It’s the beginning of a new year, you are looking at a map of the United States hanging on the wall of your office. As you lean back in your chair, proud of your team’s sales accomplishments the prior year, you begin to wonder how you will continue the success, to hit this year’s stretch goal.
Will my team be able to effectively cover their territories? Have their account loads become too large as of the last year?
As VP of sales, you may believe allowing sellers to run large territories is generous, maximizes their earnings, while improving your chances of making the number. However, as the law of unintended consequences would predict, large territories are likely:
- Undermining your sales managers
- Contributing to Undesirable Turnover
- Hurting overall sales growth
How Does Territory Design Undermine Your Sales Managers?
In abstract, it may seem like a stretch. Why would poor territory design undermine my sales managers?
Life is about choices, and sales -potentially more so than any other profession- is about making choices. Sales professionals, being rational human-being will generally make choices to maximize their earnings. However, it is the Sales Manager’s job to actively inspect & manage their rep’s selling cadence. (For additional reading, see “8 Activities that Top Sales Leaders Prioritize”).
In a territory with too much opportunity, the rep will choose the path of least resistance, selling only products she is comfortable with and/or visiting accounts with the best relationships. In this scenario the rep will decide which accounts not to cover, and it will be challenging for the sales manager to correct this behavior.
Why Does Poor Territory Design Contribute to Undesirable Turnover?
Oftentimes seller’s eyes are bigger than their stomach when it comes to workload they can handle, especially the eager, top performers. Generally, the more accounts one has, the more opportunity to earn commissions. However, without proper understanding of the workload required to effectively cover each account, you are putting your sellers in a situation where they are unlikely to meet the customer demands, resulting in unhappy customers, low seller morale, and potentially turnover.
To remedy this, top-down & bottom-up approach should be taken to sanity check your team’s workload. From a top-down perspective, variables such as Total Available Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM) will help determine which markets to run towards vs. away from.
Equally as important are the bottom-up factors, which include total Selling Time Required per account (by type of interaction, phone, in-person, email, etc.), number of accounts, and Rep Capacity (total time, minus non-selling time). These bottom-up factors are key to determining if you have sellers who are carrying an unfair proportion of the workload. Click here for an example of a Workload Analysis Calculator.
Potentially even more upsetting to your sellers, will be the feeling they are being punished, when you need to split up a portion of their territory to either accommodate for new hires, or the right-size the workload. This “land-lording” behavior is a result of having a large territory to make their number, when part of the territory is reduced, your reps will complain that you’ve hurt their chances to make their goal, and their earnings will suffer. To counter this, territory adjustments need to be carefully made. You must consider current relationships & pipeline before removing accounts from a seller’s territory. Temporary sales credit may be given for accounts which are in late-stages of the funnel.
How Does Poor Territory Design Hurt Overall Sales Growth?
Simply stated, customer retention & new account conversion suffers when territories are too large.
Absent sophisticated account segmentation models & coverage aligned to the customer buying preferences. (For further information: “Going After the Right Accounts to Make Your Number”)
Customers don’t get the care they need, which in turn leads to revenue churn, most commonly in “tier 2 accounts”, since reps prioritize their largest accounts. While this is a rationale behavior, many times the tier 2 accounts are the those with the most potential for growth. Additionally, prospects are not nurtured, new logos are not converted, and new sales begin to slump.
(Revenue comes from three sources, Account Retention, Account Growth, & New Logo Conversion. New Logo Conversion is often the first source to suffer when seller’s territories are too large)
If your sales managers are having difficulty effectively coaching their team, you’re unable to attract & retain top sales talent, and your revenue is not growing faster than market, you may have a territory design problem.
For further reading on properly designing and running your territories, leverage the following SBI articles:
- An Inside Look Into Territory Design
- The Three Most Common Territory Design Mistakes
- 4 Steps to Master Your Territory
Download our Workload Analysis Calculator to figure out how many sales reps you need, to keep your CFO happy, and to achieve a balanced quota attainment.
For a further discussion on this topic, come visit my friends and I at SBI’s Studio.
Located in Dallas, TX, our facility offers state-of-the-art meeting rooms, lounge, full-service bar, and a studio used to tape our TV shows. SBI provides the location and facilitators, all at a compelling price point.