Management of Sales
Territories and Quotas
Presented by Vishakh.S
Gokul Ram
Sales Territories
A sales territory consists of existing and potential customers,
assigned to a salesperson
Most companies allot salespeople to geographic territories,
consisting of current & prospective customers
Major Reasons / Benefits of Sales Territories
Increase market / customer coverage
Control selling expenses and time
Enable better evaluation of sales force performance
Improve customer relationships
Increase sales force effectiveness
Improve sales and profit performance
Procedure for Designing Sales
Territories
Select a control unit*
Find location and potential of present and
prospective customers within control units**
Decide basic territories by using
Build-up method,
Break-down method
*A control unit is a geographical territorial base
**Unnecessary & expensive for consumer
products
Procedure in Build-up
Method
Decide customer call frequencies
Calculate total customer calls in each control
unit
Estimate workload capacity of a salesperson
Make tentative territories
Develop final territories
Objective is to equalise the workload of
salespeople
Procedure in Breakdown
Method
Estimate
company
sales
potential
for
total
market
Forecast sales potential for each control unit
Estimate
sales
volume
expected
from
salesperson
Make tentative territories
Develop final territories
Objective is to equalise sales potential of
territories
each
Assigning Salespeople to Territories
Sales Manager should consider two criteria:
(A)Relative ability of salespeople
()Based on key evaluation factors:
(1) Product knowledge, (2) market knowledge, (3)
past sales performance, (4) communication, (5)
selling skills
(B) Salespersons Effectiveness in a Territory
()Decided by comparing social, cultural, and physical
characteristics of the salesperson with those of the
territory
()Objective is to match salesperson to the territory
Management of Territorial Coverage
How
salesperson
should
cover
the
assigned sales territory
It includes three tasks for a sales manager:
Planning efficient routes for salespeople
Scheduling salespeoples time
Using time-management tools
Routing
Routing is a travel plan used by a salesperson
for making customer calls in a territory
Benefits of or Reasons for routing:
Reduction in travel time and cost
Improvement in territory coverage
Objections :
Sales people flexibility
Procedure for Setting up a
Routing Plan
Identify current and prospective
customers on a territory map
Classify each customer into high,
medium, or low sales potential
Decide call frequency for each class
of customers
Build route plan around locations of
high potential customers
Scheduling
Scheduling is planning a salespersons visit time
to customers. It deals with time allocation issue
How to allocate salespersons time?
Sales manager communicates to salesperson
major activities and time allocation for each
activity
Salesperson records actual time spent on
various activities for 2 weeks
Sales manager and salesperson discuss and
decide how to increase time spent on major
activities
Time Management Tools
To help outside salespeople* to manage their time
efficiently and productively, the tools available are:
High-tech equipment like laptop computers and
cellular phones
Inside salespeople to provide clerical support,
technical support, and for prospecting, and
qualifying, as they remain within the company
Outside salespeople can then spend more time
getting more orders & building relationships with
major customers
*Outside salespeople travel outside the organisation
Sales Quotas
What are Sales Quotas?
