Sales Territory Optimization Defined

Lynne Sampson | ERP Content Strategist | May 26, 2023

For most businesses, the term “sales territory” describes a geographical area that a particular sales rep is responsible for. An example might be a car sales rep whose territory covers a collection of US states, while a global company might divide territories according to continents, countries, or a regional combination.

Sales territory optimization looks at how companies should split up an area—or in some cases, a list of accounts—among sales reps so that it can maximize the potential of each rep’s success. It considers factors, such as proximity to current customers, volume of high-value target customers, and quality of prospects who are already familiar with the company's brand. Ultimately, the goal is to achieve maximum coverage while making sure each individual rep has achievable goals and manageable travel to their assigned areas.

What Is Sales Territory Optimization?

Sales territory optimization involves dividing territories so that each one generates maximum revenue for the company. Areas with high population density, such as big cities, might generate more revenue than rural regions, but they often require more coverage from sales teams. Climate can influence which products are sold where; solar panels are more likely to sell in a desert region, while furnaces are more likely to sell in cold climates. Many other factors can affect sales opportunities in a given territory, including the industry a company operates in, customer needs, the size of each account, the number of available sales reps, and more.

When you optimize sales territories, you take all of these relevant factors into consideration. The goal is to assign the right reps to the right regions and accounts so that every territory generates as much revenue as possible.

Key Takeaways

  • Sales territory optimization is a way of dividing up sales territories so each one generates the maximum amount of revenue for the company.
  • Aside from geography, there are many factors that might affect revenue generation, including rep experience, market demands, current customers, and various account attributes (size, revenue, industry, etc.).
  • Companies can analyze these attributes and model different scenarios to identify the best ways to assign and divide up territories.
  • Companies that set achievable sales targets for each territory are more likely to make their overall revenue goals for the month, quarter, or year.

Why Is Sales Territory Optimization Important?

Sales territory optimization helps you assign the right reps to the right accounts across sales territories while setting realistic, motivating quotas for reps to hit their sales goals. It is an important part of a company’s overall sales strategy and, when done correctly, it creates efficiencies in many areas including:

  1. Forecasting: Sales territory optimization makes it more likely that a company will hit its revenue targets by assigning the right territories to the right reps and ensuring that each rep is well compensated for hitting their goals. When the company is more likely to achieve its revenue goals, the finance team can produce more accurate forecasts and grow investor confidence.
  2. Goal setting: It helps fairly divide up territories so the quotas for each rep are realistic and achievable. Setting realistic goals and financial incentives is important to keep a sales force motivated and prevent missed targets.
  3. Cost management: By zeroing in on the regions that are more likely to generate profits, sales territory optimization can reduce your reps’ travel expenses and help you get the best return on your sales investment.
  4. Sales performance: Companies can continually measure performance from each territory and make changes based on what’s working well and what isn’t.

Benefits of Territory Optimization

The end goal of sales territory optimization is to help the business hit or exceed revenue targets, but there are several other benefits of making territory optimization a part of your sales strategy:

  • It improves sales force retention and reduces turnover costs by helping to ensure that reps have equitable territories and opportunities.
  • It improves customer satisfaction by ensuring that each account gets the right amount of sales support and attention based on customer needs, complexity, and profitability.
  • It enables sales managers to quickly reassign resources or change strategies as needed, based on analytics about the performance and attributes of each territory.
  • It reduces the workload of sales managers, who can spend less time on sales planning, reassignments, account management changes—and explaining to executives why the sales team didn’t make its quotas.

Challenges of Territory Optimization

The most common challenge of sales territory optimization is a lack of insight about what’s working and why. Companies often have reams of data about each sales rep, territory, and account, but this information often exists in spreadsheets or isolated systems—such as customer relationship management (CRM) systems—which makes it hard to access and analyze. As a result:

  • Companies often lack the ability to model potential changes to their sales territories. The ability to run “what-if” scenarios is essential to identifying the best ways to get the most out of each territory.
  • It can be difficult to set up a reliable process that helps managers make the right changes to optimize revenue from each territory. Sales and account planning applications can help to formalize this process and make it scalable. For example, the right software can help you predict sales volumes and corresponding revenue based on statistical forecasting methods across customer segments, product groups, or channels.
  • If companies make too many changes to a particular territory, customers can start to wonder whether the company’s sales force is looking out for their best interests. Effective territory management can reduce the frequency of reassignments and turnover in the sales force, giving reps more time to build a trusted relationship with their clients and increase upsell opportunities.

