Sales Territory: Definition, Importance, and Process To Allocate Territories Effectively

What is Sales Territory?

A sales territory is a particular customer/prospects group or geographical area in which all efforts of a salesperson are meant to be devoted to making sales, profits, and serving fullest satisfaction to that territory. It is a selected sales strategy of a sales company that best meets the needs of the particular location of customers.

Companies have different sales territories. These competing companies build their sales territories in order to deliver sales outcomes of sales quotas allotted to these territories in a simple and cost-effective manner as part of successfully implementing their sales strategy.

Some companies create sales territory based on prospect groups, while others create territories based on geographic locations. However, in companies where technical selling is the main selling technique, the geographical idea is rejected, and the concept of complete classes of customers for a location is recognized as a basis for building sales territory.

Whether designated geographically or customers/prospects wise, a sales territory can be defined as “a grouping of customers and prospects of a certain area and location assigned to an individual salesperson with certain sales quota to successfully sell out in a stipulated timeframe and the salesperson can conveniently and economically call upon customers and prospects for a particular sales deal.” It is a more homogeneous unit than the whole market.

Importance of Sales Territory

By establishing appropriate sales territories a company and salespeople can enjoy a lot of benefits, and such benefits constitute the importance of sales territories. They are as follow:

Importance to Salespeople

Some significant importance of a sales territory to salespeople are mentioned as below:

Facilitation of Selling Efforts and Exploiting Sales Opportunities: The established/revised sales territories are based on the objectives and preferences of the customers. Also considering the ability and skills of salespeople, as a result, salespeople’s efforts never go waste and are the best match with every sales opportunity.

Direction to Planning and Control: Well-assigned territorial responsibilities support direction to planning and control of sales operation because of the territory size and shape.

Convenient to Produce Good Results: Well-designed sales territories are convenient for salespeople to cover because they represent a reasonable-sized workload. Therefore, they are likely to produce good results with utmost effort.

Increase in Morale: Salesperon’s morale boosts when they are regarded by the management/sales manager as the most productive and sincere workforce, and facilitate them with additional compensation.

Reduction in Conflicts: The well-designed territories also help to reduce conflicts between salespersons and customers/prospects as they get enough time to interact, derive ways of satisfaction, and get tasks according to their skills and ability.

Maximum Time Investment: Good territorial design allows salespersons to spend sufficient time with customers and prospects and minimize time on the road.

Importance to Company/Management

There is mainly four importance of sales territory to the company/management which are mentioned below:

Proper Market Coverage: When selling efforts are well-matched with sales prospects, management gains market coverage and is able to compete with competitors in terms of obtaining sales orders and market survival.

If sales territories are adequately defined and salesperson assignments are thoroughly made, the organization will almost surely achieve adequate market coverage. However, the notion of “making established territory convenient and cost-effective” should not be forgotten.

Development of Repeat Customers: When sales areas are paired with appropriate salesforce assignments, calls to various kinds of clients and prospects are made at the proper frequency. Call regularity generates frequent client accounts and converts a prospect into a company’s regular account.

Assistance in Evaluating Sales Personnel: The well-established sales territory aids in the evaluation of sales professionals by management. The performance of each area is assessed separately in order to establish the company’s strengths and shortcomings by comparing regions from one to the next.

Furthermore, management assigns entire sales and cost responsibilities to certain salespeople. The management creates and implements appropriate selling tactics based on the results of this evaluation. However, it would be preferable to assess each salesperson’s success in relation to their quota and the costs incurred.

Aid in Coordination of Personal Selling and Advertising: When sales territories are well-designed, they can help management coordinate personal selling and advertising. This is advantageous to the origin sales push.

In other words, the sales personnel job allows management to take advantage of the synergetic effect (the “2+2=5”). The company succeeds in capitalizing on such a chance to combine people selling and sales promotion advertising efforts.

How To Effectively Allocate the Sales Territory?

Effective allocation of sales territories mainly goes through the four-step process. It starts in sequential order, they are selecting the basic geographical control unit, determining sales potential in control units, combining control units into tentative territories, and adjusting tentative territories.

Selection of Basic Geographical Control Units

Counties, zip codes, metropolitan regions, cities, training, province areas, and so on are examples of geographical control units. These units differ widely from one country to the next. They also differ between developing and developed countries.

