Sales Territories and Quotas: Strategies for Success

Posted on Nov 27, 2024 in Economy

Sales Territories

Definition

A sales territory is a geographical area assigned to a sales representative, branch, or intermediary based on its commercial potential.

Rationale for Sales Territories

• Increased market coverage
• Minimized sales costs
• Strengthened customer relationships
• Effective sales force implementation
• Improved sales force evaluation
• Coordinated sales with other marketing functions

Defining and Implementing Sales Territories

1. Select a geographic control unit:
   • States
   • Municipalities
   • Postal areas
   • Cities and metropolitan areas
   • Commercial areas
2. Conduct an accounting analysis of each area.
3. Develop a vendor workload analysis.
4. Combine geographic control units into sales territories.
5. Assign sales representatives to territories.

Stages of Territory Design

1. Choose a basic control unit.
2. Calculate the potential of each unit.
3. Combine control units into territories.
4. Analyze workload.
5. Adjust territories to accommodate varying sales potential and coverage difficulty.
6. Assign salespersons to territories.

Effective Territory Coverage Steps

1. Order customers by business type.
2. Classify customers by volume.
3. Create a detailed list of cities.
4. Determine customer visit frequency.
5. Classify clients.
6. Create visit lists.
7. Generate weekly visit reports per salesperson.
8. Summarize findings.

Essential Tools for Territory Management

Key tools include computing resources, communication tools (fax, telephone, internet, cell phone), and work routes.

Considerations for Territory Design

1. Determine optimal visit frequency.
2. Calculate sales force size: Budgeted sales / average sales per salesperson.
3. Calculate total visits required per control unit.
4. Determine account visits per account.

Sales Quotas

Definition

A sales quota is a specific, measurable, time-bound quantitative target representing a desired performance standard assigned to sales representatives.

Purpose of Sales Quotas

• Design sales territories.
• Provide sales targets and incentives.
• Evaluate sales representative performance.
• Monitor sales activities.
• Identify strengths and weaknesses in the sales structure.
• Measure compensation plan effectiveness.
• Control sales costs.
• Promote sales contests.
• Plan sales volumes and profits.

Sales Quota Methods

Turnover-Based Quotas

Advantages

1. Easy to understand for sales representatives.
2. Easy commission calculation.
3. Motivational for sales representatives.
4. Easy evaluation.
5. Forecasting based on historical data.
6. Complementary product lines balance expensive and inexpensive items.

Disadvantages

1. Easy to sell single items, neglecting complementary products.
2. Difficult quota adjustments during inflation.
3. Potential for slow-moving product buildup.
4. Neglect of smaller clients.
5. Unhelpful selling or loss of importance in sales presentations.

Financial Quotas

Advantages

1. Focus on profit, the primary business objective.
2. Low-value products tend to exit the market.
3. Encourages sales representatives to be efficient with time and budget.
4. Better control of operating expenses.

Disadvantages

1. Changing profitability of products due to market fluctuations.
2. Inaccuracy and delays in obtaining precise financial figures.
3. Difficult for sales representatives to calculate and understand.
4. Complementary product lines may be neglected.

Special Quotas

Advantages

1. Ideal for new sales representatives.
2. Focus on specific clients, market segments, or product lines.
3. Ideal for new product launches.

Disadvantages

1. Subjective assessment of time and quantity.
2. Difficult to quantify and measure compensation plans.
3. Potential for early demotivation of sales representatives.
4. High sales representative turnover.

Combined Quotas

Advantages

1. More realistic by combining volume with profitability and future business.

Disadvantages

1. Difficult for sales representatives to understand.
2. Complicated assessments, evaluations, and compensation calculations.

Characteristics of Effective Sales Quotas

• Achievable
• Easy to understand
• Complete and timely
• Announced before the sales period begins