Who Uses Territory Optimization?

Manufacturers, retailers, logistics companies, food distributors, and pharmaceuticals are just a few of the industries using territory optimization; however, any company or industry that relies on inside or outside sales can use it to help maximize revenue.

Territory optimization can also help fast-growing companies. Both small and large companies are using it to identify potential improvements and grow revenue, but companies experiencing rapid growth might find that they need to quickly rebalance the workload or hire more sales reps. Territory optimization helps the company rapidly rebalance accounts among the existing sales staff and/or assign new reps to the right accounts.

Within a company, there are several roles that could see a benefit from the adoption of sales territory optimization. Sales managers, for example, can set strategic plans for their teams and optimize their performance in key territories; if the manager sees that an important territory is underperforming because there are too many large accounts, the manager could divide up the territory and add a second sales rep. Other sales users include account managers, direct sales teams, and product specialists. Territory optimization also helps sales and finance leaders determine when they need to hire more sales reps to help expand the business and when to cut costs when market demands shift. Chief financial officers (CFOs) and other finance leaders typically review sales plans and incorporate them into their forecasts, which can help them provide more accurate guidance to investors.

5 Territory Optimization Tips and Best Practices

  1. Establish achievable targets for each rep and territory. If reps can’t hit their sales targets based on their skills and territory attributes, they won’t be able to earn a competitive commission. You risk losing them to a competitor—which will lead to missed revenue goals.
  2. Use scenario planning to run “what-if” models; you can model plans based on any number of variables, such as number of accounts, territory size, historical revenue trends, and more. Modeling can help you identify the most likely outcomes and decide on the best approach to optimizing territories.
  3. If you’re using spreadsheets to optimize territories, consider upgrading to a purpose-built cloud application. If you’re already looking at or using software, take advantage of AI, machine learning, and geographic information systems (GIS) to map and balance sales territories using advanced data dimensions, such as account scores.
  4. Provide ongoing visibility of territories and performance data to your company’s leadership and operations teams. Weekly or monthly reports are standard among sales teams, but a real-time dashboard can help leadership teams react more quickly when necessary.
  5. Establish a consistent process for making territory changes when necessary and communicating these changes to your customers.
Best practices for sales territory optimization include upgrading to the cloud, setting realistic targets for sales reps, and changing territories when needed.

Increase Revenue with Territory Optimization

No matter how many factors you use to define sales territories, your company will have an advantage when you can easily run territory assignments with powerful “what-if” analysis. Scenario planning software with built-in AI and machine learning can help you model potential changes to your existing sales territories, so you can get the most out of each one. Sales performance management software can provide advanced tools to help with incentive compensation and territory and quota management. When integrated and used together, these applications help you increase revenue by aligning sales coverage with your company’s sales strategy.

Sales territory optimization helps company leaders divide up territories and accounts in a way that raises the potential for every rep's success. It can help your company get the utmost coverage while making sure that each individual rep has achievable goals that contribute to the company’s bottom line.

Sales Territory Optimization FAQs

How do you effectively manage a sales territory?
To effectively manage a sales territory, you should develop a plan of action, divide up the territories, assign sales reps to the right areas, regularly assess results, and make changes to optimize sales in each territory.

How do you increase sales in a territory?
To increase sales in a given territory, you can identify the factors that are contributing to a rep’s success (or failure) in that territory and make changes to improve sales performance.

What is sales territory mapping?
Sales territory mapping is the process of determining a geographic region with specific boundaries and designating it to a salesperson or team.

What are methods of designing the sales territories?
Designing the sales territories involves pulling together and analyzing data that can influence sales, including region size, account profitability, product fitness to a particular region, the purchasing power of prospective customers inside the region, account scores, rep experience, and more.

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