For example, in developed countries such as the United States and England, we have all of these sorts of geographical units, however, in underdeveloped countries such as Nepal, these units are limited. Zonal units, cities, municipalities, and metropolitan units, as well as trading areas, are all readily available in such a country. After the country’s public and provincial states, the likelihood of states as geographical units is strong.

The companies select the convenient and easily controllable geographical units along with the most profit out yielding ones, depending upon the size of the salesforce and sales strategy of the consumer market (s). This means small control units should be preferred.

Control units may be many more but in small sizes. The small units provide many benefits,

  • It becomes easy to manage and control because of its small size.
  • It yields greater sales because of effective management.
  • It saves sales costs because of the nearest and sizeable areas.
  • It remains stable, subject to other constraints remain the same.

Determination of Sales Potential in Each Control Unit

The second step of allocating sale territories is to determine the sales potential of each geographical control unit. The territorial planner should determine sales potentials in units performing these activities.

How to determine sales potential?

  • Identify the potential buyers of the product as precisely as possible.
  • Estimate the proportion of the units market potential that the company has the opportunity to obtain.
  • Convert market potentials to sales potentials by analyzing the historical market size and adjusting for changes of the company and competitors selling strategies and practices.

Combine Control Units into Tentative Territories

In this step, the territory planner brings together all of the geographical control units that have been determined. The planner considers that separate control units have no substantial variances in their features.

The control units are grouped into tentative territories, with the assumption that each territory has roughly the same amount of potential. It is also expected that all salespeople are of average ability in this course.

The territory planner, in fact, calculates the percentage of total sales potential that the average salesperson should achieve. To determine the number of territories, the previous sales trend is used as a starting point.

Adjusting Tentative Territories

In this final step of the sales territory allocation process, the designed tentative territories are adjusted by removing the unrealistic assumptions that no differences in the characteristics control units exist. In fact, despite forecasting assuming equal sales potential in each control unit, considerable disparities in physical and other features arise in real sales circumstances.

Because of the disparities, certain control units are more difficult to sell than others. Because of the nature of control units, this is the case. Large cities, for example, have larger sales potential than some states for cities with the most merchandise. However, contacting consumers and prospects in cities takes significantly less time than in the state.

Disparities in covering difficulties reflect differences in salespeople’s workload. Depending on his or her sales ability, a single salesperson may be offered increased tasks. It would be foolish to believe that all salespeople are equally capable.

In other words, both sales potential and coverage difficulty should be taken into account for adjusting purposes. While adjusting tentative territories and finalizing well acceptable sales-driven territories, the planner should:

  • Determine the number, location, and size of customers and prospects in each tentative territory.
  • Estimate the time required for each sales call.
  • Determine the length of time between calls.
  • Decide call frequencies.
  • Calculate the number of calls possible within a given period.
  • Adjust the number of calls possible during the given period by the desired call frequencies for the different classes of customers and prospects.
  • Check out the adjusted territories with personnel who have worked in each area.
  • Make final adjustment required.

Shapes of Sales Territory:

Once the sales potential units are determined, the planner moves to decide the shapes of sales territories. There are three widely used shapes of territories. They are:

The Wedge Shape is appropriate for territories that contain both urban and non-urban areas. It radiates out from the densely polluted urban sectors. The wedge shape territories can be of different sizes – large, medium, and small. The time to travel among adjoining wedge shapes equalized by balancing urban and non-urban calls.

The Circle Shape is appropriate in case customers and prospects are evenly distributed throughout the area/territory. In this shape, the salesperson has his/her base at some points near the center. From that center, he/she makes a greater uniformity in the frequency of calls from customers/prospects.

The Closer Leaf Shape is desirable when customers are located randomly throughout the geography. In this shape, a home base assignment is made to the salespersons, this assignment is near to the center of the close leaf. This shape of the territory is more common among industrial markets than among consumer markets. It is equally important in companies cultivating the markets extensively rather than intensively.

Summing Up… Appropriate sales territories have significant sales opportunities for the firm, thus, one should carefully study the areas, plan sales objectives, and allocate assignments to salespersons in order to best fulfill the sales results from that sales territories.

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