenue of Company

500

250- 499

100 - 249

50 - 99

25 - 49

0%5%

10%15%20%25%30%35%40%45%

Respondents by Role



Key Findings

Territory Design and Management is Misunderstood and Undervalued

During our interviews, it became clear that territory management suffers from an identity crisis. When asked to define it, study participants often confused territory management with customer relationship management and sales performance measurement. Optimizing sales territories was not a top-of-mind topic for survey participants. Most territory design is done on a maintenance basis, with almost two-thirds of the sample citing maintenance as the largest reason for alignment shifts.

The fact that territory alignment is regarded as a maintenance activity by most respondents is also supported by the frequency with which the subject is addressed. Surprisingly, 46% of respondents are reporting that their organizations review territories, either for maintenance or strategically, on a very infrequent basis, as in never, every 2 years, or ‘when we feel it's necessary.’

36.26%

26.34%

37.40%

Reasons for Territory Design

Strategic: as in the support of new products or industry focus

Maintenance: reassigning accounts as needed

Maintenance: review and address changes in our marketplace

0%5%

10%15%20%25%30%35%

Frequency of Review



These findings are understandable given the relative infrequency of major strategic shifts for a company, but it points out that alignment is being done as part of a routine, without the strategic thought that drives the benefits of good alignment.

This confusion and lack of awareness is reflected in the value respondents gave to the idea of optimized and balanced territory design – 33% of respondents estimated the value at less than $10,000 per year. It’s hard to value what you don’t understand.

So, the survey raises even more questions. Is it a good idea? Are respondents truly satisfied with the way they are doing analysis now? Or is it simply the status quo? Does the continual, thoughtful review of territories pay back? And, if so, in what way?

When asked about their satisfaction rate with their current processes, only 14% of respondents say they wouldn’t change their processes. Concerns about cost, implementation, and simple lack of knowledge constrain others’ ability to implement changes for increased benefit, with 46% saying they are ‘somewhat satisfied.’

When those who were ‘somewhat satisfied,’ were asked what works well, few had anything to offer. Where the process is good, it is good due to good communication internally, although too much communication is a bad thing, as the following quotes show:

“I’d have to say that what works best is communication with our sales team, keeping them in the loop with any changes"...but “having to communicate via phone, doesn’t work well for me...it’s hard to understand, and visualize what is really happening.”

Level of Satisfaction% of Total

Very satisfied; I wouldn't change a thing 14.09%Somewhat satisfied, but I wish I could find an answer to address some of my wishes 19.80%Somewhat satisfied; I'm afraid that changing the process would be more painful than it's worth 15.77%Somewhat unsatisfied; I know that we can do it more effectively, but I worry about the cost 11.07%Totally ambivalent; what we do could be improved, but it simply isn't a high priority 9.40%Very unsatisfied; I know that we can do it more effectively, but I can't get management to approve any change 4.03%Very unsatisfied; I don't know how to change what we are doing or what the other options might be 2.68%No Response 23.15%Grand Total 100.00%

46.64%

6.71%



Summed up by another respondent:

“It would be desirable to move to a system we can use to visualize where accounts are, and understand what the priorities are.”

When asked to consider the benefits of territory alignment, it is not surprising that the most important benefit respondents would expect if their territories were optimized is increased productivity.

Specifically, this improved productivity leads to a number of benefits. If reps are more productive, they will have more face time with customers, leading to increased sales per rep and overall sales, which in turn can lead to happier reps and potentially lower turnover. Coverage of the market, and improved customer satisfaction would follow from better customer service from reps who are able to manage their territories more efficiently. On the cost side of the equation, increased productivity implies less time spent traveling from one customer to another and lower travel expense and other re-work costs associated with inefficient territories.

Although turnover is an issue in most sales organizations, with standard annual turnover rates at 20%+, our respondents did not recognize that level of attrition, with 56% reporting turnover in their organizations as under 10%. Few identify suboptimal territory management as a significant cause of turnover. Most cite individual, personal reasons for losing a rep:

• The need to relocate and the inability of the company to accommodate that relocation

• Career changes when new reps discover they don’t like sales

• Poor sales performance, not meeting sales goal

Benefits of Territory Alignment Rank

% reporting above

average importance

Higher sales per rep (i.e. increase revenues) 1 65%Better coverage 2 43%Higher return on marketing investments/campaigns 3 41%Lowered travel cost 4 32%Better customer satisfaction 5 42%Reduced turnover 6 34%



According to the DePaul University “Benchmarks in Sales Productivity” Survey, the costs of turnover range from $30,000 to as much as $45,000 per incident!

