How to Maximize Sales Performance With Better-Balanced Territories
As a sales leader, you always look for ways to improve your team’s performance and drive revenue growth. But have you ever considered the impact of your sales territory design on those efforts?
Poor territory planning and management can be a significant roadblock to success for your sales team. When territories are unbalanced, it can lead to missed revenue opportunities, high rep turnover rates, and low morale.
It doesn’t have to be that way. By balancing your sales territories, you can create a fair and motivating environment for your reps while driving improved sales performance and increased revenue.
So, where do organizations often go wrong in their territory design? And, more importantly, how can you get it right? In this article, we’ll explore the consequences of unbalanced territories and provide actionable steps for creating a fair and balanced sales compensation plan that motivates your reps and delivers results for your organization.
The Complete Guide to Sales Performance Management
Step 1 — Establish well-defined customer segments
No two customers are the same, so to run an efficient sales process, you must determine common characteristics and similarities that help define your reps’ approach with each customer.
Your segments should include answers to questions such as:
- What factors drive decision-making within this customer segment?
- What competitors have a high market share within this segment?
- What methods of communication do they prefer?
- What is their average potential revenue?
- Where are they located?
- How amenable are they to speaking with sales reps?
- Are they brand loyal?
With a clear understanding of the relative value of each target customer, it will be easier to prioritize sales efforts and set fair quotas for reps.
Take, for example, pharmaceutical sales. Doctors can prescribe whatever medication they feel is appropriate, but we can use certain characteristics to categorize their prescribing habits.
Some physicians are brand loyalists. They’re older, have worked with an extensive population base, and have experienced success with a select number of drugs (i.e., they believe a select few drugs work well and prescribe the same brand(s) over and over). They typically aren’t as interested in newly launched medicine and stick to what has worked well for their patients.
Other physicians are splitters. They may practice in an area with many treatment options that have similar success rates among patients. They don’t have favorites and split their decisions among the viable options as equally as they can.
Another category of physicians is the cost-conscious. They recognize that certain drugs work better than others or have fewer side effects but ultimately have a patient base with lower average insurance coverage. Their decisions are more influenced by insurance coverage than any other variable.
Sales reps may focus on highlighting the success rates of their drugs for brand loyalists, providing information on all viable options for splitters, or discussing insurance coverage for cost-conscious physicians.
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Step 2 — Determine Customer Value to Prioritize Interactions
It is doubtful that your sales force will reach 100% of prospects in your customer universe. Once you have defined your segments, the next step is prioritizing who reps should spend their time and attention on.
Often organizations approach prioritization by looking solely at potential revenue and ignoring the reality that big accounts are likely more challenging and require more work hours to land than small ones. They also typically don’t recognize that targeting all customers within a segment is unrealistic. The size of your sales force will constrain how many customers you can meaningfully interact with.
There are three primary dimensions to add to your segments to enable this prioritization:
- Probability of success — based on historical success rates with each segment
- Reach — how many of the customers in this segment do you want reps to focus on?
- Revenue potential — how much revenue could this customer produce?
Continuing with the example of a pharmaceutical company, which is now launching a new drug that lowers cholesterol. Their two main customers are Cardiologists and Family Doctors/General Practitioners.Poor territory planning and management can be a significant roadblock to success for your sales team. When territories are unbalanced, it leads to missed revenue opportunities, high rep turnover and low morale. Do the work to define them and… Click To Tweet
Cardiologists have a concentrated base of patients with cholesterol problems and therefore write significantly more prescriptions. The company also recognizes that its new drug uses a novel method of action that may not resonate with longer-tenured doctors. The company prioritizes newly graduated cardiologists to address this in their go-to-market strategy.
Step 3 — Define Real Rep Workload
When organizations fail to set clear expectations on what sales activities should be executed and how long reps should spend performing those activities, it can lead to confusion and decreased sales performance. It can be challenging to prioritize sales efforts and set fair quotas for reps without clearly understanding the specific activities and effort required for each customer segment.
You must understand the specific activities and effort required to succeed with each customer segment. That includes:
- The number of times reps need to call on the customer
- The duration of each call
- Whether the calls are virtual or in-person,
- Any prep work required before each call.
By understanding the workload required for each customer segment, organizations can ensure that reps spend their time on activities that will generate the greatest return with the best potential customers.
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Using the prioritization segments from Step 2, our pharmaceutical company has determined to call on cardiologists monthly and GPs every other month. Based on volume, the top 25% of prescribers will receive six extra virtual calls per year. An in-person meeting should last 10 minutes on average in addition to 20 minutes of travel time. Reps should spend around 25 minutes in prep time before each session.
The total workload each doctor requires can be calculated based on the combination of calls, travel time, prep time, customer segments, and physician value. Once this is completed, territories can be drawn around the physician addresses, and the workload can be totaled.
Step 4 — ONLY Design Territories Based on Workload & Value
It is crucial to design territories based on workload rather than other factors — like tenure — that can throw off balance. That means sticking to the principles of fairness by ensuring all territories are within +/- 10% of each other in expected workload.
When organizations value things like rep-customer relationships or sales rep tenure over workload, it can lead to territories being assigned in a way that is unbalanced, unfair, or unproductive, resulting in decreased motivation among reps and lower sales performance.
If you invest in developing sophisticated workload measurements, do not allow variables you didn’t include in workload measurement to influence how you draw territories. The goal should always be to have all territories within +/- 10% of each other in expected workload.
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Returning to our example pharmaceutical company, a top rep has moved from a territory in Manhattan to a suburb outside the city. To “maintain the relationships, the company decides to assign 20 Manhattan physicians to the representative’s new territory outside the city.
These doctors were very high-value customers that required a lot of attention and interaction to service. As a result, the workload (and value) in the Manhattan territory dropped significantly, and the workload of the rep’s new suburban territory increased significantly.
As a result, the representative struggled to service all the customers in their new territory while maintaining the key customers they had brought from the city. The previously high-performing rep now struggles with the increased quota that came with a higher workload, and their existing customers saw a reduced service level. Meanwhile, the new representative who had taken over the Manhattan territory had a significantly lower workload and fewer high-revenue customers.
To avoid this inefficient use of resources, organizations should stick to the +/- 10% rule and limit exceptions as much as possible. This will help ensure that territories are balanced and fair, leading to improved sales performance and increased motivation among reps.To create balanced and fair sales territories, organizations should ensure that the workload to service all territories is similar: within +/- 10% of each other. Click To Tweet
Territories Defined by Workload Always Perform Better
Sales performance at a rep level should reflect actual rep proficiency. By understanding the workload required to generate sales and the potential value of each customer, organizations can prioritize their sales efforts and ensure that reps have an equal opportunity to achieve earnings.
When organizations don’t balance territories, it can lead to several negative consequences. It contributes to unfair quota-setting, which decreases sales rep motivation as they naturally compare and contrast what is expected of them.
It also results in a lower probability that rep earnings are correlated to their efforts, which can lead to a lack of trust in the sales force design and compensation plan, ultimately leading to decreased sales performance.
Finally, it can also lead to a lack of accountability, as reps may feel that their efforts are not being recognized or rewarded. This can lead to decreased productivity and a lack of drive to achieve sales targets.
Fairness is crucial in sales force design and compensatIt’splans. It’s essential to balance workloads among territories by developing a methodology that aligns with what is expected based on the customer base in each territory.
This methodology includes properly segmenting customers, determining their relative value, assigning sales activities based on segmentation and value, and designing territories based on sales activity workload, avoiding exceptions or outliers. By following these steps, organizations can improve sales performance and increase motivation among reps.