How to Build Next Year’s Sales Territories

It’s planning time again.  In December, most Sales Managers are getting ready for next year.  A major step in the planning process is building or tweaking your sales territories.  If next year’s number is bigger, you may need to add headcount.  If you’re contracting a region, you may need to consolidate territories.  Either way, you should have a process to designing your sales territories.

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Do you follow a well thought-out and structured process when designing sales territories?   Unfortunately, many Sales Managers are too haphazard in their approach.  As a result, resources are poorly allocated and revenue targets are missed.

Territory design should be based on two criteria: Market Potential and a Sales Rep’s proven effectiveness.  Simply put… your best sales reps should work the territories with the most potential.

There are six steps to world-class territory design.  Follow them and you’re one step closer to maximizing your sales team’s potential.

Step 1 – Baseline Current Performance: Analyze the performance of each existing territory.   Assure you understand which reps are hitting target, where are margins and sales strong, etc.  Include prior revenue performance, product/service revenue mix, customer counts, prospect counts, current pipeline opportunities, sales rep talent, etc.  The output is a baseline of current territory performance.

Step 2 – Analyze Existing Customer Spend: Perform an account segmentation analysis to understand the drivers of customer spend. Use historical customer spend to determine the correlation between customer firmographic information (revenue, number of employees, number of locations, etc.) and the spend level for each product/service offering.  Ultimately, you will determine which firmographic factors contribute to sales.  The output is a frontier assessment that predicts spend potential for each customer/prospect “segment.”

Step 3 – Determine Market Potential: Once you understand the drivers to customer spend, calculate the market potential.  Compile the universe of customers and prospects, and then overlay the potential spend for each from Step 2.  The aggregation is the total market potential for your prospects and customers.

Step 4 – Map Prospects & Customer Data to Territories: In this step you will produce an initial draft of your territories.  Start with determining the right balance between prospects, existing customers and sales opportunities for each territory. In addition to a top-down approach, conduct a workload analysis to understand sales rep capacity constraints. Assign accounts using both inputs.

Step 5 – Re-Balance Territory Assignments: In this step you will review and refine territory assignments.  Is there enough potential in each territory to achieve quota?  Take into account your pipeline conversion and historical win rates.   If changes are necessary, consider the implications of account re-assignments and penetration goals to determine the optimal balancing.  The output is a final set of territory assignments.

Step 6 – Build Territory Plans: You reps need a plan.  It should include the prioritization of accounts in their patch.  You also need to spell out the territory goals: new logo acquisition, share of wallet, penetration levels, etc.  Be realistic when setting goals for each territory considering workload constraints from step 4.  The output is a territory plan per territory that will govern the activities within each rep’s patch.

Call to Action:  Do you have a structured process for designing your sales territories?  If you don’t, next year’s number may be in jeopardy.  Use the six steps above to ensure you are allocating resources to maximize revenue.