Drive Double-Digit Revenue Growth by Interlocking Compensation Design & Territory Alignment

It’s December 25^th, 2018. You are sitting around the Christmas tree with your wife, two kids and black lab—Duffers. You hear the crackle of the fireplace as another log gets added to the fire. The kids are smiling from ear to ear; “Mommy, mommy, look what Santa brought us this year.” You cannot help but smile.

You head to the kitchen and grab your favorite short tumbler glass. First, a dash of simple syrup and angostura bitters, then a good pour of whiskey. Finish it off with two luxardo cherries, one for good luck. You take a sip. “Ahhh”. Everything is perfect.

What a difference a year can make.

You think back to a year ago when you were:

• Concerned about your organization’s sub-optimal sales performance. Another quarter passed. Another missed revenue target.

   

• Worried about your cost of sales, which exceeded industry benchmarks. Despite poor performance, actual expense was higher than target.

   

• Wondered how you would reverse the trends when several of your top performing sales reps just gave their two week notice

   

It was obvious something was broken. It just wasn’t obvious what that something was. Maybe it was the sales compensation design. Maybe it was the quota-setting methodology. Maybe it was the territory design. It was all three.

Download the Territory Alignment Tool to map and track your various sales territories, evaluate your territory’s criteria and financial goals, and track various data such as Employees assigned, sales plan, and region of territory.

The Interlock Challenge

Each year, organizations strive to benchmark their compensation plans against industry and market practice; most organizations believe that aligning design principles to best practice will result in improved productivity. True in some cases, many organizations

neglect territory alignment and quota-setting, resulting in money left on the table. According to Gartner, “Enterprises will miss the equivalent of at least 10 percent of total annual sales in “lost opportunity” revenue that could have been captured with improved processes for defining, assigning and managing territories, quotas, and incentives and compensation plans.”

In It’s Time to Start Thinking About 2019 Sales Compensation Design, the statements on page 2 help determine your alignment to market on compensation design. We follow a similar logic for quota-setting and territory design below.

Consider how you would answer the following statements:

1. Sales rep quotas reflect market potential, not just historical spend

    

2. Sales rep quotas are not overallocated by more than 10%

    

3. We are able to forecast sales results with a high degree of accuracy

    

4. We have defined objective criteria to use when designing territories

    

5. We understand the workload requirements for each account and territory

    

6. Territories are balanced on revenue/bookings opportunity and earnings potential

    

7. Our best sales reps are assigned the territories with the most potential

    

Answering “no” to any of the above statements indicates a possible misalignment to best practice.

Common symptoms of misaligned territories include:

• You are unable to attract or retain top sales talent in particular territories

   

• Your compensation plan rewards for territory dynamics, not rep performance

   

• Your sales reps focus their time and effort on low-opportunity accounts

   

• Your sales reps spend more time on non-selling activities than selling activities

   

Download the territory alignment tool to better understand if redesign may be needed.

The Good, The Bad and The Ugly with Territory Alignment

Studies show over 75% of companies are missing 3-8% of sales because of territory misalignment. Simple improvements can help capture this opportunity—without any change in total resources or sales strategy.

So why is territory design often neglected? The common symptoms of poor territory design can be incorrectly attributed to other issues.

• Retention Issue

   

  Attrition in a particular territory can indicate the need to refine rep development and training programs. It can also be a biproduct of poor territory design. There is a strong correlation between sales and territory potential. Reps with low territory potential often make less. They become quickly discouraged. Especially when less talented peers are getting rich with high-opportunity accounts in adjacent territories.

   

• Plans that Pay on Territory Dynamics

   

  There are two common sales compensation approaches – cost of labor (quota) and cost of sale (commissions). In either approach, it is critical to have similar earnings opportunity across the sales people. Otherwise, the measures used to evaluate rep performance will be more impacted by the territory makeup—not necessarily the sales person.

   

  For example, in commission-based plans, territory size is often the primary driver in incentive pay. Not rep performance or territory growth.

   

• Lack of Focus on Strategic Accounts

   

  Some sales reps do not follow up on high quality leads; others spend too much time on low-potential accounts. Both are problems and highlight the need for better account segmentation or coaching.

   

  They can also be the result of misaligned territories. If sales reps have too many accounts, they will ignore good leads. Reps do not have enough time and instead focus on quick wins. On the flip side, if there is not ample opportunity, salespeople may over cover their low-potential accounts.

   

• Insufficient Selling Time

   

  Best-in-class organizations have their reps spend approximately 60-70% of their time on selling activities. Few organizations are able to accomplish this feat. Many reps get bogged down in internal meetings and administrative tasks (i.e. order entry). This could signal a need for coaching or additional resources.

   

  These same reps also indicate spending a large percentage of their time behind the wheel. This is more commonly known as windshield time. And it’s the result of territories being designed without consideration for the territory makeup. This can include distance between accounts or even traffic.

   

  Refer to Baseline Selling Time to Increase Revenue Per Sales Head by Scott Gruher to quantify the impact of increasing rep selling time.

   

Territory misalignment can be the result of a revised company strategy, like entry into a new market. Or even a new product launch. It could also be the result of a new sales force size or structure. To stay current with organization and market needs, territory effectiveness should be evaluated periodically. It is recommended that organizations review territory design at least every two years. Otherwise, you might be stifling revenue growth.

There is no longer an excuse for neglecting territory design as a primary driver of rep productivity. Fortunately, there is more data available today than ever before. Mapping software exists to take the guesswork out of designing territories. The result is improved customer coverage, a reinforced pay for performance culture—which aids in the retention of top sales talent—and increased selling time.

Download the Territory Alignment Tool to map and track your various sales territories, evaluate your territory’s criteria and financial goals, and track various data such as Employees assigned, sales plan, and region of territory.

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