Sales teams can create the optimal sales territory design for their go-to-market function by taking a few steps. They should leverage an understanding of the market database, prioritize account targeting and use key components of the sales strategy. The sales territory design heavily influences any sales team. It dictates the organization, the responsibilities of each role in the sales function and provides perspective on the sales organization’s size. Below we examine the essential steps for determining the optimal sales territory design for any B2B company.
“The sales territory design heavily influences any sales team. It dictates the organization, the responsibilities of each role in the sales function and provides perspective on the sales organization’s size.”
Mapping Your Sales Territory
1. DETERMINE WHAT DRIVER SHOULD BE USED
The first step is to determine what driver should be used in crafting territories. This stems directly from your sales strategy. A field-based organization works well if the sales strategy is long. For example, maybe the strategy requires numerous discussions on value creation, cost of ownership and presentations to different stakeholders. Field organizations are typically designed by geography to optimize travel time for sales reps. However, there are rare occasions when they aren’t. Sometimes a company with a breadth of sized customers will overlay geography with reps assigned to certain sized bands of accounts. Other times, patterns and relationships across industries are more valuable than reduced travel time for the sales team, which means it’s beneficial to align by the end industry being served. Inside sales teams are a bit different. Geography isn’t as relevant for them since deals are primarily closed over the phone and webinar. We often see size, personas, industry or existing platform influencing ways that territories are designed, but geography can’t be ignored completely. These teams tend to be centralized, which requires sales reps to cover all time zones across the country.
2. CALCULATE HOW MANY DEALS A SALES REP CAN HANDLE
Once a driver has been chosen, it’s time to calculate how many deals a sales rep can handle throughout each stage of the pipeline. Lean on the company’s sales strategy and playbook to determine this. There are many roles, defined in a sales organization, that determine what parts of the sales funnel a rep should own and the scope of their involvement. A few common roles that we see across our portfolio companies are:
- Business Development Rep / Sales Development Rep – generates leads for sales reps and is the first line of both inbound calling and outbound prospecting
- Sales Engineer / Solutions Architect – conducts demos of the product and defines technical specifications for implementation, while interfacing with client’s technical teams
- Sales Operations Director – manages systems, metrics, reporting and performance management processes to improve effectiveness of the sales team
- Sales Representative – owns the sales process
Providing a significant amount of support to sales reps through these different roles enables the reps to take on more deals in each funnel stage. When you understand the activities required for each deal, based on size at each stage of the funnel, you can create a bottom-up perspective on how many deals a sales rep can handle.
3. DECIDE WHETHER TO SPLIT OR COMBINE SALES ACTIVITIES
After the roles are defined, a company decides whether it should split or combine sales activities to new customers and sales activities to existing customers. This is often referred to as hunting and farming. It also determines whether you’ll need to create separate territories for each function if they’re split. It’s common to split the two roles, but that’s not always the right choice. A combined geographic team where a field-based rep can easily visit existing customers and travel for new customer sales meetings would work well for field-based sales. It’s smart to assume that the teams will be split and then ask what amount could be gained from a sales productivity perspective if the teams were combined into a single role.
4. DETERMINE APPROPRIATE QUOTAS
Once it’s clear what the sales roles are, based on a rep’s potential, the company determines appropriate quotas for each sales rep and uses that to determine the territory size. Each rep type should have a target quota, based on their target earnings by using the bottoms up and sales economic benchmarks. The target quota will influence how the company backs into the territory size by determining its optimal win rate. The purpose is to take the full market, figure out the replacement cycle of the product and then determine the win rate among those that are being replaced each year. For example, assume we know the following based on our work:
- A rep should have a $600,000 target and based on the competitive dynamics
- The company should win 30% of deals, lose 30% of deals and let 40% of deals stick with the status quo each year
- The typical replacement cycle for software in this market is 5 years
Based on the information above, it’s clear the territory needs to be worth $10 million of target recurring revenue, which determines the optimal territory size. It’s safe to assume that win rates will improve over time or replacement cycles are likely to shorten or speed up. These factors will impact the territory size you want to set today.
5. DETERMINE THE CORRECT NUMBER OF TERRITORIES
With the right territory size in mind, the last step is to determine the correct number of territories for the company’s growth plans. This involves taking the company’s total addressable market and dividing it by the territory size. If the company plans on expanding its market size with new products or services, that should be factored into the future market size and defining territories. Also, not all territories can be staffed right away. For example, it would be difficult for a company to grow from 3 sales reps to 30 in a short time. In this case, we suggest companies design territories to hit their growth rates for the next 24 months. You can either temporarily assign vacant territories to existing reps or not cover them unless inbound leads are received. If this occurs, the leads would be passed on to existing reps in a pre-assigned or round-robin method of distribution. This prevents having to redraw territories whenever a new sales rep is hired and creates less friction with current sales reps.
The last piece of the puzzle for ensuring territory balance is the account targeting of the sales playbook. Each territory needs an equal number of high-target “A” accounts for sales reps to pursue. Especially if each rep is going to have the same quota.
Designing sales territories correctly will make life much easier. It’ll prevent a situation where a rep claims that he or she has a worse territory than others. This puts the responsibility for performance on the rep instead of on the design of the territory.