Sales Territories & Quotas

20th July , 2013

Sales Territory: Overview

Sales territory consists of existing and potential customers and/or a geographic area assigned to a salesperson. Typically territories divided across geographical lines ( New Gurgaon / Old Gurgaon / Gurgaon city / Gurgaon district (22 cities) / Haryana ( 21 districts) / North Region ( 7 states + 2 UT) / India ( 5 Regions or 28 states + 7 UT) Territories also divided by : Channel , format . ( Basis customer classification) Reasons for setting sales territories :
1. Increase customer coverage Enables sufficient time with present & potential customers. 2. Territory potential based goal setting which is objective in nature ( Budget volumes / budget expenses / tasks) 3. Better evaluation of performance vs expectations ( Tasks / Goals) 4. Control selling expenses thru planned routes / connectivity / travel connectivity / less road time / more selling time / contiguity . 5. Improved customer relations as a function of continuity , time spent . ( Foundation of collaborative , value added relationships & effective selling. 6. Improve coordination between sales & marketing / logistics / finance 7. Increased salesforce effectiveness Minimal conflicts / Minimal ambiguity. 8. Ideal objective in territory design is to have all sales territories being balanced on sales potential ( equal opportunity) and workload. ( In practice there would always be differences in workloads as well as potential which can be corrected for while sales quotas are set up for the individual sales territories & salespeople. )

Designing Sales Territory:

Buildup method of territory design
The inset table captures details of schools in Delhi. The sales manager working for a school uniform selling garment manufacturer has sat down to split the Delhi region into multiple territories using the build-up method. In consultation with the owner he fixes the call frequency norm and the call duration norms as : School Type Call frequency / month Call duration / visit A 2 180 mins B 1 120 mins C 0.5 90 mins While doing the manpower planning he assumes that the average salesperson will spend 20 days / month in the field visiting schools in their territory with rest time being spent on holidays , meetings , training etc. He also assumes that an average salesperson will spend 6 hours every day in selling while the rest time will get spent on travelling , food etc. Please work out the following : a) Number of salespeople that need to be deployed in Delhi by the company. b) Split Delhi region into multiple territories using the build-up method.

Designing Sales Territory:

Buildup method of territory design
Territory allocation - School uniforms
Distributor Location name Visit Frq. ( per mth) Visit Dur ( mins) Lajpat ngr S Delhi G.K S Delhi South Extn S Delhi Panchsheel S Delhi Model town N Delhi Civil lines N Delhi D.U N Delhi Morris Ngr N Delhi Janakpuri W Delhi Dwarka W Delhi Rajouri Gdn W Delhi Delhi Cantt W Delhi Patel Ngr W Delhi Mayur Vih E Delhi IP Extn E Delhi Anand Vih E Delhi Shahdara E Delhi Total Delhi Type of Schools A B C 2 1 0.5 180 120 90 15 35 57 20 35 80 3 7 15 5 8 12 8 22 30 10 23 55 6 9 43 4 6 40 12 20 48 8 15 47 10 35 53 3 7 10 2 8 10 5 10 65 5 15 75 8 15 37 7 10 33 131 280 710

Working
Time Spent (Mins) B C

Distributor Location name Visit Frq. ( per mth) Visit Dur ( mins) Lajpat ngr S Delhi G.K S Delhi South Extn S Delhi Panchsheel S Delhi Model town N Delhi Civil lines N Delhi D.U N Delhi Morris Ngr N Delhi Janakpuri W Delhi Dwarka W Delhi Rajouri Gdn W Delhi Delhi Cantt W Delhi Patel Ngr W Delhi Mayur Vih E Delhi IP Extn E Delhi Anand Vih E Delhi Shahdara E Delhi Total Delhi

Tot

5400 7200 1080 1800 2880 3600 2160 1440 4320 2880 3600 1080 720 1800 1800 2880 2520 47160

4200 4200 840 960 2640 2760 1080 720 2400 1800 4200 840 960 1200 1800 1800 1200 33600

2565 3600 675 540 1350 2475 1935 1800 2160 2115 2385 450 450 2925 3375 1665 1485 31950

12165 15000 2595 3300 6870 8835 5175 3960 8880 6795 10185 2370 2130 5925 6975 6345 5205 112710

Designing Sales Territory:

The steps involved in designing the sales territory are :
1. Select a control unit It is a geographic unit , such as customers , pin codes , cities , districts , states. Works best when the smallest control unit is chosen. 2. Find location & potential of customers Location & sales potential of present and prospective customers in each control unit is determined using suitable f/c methods. 3. Decide basic territories using buildup or breakdown methods. Buildup method equalizes the workload of salespeople. Used commonly by manufacturers of industrial products or companies desiring selective distribution strategy.
Breakdown method equalizes the sales potential of territories. Used commonly by manufacturers of consumer products or companies desiring intensive distribution strategy.

Select a control unit

Find location & potential of customers

Decide basic territories

Use build-up method Use breakdown method

Designing Sales Territory:

Buildup method of territory design
Decide call frequencies & Step 1 call duration. Call frequency is the number of times a customer should be visited by the companys salesperson per month. Call freq. & call duration impacted by customers sales potential , type of relationship .. Example :
UDS A 4 times / mth x 45 mins UDS B 2 times / mth x 30 mins UDS C times / mth x 10 mins

Calculate calls in each Step 2 control unit.

