Arrangement of Sales Territories

and Sales Quotas

Renuka Timilsena
 Sales Territory
• It is the customer group (present or potential) or
geographical area for which an individual salesperson or
a sales team holds responsibility
• The sales team ensures that the sales in that area increase
and meets sales targets every year
• A well planned territorial design helps in matching the sales
efforts with the sales opportunities in the market
• Territorial management can be defined as planning,
implementation and control of sales person’s activities with
the goal of realizing the sales and profit potential of their
assigned territories
 Need for Establishing Sales Territory

• Provide proper market coverage

• Establish sales person’s responsibilities
• Evaluate performance
• Improve customer relation
• Control selling expenses
• Benefits to sales people and company
Reasons for Not Having Sales Territories

• If the market is small

• If acceptability of the product is yet not known
• Sales people may be more motivated if not
restricted by a territory
Elements of Territory Management
• Establishing sales quota
• Account analysis
• Develop account objectives and sales quota
• Territory time allocation
• Customers’ sales planning
• Scheduling and Routing
• Territory and customer evaluation
 Establishing Sales Quota
• Sales quotas are sales goals or targets set by a
company for its sales person for a time period
• A sales manager usually establishes a total sales
quota that each sales person is expected to reach
• This can also serve as performance appraisal
standard for sales people
 Account Analysis
• After the sales goal has been set, the sales person
should identify all the prospects and present
customers and estimate their sales potential
• This helps sales person to allocate time between
customers (accounts)
• There are two general approaches of analyzing
accounts
– Undifferentiated selling approach
– Account segmentation approach
Develop Account Objectives and Sales Quota

• It includes development of objectives and sales

quotas for individual products for present and
potential accounts
• Objectives might include meet or exceed
quarterly sales target, obtain at least (defined)
new customers per month, increase market
share for a product to (defined) by [date], etc
• Increase number of sales call each day to meet
the sales quota
 Territory Time Allocation
• It includes sales people allocation of time in their
territories
• The following factors should be considered in time
allocation
– Number of accounts in the territory
– Number of sales calls to be made on customers
– Time required for each sales call
– Frequency of sales call on customers
– Travel time around territory
– Non-selling time
 Customer Sales Planning
• It includes development of sales call objective,
a customer profile and a customer benefit
program
• It also includes selling strategies for individual
customers
• Including all above contained, a sales plan is to
be developed for each customer
 Scheduling and Routing
• Scheduling refers to establishing a fixed time for
visiting a customer’s place of business
• It is a process of allocating the sales person’s time
• Routing is the travel pattern used in visiting places
• Travel distances between two calls should be
minimized and back tracking in the same route
and back and forth across a territory should be
avoided
Territory and Customer Evaluation
• Here standards of performance for the individual
territory in the form of qualitative and
quantitative quotas or goals should be
established
• Actual performance is compared to these goals
for evaluation
• This allows the sales person to see how well the
territory plans were carried out
• This helps in controlling the territory
 Sales Quota
• “Quotas are quantitative objectives assigned
to sales organizational units – individual sales
personnel, for instance”
• It can be expressed in volume or in rupee sales
for a specific future period
• A quota set should be SMART
 Objectives of Sales Quota
• General objective is to control the sales effort
• Other objectives can be:
To provide
quantitative
To control
performance standard selling expense

