MANAGEMENT OF SALES

TERRITORIES AND QUOTAS

Topics to be covered:

Defining Sales Territory Procedure for Designing Sales

Territories Assigning Salespeople to Territories Managing Territorial Coverage Sales Quotas

Defining Sales Territory

Consists of existing and potential customers assigned to a SP

Territory may or may not have geographic boundaries

Keyword: Customers; not geographical area

Eg. LI policies, small companies Most organisations – allot as per

geographic territories

Reasons for Setting up or Reviewing Sales Territories

Increase market coverage Control selling expenses Better evaluation of sales force

performance Improve customer relations Increase sales force effectiveness Improve co-ordination Benefit salespeople and the company

Reasons for not setting up Sales Territories A small company with one or few

salesperson(s) selling in a local market Personal contacts or relationships is the

basis of making the sales The sales people are demotivated due to

restrictions of sales territories Mgmt. may be unaware of the advantages

of developing sales territories or may not know how to set up sales territories

PROCEDURE FOR DESIGNING SALES TERRITORIES

Sales and profit performances are linked to well designed sales territories

Equal opportunity (or sales potential) and equal sales force workload for all sales territories

Practically difficult to achieve….difference taken care of when sales quotas are assigned

Procedure for Designing Sales Territories

Select a control

unit

Find

location and potential of customers

Decide

basic territories

Use Build up

method

Use Breakd

own metho

d

Select a Control Unit Select a geographical base, called control unit…to

be used in territory analysis States, metros (or metropolis), cities, districts,

towns, pin-code areas, industrial estates and major customers

Try selecting the smallest control unit – a) the control units market potential and the company sales potential should be possible to calculate b) adjustments (additions or deletions) of control units should be possible when tentative boundaries are modified to make final boundaries

In India – States, districts, tehsils/talukas, towns, villages…statistical data available for district or town

Find location and Potential of Customers Find the location and sales potential of present

(company sales analysis) and prospective customers (telephone directory/MR) in each control unit

Estimate the sales potential for all customers in each geographical control unit

Market potential/forecast….sales potential is company’s share of market potential

Classify customers based on their sales or profit potential

ABC Analysis – A- 70% sales/profit potential, B- upto 20%, C- balance 10%

Decide Basic Territories Use of Build up method or Breakdown method Build up method equalises the workload of SP

used by manufacturers of industrial products and services

Used by companies that want selective distribution strategy

Break down method equalises the sales potential of territoriesUsed by manufacturers of consumer

products/servicesUsed by firms that want to adopt intensive

distribution strategy

Build up method

Decide call

frequencies

Calculate total

number of calls in each

control unit

Estimate workload capacity

of a sales

person

Make tentative territorie

s

Develop final

territories

IllustrationDistrict – X District - Y

Customer type

Call frequency per month

No. of customers

No. of calls per year

No. of customers

No. of call per year

A 4 3 144 4 192

B 2 7 168 8 192

C 1 20 240 28 336

30 552 40 720

Decide call frequencies – how many times a customer is visited by the company’s SP per year

Call frequency influenced by factors like customer’s sales/profit potential, cost of visiting the customers, buying behavior of the customer, the nature of product/service

Calculate the total number of calls in each control unit – District X = 552, District Y= 720

Estimate workload capacity of a SP – estimated by multiplying average number of calls a SP can make in a working day by no. of working days in a year

Eg.

Average no. of calls a SP makes in a day = 5

Based on

average travel time of 30 mins. per call,

average length of one hour for each call,

8 working hours per day

If no. of working days in a year = 250,

Estimated workload capacity for SP per year = 250 * 5 = 1250 calls Make tentative territories

Group (gather)adjoining control units (which share borders) until yearly no. of calls needed in those control units equals the total no. of calls a SP can make (workload of a SP)

District X + District Y = 552 + 720 = 1272 calls per year which is nearly equal to the 1250 calls of normal workload of a SP

Develop final territories - if workload not equalised, adding or removing of certain control units is done

