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 Locationname A B C

2 1 0.5180 120 90

Lajpat ngr S Delhi 15 35 57G.K S Delhi 20 35 80South Extn S Delhi 3 7 15Panchsheel S Delhi 5 8 12Model town N Delhi 8 22 30Civil lines N Delhi 10 23 55D.U N Delhi 6 9 43Morris Ngr N Delhi 4 6 40Janakpuri W Delhi 12 20 48Dwarka W Delhi 8 15 47Rajouri Gdn W Delhi 10 35 53Delhi Cantt W Delhi 3 7 10Patel Ngr W Delhi 2 8 10Mayur Vih E Delhi 5 10 65IP Extn E Delhi 5 15 75Anand Vih E Delhi 8 15 37Shahdara E Delhi 7 10 33Total Delhi 131 280 710

Visit Dur ( mins)

Type of Schools

Visit Frq. ( per mth)

Distributor Locationname A B C Tot

Lajpat ngr S Delhi 5400 4200 2565 12165G.K S Delhi 7200 4200 3600 15000South Extn S Delhi 1080 840 675 2595Panchsheel S Delhi 1800 960 540 3300Model town N Delhi 2880 2640 1350 6870Civil lines N Delhi 3600 2760 2475 8835D.U N Delhi 2160 1080 1935 5175Morris Ngr N Delhi 1440 720 1800 3960Janakpuri W Delhi 4320 2400 2160 8880Dwarka W Delhi 2880 1800 2115 6795Rajouri Gdn W Delhi 3600 4200 2385 10185Delhi Cantt W Delhi 1080 840 450 2370Patel Ngr W Delhi 720 960 450 2130Mayur Vih E Delhi 1800 1200 2925 5925IP Extn E Delhi 1800 1800 3375 6975Anand Vih E Delhi 2880 1800 1665 6345Shahdara E Delhi 2520 1200 1485 5205Total Delhi 47160 33600 31950 112710

Time Spent (Mins)

Visit Frq. ( per mth)Visit Dur ( mins)

Working

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.

Designing Sales Territory:Buildup method of territory design • Call frequency is the number of times

a customer should be visited by the company’s salesperson per month.

• Call freq. & call duration impacted by customer’s sales potential , type of relationship ..

• Example : UDS A – 4 times / mth x 45 mins UDS B – 2 times / mth x 30 mins UDS C – ½ times / mth x 10 mins

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

Designing Sales Territory:Breakdown method of territory design • 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)

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.

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.

Different territories offer varying challenges & complexities on account of : Social & cultural characteristics of the customers Product market share and acceptability Category and product penetration Geographical expanse …….

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 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 salesperson’s specific time of visits to

customers. Importance ?

Predictability at buyer end cuts down order time.

Key terms

Beat

Route

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.

2. Controlling performance 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.

Purpose

Targets

Sales Targets:Sales quotas are set by companies using several methods:

1. Territory potential 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)

2. Past sales experience 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.

3. Total market estimates As above with difference that market potential ( not arrived at arbitrarily) but

estimated using forecasting techniques.

4. Executive judgment Mostly used when the company/territory is new & little market information is

available.

5. Salespeople’s estimates Rarely used bottoms up approach. Usually used as a reconciling input.

6. Compensation plan Putting the cart before the horse approach ( Variable component of

compensation decided in advance & targets set in-line with the same ).

Methods of setting

A C Nielson

Summary

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.

2. Understand problems in setting quotas 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.

3. Ensure salespeople understand quotas 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.

4. Continuous & timely feedback on performance vs targets.

5. Flexibility in administering targets Target correction for force majeure or unforeseen environmental

changes (economic , political ..)

Insights

Common Routing Patterns

Straight line route Circular route

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