The 4 best ways to divide sales territories
Running an effective sales division requires organization. Let your reps operate completely independently, and you’ve all but guaranteed chaos. Multiple reps pitching the same prospect, high-potential clients being ignored — and those are just two disastrous scenarios; there are plenty of others. To ensure efficiency and set your team up for success, get strategic about managing sales territories. Here are the four best ways to divide sales territories and why making a plan matters.
What is a sales territory?
A sales territory is a defined area in which a single salesperson or group of salespeople work. That defined area can take on different shapes and forms. As you’ll see below, not all sales territories fit a neat geographic structure. Depending on the size of the territory, there may be one person handling all the area’s clients. If it’s a large territory, there may be several salespeople as well as a sales manager sharing the responsibility.
Historically, sales territories tended to follow established geographical shapes. Sales reps might have worked certain states or known that they “own” the area south of a particular point. Today, territory management has evolved and become more complex. It may be harder to create balanced territories, but the results are worth the investment.
Why sales territories are useful
As companies grow, they need to divide up accounts in a manageable way. Sales territories provide clear-cut boundaries, so there’s no confusion about which sales rep works with which client. This is crucial for several reasons:
- To prevent under-servicing. When a salesperson is stretched too thin, client relations suffer. Orders slip through the cracks, there may not be time to follow up on leads, and calls go unreturned. Under-servicing can have a snowball effect, and the more reps make mistakes, the further behind they fall.
- To prevent over-servicing. While clients don’t like being ignored, they don’t like being pestered either. A sales rep who relies on just a few accounts may have to be very aggressive just to make a livable commission.
- To keep talented salespeople happy. It’s an awful feeling to fall short of your sales goals. Even worse is when that happens because you weren’t given the opportunity to succeed. Balanced sales territories give everyone a chance to maximize their compensation.
- To motivate and boost morale. Giving a sales rep their own territory establishes ownership; they’re in charge of their piece of the pie. It’s their responsibility to make sales happen. They have a quota to meet and leads to generate and nurture. They know they’ll have to explain their progress to the higher-ups, and that’s invigorating.
Four ways to divide sales territories
There are countless ways to oversee sales territory alignment, but these are the four most common.
One of the most popular ways to structure a sales territory plan is to divide up accounts according to geographic location. This could be as simple as setting boundaries to preexisting criteria, such as zip codes or states. Using this method makes it easy to define the exact parameters of each territory, and it’s equally easy to make changes.
On the other hand, geographically delimited territories are tough to make equal. One area may include a bustling industrial center, while the other could be largely residential. California has 53 Fortune 500 companies, Kentucky has 1. This kind of imbalance could be frustrating for sales reps and clients alike. You end up with some reps racking up huge commissions but also dealing with enormous amounts of stress. Conversely, their colleagues who got the shorter end of the stick can’t make ends meet, which breeds resentment and discord.
Geographic territory planning could create travel-related issues for outside sales teams. Depending on where your HQ is located, some reps may have to commute much further than others. That means some of your team will automatically be required to invest more time.
2. Company size
The second option is to assign sales territories based on company size. Rather than looking at the big picture and slicing up the map, reps are paired up with specific accounts. How that matching process works depends on a number of factors, but one perk of this approach is that it allows for seniority. Senior reps who have proven track records get the larger accounts and junior reps get their feet wet working with smaller clients.
Dividing up territories according to company size also allows for predictability of contract size and a lot of segmentation. Categorizing accounts by size, such as global enterprise, mid-sized business and small business, prevents coverage gaps. It also makes it easier to assign the right rep to the right account.
Of course, all this goes out the window if a company suddenly changes size. Organizations that close a branch or two or acquire another business may shrink or expand practically overnight. When that happens, your territories will need to be adjusted accordingly. Both the initial segmentation and future changes are only as accurate as the data you source.
It can be difficult to find reliable information about company sizes, and you may find yourself relying on educated guesses. Using sales history to predict future potential is a smart way to go, but you’re still operating on conjecture rather than data.
When you organize sales territories according to industry, you empower sales reps to specialize in a particular niche. This gives them the ability to study industry-relevant topics and, more easily, establish and build a rapport with their clients. The sales plan for that area can ditch more generic messaging and tailor marketing materials and pitches to the industry.
This angle becomes problematic when there are companies that span several industries. For example, a technology firm with both agriculture and educational applications may need reps for both divisions. Another issue: some industries are more or less likely to buy, creating unpredictable territorial inequities.
Organizing territories alphabetically splits the difference between assigning territories totally at random and having a strategic territory plan. Go this route and everyone gets an opportunity to work with businesses of all sizes and across all industries and locations. If a client changes its name, it’s easy to tweak your territory alignment. Other changes, such as company size or physical relocation of their brick-and-mortar store, don’t matter.
But as easy as alphabetizing territories can be, it’s a pretty uninspired system. You may end up with sales reps in charge of accounts they aren’t prepared to tackle. Some salespeople may have fifty huge accounts with endless potential. Others could be stuck with five tiny companies just because their names all start with the letter “J.”
If you do decide to divide up your sales territories according to the alphabet, establish some ground rules. Do articles like “The” count? Everyone needs to know whether “The Eastman Kodak Company” will be filed under “T” or “E.”
Proper sales territory management can be a vital part of boosting morale. It can also help increase your customer base and raise customer satisfaction. To keep your business on track, consider using commission tracking software to see where sales are coming from. Finding data-backed ways to determine sales targets and allocate your resources could be just what you need to optimize performance. You can even use QuotaPath for free today.
QuotaPath is the most adaptable compensation solution for sales reps to finance to everyone in between. Try it for free today!