Breakdown method

Estimate company

sales potential for total

market

Forecast sales

potential for each control

unit

Estimate sales

volume expected from each salesperso

n

Make tentative

sales territorie

s

Develop final

territories

Estimate the company sales potential for total market – use sales forecasting methods

Forecast sales potential for each control unit – Multiply the total sales potential of the company by a multiple factor buying index of each control unit

Say for Pune/ Product X – Factors influencing sales are population, personal income an retail sales which have certain weightage… multiple factor index can be ascertained and hence sales potential for each control unit

Estimate the sales volume expected from each salesperson – study past sales as well as cost and profitability analysis

eg. Direct selling cost for next year estimated at Rs. 6 lacs.

Cost of goods sold estimated 60% of sales

Expected profit – 15% of sales

Min. sales expected from each SP is

Profit = sales – cost of sales – direct selling cost

0.15X = X – 0.6X – 600000 where X is sales

X= 24,00,000

Using his judgment, SM decides Sales per SP to be a little over twice the sales figure @ Rs. 50,00,000 per annum

Make tentative sales territories – by combining adjoining control units (which share a border) until sales potential of each territory is equal to or greater than the expected sales volume from each SP

Develop final territories – final objective to achieve equal sales potential of territories

Assigning Salespeople to Territories For designing of territories, assumption

that SP have equal selling abilities and each SP will perform equally well in his territory

SP differ in selling abilities and effectiveness

One SP may succeed in one territory and fail in another

Affected by factors like socio – cultural characteristics of customers

Relative ability of SalespeopleEvaluation

Able to evaluate each SP and decide on an “Ability index”

Relative evaluations

Evaluation factors

Weightage (A) Evaluation (B) Salesperson score: (A) * (B)

Product knowledge

0.15 0.9 0.135

Market knowledge

0.10 0.8 0.080

Past sales performance

0.40 1.0 0.400

Communication 0.15 0.8 0.120

Selling skills 0.20 0.9 0.180

1.00 0.915

Salesperson’s Effectiveness in a territoryComparing the SP’s social, cultural and physical

characteristics with those of the territoryEasy if SP is familiar with the local language and customs of

the territorySM has to match SP to territories to maximise sales and profit

potential of territoriesAlso depends on the relationship of the SP with the customers

Use of IT in Territory ManagementGIS (Geographic Information System) technology is used and

can be integrated with a company’s enterprise information system framework

Softwares such as Arc Editor, Arc GIS, Arc GIS Data Models, Arc GIS Survey Analyst – capable of running simulations and optimising territorial design

Easier and more combinations, more accurateHigh cost and no considerations to geographic obstacles like

rivers, mountains, etc.

Managing Territorial Coverage How SP should cover the assigned

sales territory?? Routing – planning of efficient routes for

the salespeople Scheduling the SP’s time Using Time management tools

Routing

Is a travel plan or pattern used by a SP for making customer calls in a territory

Reduction in travel time and cost by excluding backtracking and criss-crossing by SP in their territory

Improvement in territory coverage, as SP reduce their travel time and increase selling time

Sometimes it reduces SP’s flexibility and initiative

Procedure for setting up a routing plan To identify the present and prospective

customers on a territory map Classify each customer into high, medium and

low sales potential Decide call frequency of each class of customer Route plan should be built around location of

high potential customers Routing patterns – Straight line / Hopscotch,

Circular, Clover leaf Minimise the travel cost / Maxmise the selling

time

Application and Importance of Routing Degree of importance to the application

of routing depends on The nature of the productThe type of the salespeopleFMCG, Creative selling ….???

Scheduling Planning a SP’s specific time of visits to customers Allocation of time

“Time and Activity Analysis” Customer calls

Call Norms – with existing customers and prospective customers

eg. 80% time with existing customers, 20% with prospects, stop after 4 unsuccessful calls

How Salespeople Spend Their Time

Salespeople’s tasks Time spent (%)

Administrative tasks 15

Service calls 12

Face-to-face selling 32

Waiting/travelling 21

Telephone selling 19

Total 100

Time Management Tools

Hi-tech equipmentsDesktop, laptop, PCs, video cassettes

recorders, CDs, Email, fax, teleconferences, videophones, cellphones, pagers

Inside Sales peopleSales assistantsTechnical supportTelemarketing

SALES QUOTASTarget setting ……!

