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.
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.
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:
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:
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:
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.
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.
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.