Sales quotas are sales goals or targets set by a company for
its marketing / sales units for a time period
Marketing / sales units are regions, branches, territories,
salespeople, and intermediaries
Generally, company sales budget is broken down to sales
quotas for various marketing units
Objectives of Sales Quotas
To use quotas as performance standards or performance
goals
To control performance
To motivate people by linking quotas to compensation plans
To identify strengths and weaknesses of the company
Types of Quotas
Organisations set many types of sales quotas:
(1) sales volume, (2) financial, (3) activity, (4)
combination
Sales volume quotas
For effective control, sales volume quota
should be set for the smallest marketing
units, such as salesperson, districts /
branches, product items / brands
Sales volume quotas can be stated in (a)
rupees / dollars, (b) units, or (c) points
Rupees / dollars sales volume quotas are
appropriate when salespeople are required
Sales Volume Quotas
(Continued
Unit sales volume quotas are suitable
when
Salespeople are selling a few products
Prices of the product fluctuate rapidly
Price of each product / service is high
Point sales volume quotas are appropriate
when the company wants salespeople to
sell products that contribute more to
profits
Financial Quotas
Financial quotas control (a) gross margin or net profits, and (b)
expenses of marketing units
Gross-margin / Net-profit quotas
Calculate gross margin by subtracting cost of goods sold
(i.e. cost of manufacturing) from sales volume. Sales
managers are not responsible for cost of manufacturing
Net profit quotas are generally accepted by sales mangers
as it is calculated by subtracting direct selling expenses
from the gross margin
Expense quotas
In many companies, expense quotas are stated as a
percentage of sales
Expense quotas to be administered with flexibility, to make
salespeople cost conscious, allowing reasonable expenses
Activity Quotas
These are set when salespeople
perform both selling and non-selling
activities
Objective is to direct salespeople to
carry out important activities
For effective implementation, activity
quotas are combined with sales
volume and financial quotas
E.G. Calling on high potential
customers, payment collection from
defaulting customers
Combination Quotas
Used when companies want to control
salesforce performance on key selling and
non-selling activities
Focus on a few types of quotas, to avoid
confusing salespeople. An example:
Total
point
score=573/6=95.5
for
a
salesperson
Typically use points as a common measure
to resolve the problem of different measures
used by various types of quotas
Methods for Setting
Sales Quotas
Several methods are used for establishing sales quotas
In practice, companies use more than one of the
following methods to increase their confidence in sales
quotas
Total market estimates
Territory potential
Past sales experience
Executive judgement
Salespeoples estimates
Compensation plan
We shall briefly discuss each of the above methods
Total Market Estimates
Method
The
Process
followed
companies is as under:
by
established
1) Estimate next years total market demand, or
industry
sales
forecast,
using
sales
forecasting methods
2) Decide the companys estimated market
share for next year
3) Companys next year sales forecast= (1) x (2)
4) Find each territorys percentage share out of
the total company sales in the previous year
5) Territory sales quota = (3) x (4)
Territory Potential
Method
1)
2)
3)
4)
The procedure followed by new companies is as
under:
Estimate next years industry sales forecast or
market potential, using sales forecasting methods
Estimate multiple factor index (MFI) for each
territory, based on factors that influence sales of
the product. These factors are given weights
corresponding to the degree of sales opportunity.
Industry sales forecast in a territory (or territory
market potential=(1)x(2)
Territory sales quota = (3) x estimated market share
of the company in the territory
Past Sales Experience
Method
The process consists of taking past one years
sales (or an average of previous 3 to 5 years
sales), adding an arbitrary percentage (or a
percentage by which the market is expected to
grow), and thus setting each territory sales quota
The assumption that future sales are related to
past sales may not be always correct
This method should not be the only method used
Past sales should be one of the factors used for
deciding sales quotas
Executive Judgement Method
Senior executives use their judgement when the
product, territories, and the company are new or
very little market information is available
Executives predict company sales budgets and also
territory sales quotas
This method should generally be used along with
other methods
Salespeoples Estimate Method
Some firms ask their salespeople to set their own
quotas
Many salespersons either set very high or too low
sales quotas
Salespeoples Estimate Method (Continued)
For setting proper quotas, many sales managers use 2 or 3 of
above methods, discuss with salespersons to get their inputs, and
decide sales quotas
Compensation Plan Method
Some organizations set quotas to fit with their sales
compensation plan
E.G. A company wants to pay a monthly salary of Rs 5000, and
a commission of 3% on monthly sales above Rs 1,00,000. The
quota of Rs 1,00,000 is set in such a way that salesperson
would find it very difficult to cross total compensation of Rs
8000 per month (5000+3000)
Sales quotas should not be based only on this method, because
it would put the cart before the horse
Key learning
A sales territory consists of existing and prospective
customers, assigned to a salesperson
While assigning salespeople to territories, sales
manager should consider relative ability of
salespeople and salespersons effectiveness in the
territory
Management of territorial coverage includes routing,
scheduling, and time-management tools.
Routing is a travel plan used by a salesperson for
making customer calls in a territory
Scheduling is planning a salespersons visit time to
customers, based on sales and profit potentials of
customers