What are Sales Quotas? Sales goals / Quantitative objectives Set by company For its marketing units For certain period of time Annual quotas can be broken down to quarterly

and monthly quotas Sales quotas developed from annual marketing

plan Sales forecast ---- Sales budget (Sales volume

and selling expenses)---- Sales quotas for regions and territories

Objective of Quotas

Making available performance standards Controlling performance Motivating people Identifying strengths and weaknesses

Types of Quotas

Sales volume quotas Financial quotas Activity quotas Combination quotas

SALES VOLUME QUOTAS

Should be set for individual product items and brands rather than entire product linesRupees/dollars sales volumeUnit sales volumePoint sales volume

FINANCIAL QUOTAS

Gross margin or profit contribution quotaProfits are more important than sales

volume Expense quota

Usually used with sales volume quotas to keep selling expenses in line with sales volume

Selling expenses – travelling, food, lodging, customer entertainment expenses

ACTIVITY QUOTAS To carry out important job related activities

Defining the important activitiesFinding out the time required to carry out these

activitiesDeciding the priorities to be given among the

various activitiesDeciding the quota or frequency for important

activities Set when SP carry out important non-selling

activities also such as payment collection and getting market information

Activity quota for a Lighting Products Company

Activities of a SP Time reqd. (mins.)

Priority Quotas (frequency)

Calling on present biz. Customers classified into A,B,C

For A = 60 minB= 30 minC= 15-20 min

148

4 calls per month2 calls per month1 call per month

Calling on ‘hot’ prospects 30-6- min 3 5 calls in two months

Calling on retailers 20-30 min 2 Av. 2 calls per month

Payment collection from payment overdue customers

15 min 5 Av. 1 call per month

Obtaining and reporting market information

Inf. Gathering = 10min/customerReporting = 30mins. Each week

6

7

During sales calls, 4 times a month

COMBINATION QUOTAS Set combination quotas when you want to

control salesforce performance on both key selling and non-selling activities

Typically uses ‘points’ as common measure to overcome the problem of different measures used by various quotas

Evaluate SP performance in selling various products of the company

Weights are decided based on profitability of products

Evaluation of Salespeople with Combination Quotas

Type of Quota Quota Actual Percent Quota

Weight %Quota * Weight

For Salesperson - Srinivas

Sales Volume (Rs.) 45000000 42750000 95 3 285

Selling Expenses (Rs.) 450000 495000 90 1 110

New Customers (Nos.) 24 29 120 2 240

6 635

Total Point Score 615/6=102.5

For Salesperson - Pradeep

Sales Volume (Rs.) 42500000 44625000 95 3 315

Selling Expenses (Rs.) 425000 446250 95 1 95

New Customers (Nos.) 30 24 80 2 160

6 580

Total Point Score 570/6=95

METHODS OF SETTING SALES QUOTAS Territory potential Past sales experience Total market estimates Executive judgment Salespeople’s estimates Compensation plan

Insights into setting and Administration of Sales Quotas

Set realistic quotas Understand problems in setting quotas Ensure salespeople understand quotas

Participation in quota-setting Continuous feedback Flexibility in administrating quotas

Relationship between Quota selection and marketing environment If many new salespeople in company, it is proper to

have one or two activity quotas to ensure that SP do the right things

When company’s products are in the growth stage of product life cycle, or in a high growth economy, quotas should be on % growth in sales or %growth in market share

When company’s product/service is in maturity stage, sales growth is limited and profitability quotas is used

When the objective is to increase sales from existing customers, quotas should have sales growth and customer satisfaction/service

Companies not using Quotas Some companies do not use sales quotas Focus on nos. reduces customer service…

which impacts long term biz. In terms of repeat buy

In Seller’s market Some times words like goals and objectives

are used instead of quota Should have strong reason for not using

sales quota…else organization goal cannot be achieved!!