To furnish goals To motivate

and incentives salespeople
 Types of Sales Quota

Types of Sales Quota

Sales Volume Quota Budget Quota

Combination
Activity Quota
Monetary Sales Volume Unit Sales Volume Point Sales Volume Quota
Expense Quota Gross Margin Quota
 Sales Volume Quota
• This always includes sales in monetary terms
or units sold for a specific period of time
• The annual quota is set for the year and then
they are broken into specific time periods like
quarters, months and weeks
• Once the salesperson knows his/her annual
target, s/he can plan out his targets for
different periods
 Sales Volume Quota
• It can be
– Monetary sales volume quota
– Unit sales volume quota
– Point sales volume quota
 Budget/ Financial Quotas
• Set for various units by the organization in order
to control expenses, gross margin, and net profits
• Overall intention is to make it clear to salesperson
that their jobs consist of not only obtaining the
desired sales volume but also making good profits
• It focuses on making the cost to acquire
customers lower than revenue generated from
those new customers
• It includes: expense quota and gross margin quota
 Activity Quota
• Many companies set activity quota so as to direct
salespeople to carry out important job related activities
• These activities are useful for achieving performance
targets of salespeople
• The desire to control how sales personnel allocate their
time and efforts among different activities explains the
use of activity quota
• Organizations using activity quotas start by defining the
important activities salespeople perform and then sets
target performance
 Activity Quotas…continue…
• Activity quota process includes
– Defining the important activities
– Finding out the time required for carrying out
these activities
– Deciding the priorities to be given among the
various activities
– Deciding the quotas or frequency for important
activities
 Combination Quotas
• Companies set combination quotas or goals
when they want to control sales force
performance on both key selling and non-selling
activities
• The most combination is the sales volume and
activity quota
• Following table illustrates of one salesperson
incorporating both sales volume and activity
goals
 Example: Combination Quota
Salesperson A Quota Actual Percentage of
Quota Obtained

Sales volume Rs. 50,000 Rs. 45,000 90

Orders from new 20 24 120

accounts

Calls on prospects 50 50 100

Window display 20 16 80
obtained

Average = 390/4 = 97.50%

Methods of Setting Sales Quotas
Methods of
setting sales
quota
Quotas based
on salespeople
judgments

Quotas based Quotas based

on executive on
judgments compensation

Quotas based Quotas based

on past sales on Territory
experience Quotas based potentials
on total market
estimates
 Territory Potential
• Commonly used by large organizations
• Here company’s estimated market share in the
territory is to be obtained out of the territory
market potential
• For example: the expected industry sales for
skin care products in Mumbai is Rs. 202.5 m
• If the estimated market share is of 20%, the
sales volume quota for Mumbai’s sales person
would be Rs. 40.5 m (202.5*0.2)
 Total Market Estimates
• In some organizations management has neither
statistics nor sales force estimates of territorial sales
potentials
• Here management estimates sales quotas using
various indexes of relative sales opportunities in each
territory
• Then they make adjustments to arrive at territorial
sales volume quotas
• Then each territory divides its quota among different
sales people working in the territory
 Past Sales Experience
• Some companies set sales volume quotas based
on past year sales for each territory
• They add an arbitrary percentage by which the
market is expected to grow and decide the quotas
• Some other companies use the average of three
to five years past sales plus the market growth
rate percent to decide on quota
• But companies must not only consider this factor
alone, other factors also must be taken into
account
 Executive Judgment
• When company is new, product and territories
are new and very little information is there,
this method is used
• Here executives use their judgment based on
past experience to predict not only company
sales, but also sales quotas for territories
• This should be used along with other methods
not alone
Salespeople’s Judgment/Estimates
• Some companies ask their own sales persons
to set sales quotas
• It happens rarely, because salesperson either
overestimate their abilities to set sales quotas
very high
• Or, set very low to earn high commissions or
incentives
 Compensation Plan
• Some companies set quotas to fit with their
sales compensation plan
• If the sales quota for this year is based on the
past year’s sales
• If last year sales was Rs. 12 million, the sales
quota for this year is set at Rs. 12 million
• And a salesperson is paid an incentive of a
percentage of sales achieved over the quota
of 12m
 Continue…
• Another method is salary plus commission
plan
• That company pays a monthly salary of Rs.
5000 plus a commission of three percent on
all monthly sales over Rs. 100000
• The sales quota is set so that it be very difficult
to exceed to earn more commissions
Characteristics of Good Quota Plan
• Realistic
• Objective accuracy
• Ease of understanding and administering
• Flexibility
• Fairness
 Problems of Establishing Sales Quota

• Difficult to estimate sales

• Unreasonable expectations
• Individual differences
• Complex procedure
• Personal biases and prejudices