Estimate productive time Step 3 available ( Workload) Make tentative territories

Smallest units as control unit helps in additions / deletions / adjustment of territories - RECALC

Step 4

Step 5

Develop final territories

Designing Sales Territory:

Breakdown method of territory design
Estimate company sales Step 1 target for total market
Company sales f/cast done using one / more of forecasting methods. Sales potential for each control unit is forecast using multiple-factor index method. Factors influencing the sales of product ( example Soaps) are identified . Assume they are :
Population ( 40% weight) Disposable income ( 35% weight) Retail development index ( 25% wt)

Forecast sales target for Step 2 each control unit

Est sales target expected Step 3 from each salesperson Make tentative territories

and the contribution of control unit ( say city Hyderabad ) is determined :

Population 2% All India Disposable income - 4% All India Retail development index - 11% India Hyd sales tgt = 0.4 x 0.02 + 0.35 x 0.04 + 0.25 x 0.11 = 0.0495 Which means 4.95% of all India sales of soap planned by the company would be in Hyd. Assuming co. sales tgt= 50,000 bars of soap then Hyd sales tgt= 2475 bars of soap.

Step 4

Step 5

Develop final territories

Assigning Salespeople to sales territories:

Different salespersons differ from each other on their selling abilities , aptitude , application & effectiveness. The must-have abilities in a salesperson are :
People management skills ( distributor handling / PSR handling ) Product knowledge Market knowledge Past sales track Communication Selling skills Analytical abilities Hard work & application. Social & cultural characteristics of the customers Product market share and acceptability Category and product penetration Geographical expanse .

Different territories offer varying challenges & complexities on account of :

Sales manager assigns a given sales territory to a select salesperson where he sees the best fitment between the territory needs & salesman abilities leading to optimal effectiveness.

Routing & Scheduling:

Beat plan

Beat Route
Key terms

Refers to the daily plan of visiting the existing and prospective customers as per a schedule.

Routing
Is the travel route taken by a salesperson for making customer calls in a territory. Importance ?
Reduction in travel time & cost thereby increasing sale time. Predictability at buyer end cuts down order time. Adequate service (freq & duration) to customers.

Scheduling
Is planning a salespersons specific time of visits to customers. Importance ?
Predictability at buyer end cuts down order time.

Sales Quotas or Sales Targets:

Sales target ( quota) are sales goals assigned to sales units like salespersons , territories , or regions for a certain period of time. These are breakdown of sales goals (budget) set by the company and also sales activities required to maximize the sales vs potential. Types of Sales targets : Sales target may be set around controllables like :
Sales Volume ( Cases or KL or MT) Sales Revenue ( Rs or $ ) Expenses ( Individual heads like freight , damages , C&FA or summary ) Profit margin ( EBIDTA or product mix profitable ) Activity ( Network expansion ; Opening of new towns ; Distributor meets ; Market shares) Customer satisfaction ( Service norms like delivery lead times ; Freshness benchmarks at CFA , distributor or retail ; Retail audits )

Each sales manager breaks down the sales target amongst his subordinates.
Example NSM will break it into regions headed by RSMs RSM will break it into states headed by SMs who in turn will split it amongst ASMs

Sales Targets:
The importance of sales targets is : 1. Making available objective performance standards
Sales budget created basis sales potential of the territory. Annual budgets further split into quarterly & monthly budgets basis forecasted seasonality. Provides objective benchmark to measure the performance of members of sales team.

Targets

2. Controlling performance

Purpose

Focusing salesperson on key performance criteria ( Sale of profitable SKUs / Minimizing damages / Opening outlets ). Regular review & timely feedback helps in course correction.

3. Motivating people
In most companies incentives & annual increments linked to performance vs targets (Exceeds ; Meets ; Below) Promotions too are usually linked to sustained rating of Exceeds expectations coupled with capability to handle a larger role / responsibility.

4. Identifying strengths and weaknesses.

Regular review of performance allows for understanding of skill / capability / attitude gaps which can be addressed through counseling , training , coaching.

Sales Targets:
Sales quotas are set by companies using several methods: 1. Territory potential

AC Nielson
Summary

As defined by Multiple factor index Mkt research reports on company-wise , variant-wise , pack-wise industry volumes ( Refer AC Nielsen report on Delhi oils refined & non-refined market in the period July-June 2011) . All reports are slice + dice + reconstruct format. Research reports on outlets available ( segregated on format ) & company wise availability also available. ( Product , Pack , flavor penetration data available) Based on assumption that future sales are related to past sales. Last year sales or average of 3/5 years sales taken and a arbitrary growth rate is applied to set the target. As above with difference that market potential ( not arrived at arbitrarily) but estimated using forecasting techniques. Mostly used when the company/territory is new & little market information is available. Rarely used bottoms up approach. Usually used as a reconciling input. Putting the cart before the horse approach ( Variable component of compensation decided in advance & targets set in-line with the same ).

Methods of setting

2. Past sales experience

3. Total market estimates

4. Executive judgment

5. Salespeoples estimates

6. Compensation plan

Sales Targets:
Insights into setting and administration of sales quotas: 1. Set realistic quotas
Quotas should be in line with territory sales potential Stretch in performance should make them attainable by majority of the sales force. Else the salesperson would be de-motivated and stops trying. Underestimation & overestimation of territory sales potential thus making targets too stiff ( unattainable) or too easy. New products & new geographies pose challenge of lack of past data. Budgets should be macro viewed vs micro detailed. Process of target setting should fair , objective & transparent (seen to be fair) and should be shared. Overview of Market potential Company potential Sales potential Sales budgets Sales targets ( SWOT & resourcing plans) helps in ownership & commitment.

2. Understand problems in setting quotas

Insights

3. Ensure salespeople understand quotas

4. Continuous & timely feedback on performance vs targets. 5. Flexibility in administering targets

Target correction for force majeure or unforeseen environmental changes (economic , political ..)

Common Routing Patterns

Base

Base

C1

C2

C3

C4

C6

C1

C5

C2

C1

C2

C3

C4

Base
C4 C3

Straight line route

Cluster 1

Circular route

Cluster 4

Base

Cluster 2

Clover leaf

Cluster 3