Upon further discussion, several admit that poor performance or dissatisfaction with sales could be caused by untenable territory alignment, and the managers might never know this. Managers do recognize the high cost of turnover in hiring, training, and investment to breakeven, and find the quoted costs from the DePaul study to be credible. However, such costs are not directly out-of-pocket to them and are not top of mind when considering the potential costs of suboptimal sales territory practices.

Territory Design: More than a two-dimensional puzzle

Currently, the exercise of assigning territories is accomplished using a few basic tools such as Excel spreadsheets (70% of respondents) and mapping tools such as MapPoint (20%), and internal meetings to evaluate options/changes. This process tends to be time consuming, and riddled with errors and controversy.

For many organizations the process is essentially: divvy up the real estate, assign the accounts, and presumably everyone goes happily on their way. But frankly, if it were that easy, you wouldn’t need tools, and there wouldn’t be white papers to read.

The Human Dimension

So what really happens after the salespeople get their territories? Don’t they try to figure out who got the best of it? Salespeople can’t help themselves; it’s their job to understand who is getting the best deal. Nearly half of our survey participants (46%) acknowledge that reps have been unfairly rewarded or penalized based on territory quality; 19% said they didn’t know!

In our survey, we found that 42% strive for equal-sized territories—but equal size does not mean equal opportunity. It’s all about fairness. If the pieces don’t fit together right, it hurts. When territories are built without consideration of equitable opportunities, they become the source of a lot of organizational angst, which undermines productivity.



Eliminate the pain, realize the benefits

Intelligent, equitable territory design can yield as much as 10% improvement in overall sales productivity–in a single year. It has many other benefits including better coverage, reduced turnover, improved marketing campaign ROI. It fosters fair compensation programs and performance evaluations, reduces travel costs, improves sales team morale, and helps reduce turnover.

Solving the multi-dimensional, multi-faceted puzzle of territory design

Fundamentally, the first goal of any selling organization is to sell. While basic, that goal is best achieved by placing sales resources in the right positions to cover opportunity most effectively. When opportunity, not current sales rates, is addressed appropriately, the organization has the ability to grow. Intelligent, equitable territory design begins with calculating market potential.

• Who are the customers and prospects?

• Where are they?

• What is the total size of the market place?

• What is our share, and can we gain more of it?

• Are we differentiated from our competitors?

Once you have quantified the market place in terms of “sales revenue potential,” you can classify accounts by size and status (active customer, shared customer, cold prospect) and assign workload values to each of the accounts – all accounts are not created equal. Workload is essentially the time required to capture the sales revenue expressed as a simple mathematical formula

Call length x Frequency = Workload

Selling time considerations: The myth of the 40-hour week

Time is the salesperson’s most precious resource. The typical salesperson logs 50 hours a week or more; but if you base their sales capacity solely on their hours, you will greatly overestimate what they can accomplish.

The fact is, the only time that a salesperson is selling is when they are in front of a customer – face time equals selling time. Time spent driving or prepping for a



call or filing administrative reports has to be deducted from their available selling time.

Here’s a formula we use to understand how to optimize selling time as part of an equitable territory, opportunity and workload design:

o # of available selling days/weeks per year

o # of hours worked per day/week/year

o # of sales visits per day

o # of hours per sales visit

In any given organization, the percent of time available for active selling can be as little as 40%. When territories can be balanced based on reducing drive time and increasing face time, it can have a significant impact on overall sales productivity.

Equitable Territory Design: Moving closer to sales optimization

There are many factors that can influence sales performance, positively and negatively. Territory design is one of the most underappreciated aspects. As our study revealed, it is misunderstood and undervalued. It is viewed as tactical not strategic. But the fact that it can increase sales productivity by as much as 10% per year, improve sales force morale, reduce travel costs and drive times, should make it a primary consideration in overall sales optimization strategies.

For more information on how equitable territory design can boost sales productivity in your organization, contact Mapping Analytics at [email protected] or (585) 271-6490.


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The Importance of Territory Design.pdf

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