Sales Territories

Sales Territory
• Comprises a number of present and
potential customers, located within a
given geographical area and assigned
to a salesperson, branch, or
intermediary (retailer or wholesaling
intermediary).
–Key word: customers
 Benefits of Good Territory Design
• Enhances customer coverage
• Reduces travel time and selling costs
• Provides more equitable rewards
• Aids evaluation of sales force
• Increases sales for the sales organization
• Increases morale
Territory Design: Why Sales Increase
250
Sales in Territory (Rs000)

Sales Lost
170
Sales Gained

130

Sales lost by reducing size of

large territories is more than
90 offset by sales gained by
increasing small territories.

500 750 1000 1250 1500

Sales Potential in Territory (Rs 000)

Territory Design: Process
Events triggering 1 Select geographic
control units
sales territory
adjustments:
2 Decide on
 Mergers alignment objectives
 Division consolidation
 Division split
 Sales force turnover 3 Choose
starting points
 Plant relocations
 Product line changes
Revise territory
4 Combine control
Boundaries
units adjacent to
starting points to balance
workload and
potential
5 Make final
adjustments

6 Assign salespeople
to new territories
Territory Design:
Reasons for Realignment
 A change in sales force size
 A change in sales force structure
 Mergers and acquisitions
 Shifts in market opportunities
 Demographic shifts
 New Products
Territory Design:
Process Steps
• What are triggering events?
• The Buildup Method -- Six Steps
1. Select control units
– Census tracts -- good for dividing cities
– Counties - convenient and data readily available

2. Choose starting points

– Salesperson’s home
– Large customer - cut transportation cost
– Big city - convenient for services
Territory Design:
Process Steps (Cont.)
3. Determine Allocation Criteria
- Territory balance -- effect on morale
- Customer balance - distribute commission
- Potential balance - share business growth
- Size balance - reduce transportation costs

4. Combine Adjacent Control Unit

5. Compare Sales Territories
- Mountains, roads, population center locations?

6. Assign people to Sales Territories

Territory Activities
 Account Analysis
Strength
Strengthof
of Position
Position
Strong
Strong Weak
Weak
Attractiveness: Attractiveness:
Accounts are very attractive, offer high Accounts are potentially attractive based
opportunity, and sales organization has
High

on high opportunity, but sales organization

High
Opportunity

strong position.
AccountOpportunity

has weak position.

Sales call strategy? Sales call strategy?

Attractiveness: Attractiveness:
Account

Accounts are somewhat attractive since Accounts are very unattractive since they
Low
Low

offer low opportunity and sales

sales organization has strong position, but
organization has weak position.
future opportunity is limited.

Sales call strategy? Sales call strategy?

 Account Analysis
Strength
Strengthof
of Position
Position
Strong
Strong Weak
Weak
Attractiveness: Attractiveness:
Accounts are very attractive, offer high Accounts are potentially attractive based
opportunity, and sales organization has
High

on high opportunity, but sales organization

High
Opportunity

strong position.
AccountOpportunity

has weak position.

Sales call strategy? Sales call strategy?

frequent sales calls to strengthen position
frequent sales calls

Attractiveness: Attractiveness:
Account

Accounts are somewhat attractive since Accounts are very unattractive since they
Low
Low

sales organization has strong position, but offer low opportunity and sales
future opportunity is limited. organization has weak position.

Sales call strategy?

Sales call strategy? minimal sales calls and migrate personal
moderate frequency to maintain current sales calls to telephone or Internet
position
 Sales Territory Design
• Designing sales territory involves breaking down a
firm’s customer base so that accounts can be well
served by individual sales persons.
• Poor territory design can lead to inadequate market
coverage, unequal workload, lack of control over the
workforce and depressed morale.
• A company's sales territory represents basic
accountability units to the lowest level of
aggregation.
Manage to Succeed
 Routing Patterns
Types of routing patterns include:

1. Straight-line route
• salesperson starts at the
office and makes calls in one
direction until he or she
reaches the end of the
territory

2. Circular patterns
• salesperson starts at the office and moves in a circle of stops
until ending up back at the office
 Account and
Territory Management

3. Cloverleaf route
– similar to a circular pattern
– rather than covering an entire territory, the route
circles only part of a territory
– the next trip is an adjacent circle, and the pattern
continues until the entire territory is covered
 Account and
Territory Management cont’d
4. Hopscotch pattern
– the salesperson starts at the farthest point from the office and
hops back and forth calling on accounts on either side of a
straight line back to the office

5. The "outer-ring" approach

– the salesperson first draws an outer ring around the customers
to be called upon
– then, those customers inside the ring are connected to the
outer ring route using angles that are as obtuse as possible
Hopscotch and Cloverleaf Routing Patterns
“Outer Ring” Routing Patterns
 TERRITORY SHAPES
• Companies uses different kinds of shapes for designing
sales territories (Figure given below).
• The shape of the territory affects the sales expenses and
the ease of sales coverage. It also helps a sales person to
spend less time on travel and keeps salespeople motivated
to work hard.
• The three popular territory shapes used in the Indian
market are wedge, circle, and cloverleaf.

Figure – Shapes of Sales territories

 TERRITORY SHAPES
• The wedge-shaped territory is most applicable for fast
moving consumer goods and is used by companies like
Marico Industries, Procter and Gamble Limited, and
Hindustan Lever Limited.
• These companies serve both the urban and the rural
markets in India.
• The design radiates from a densely populated urban area
to small rural areas.
• The travel time among adjoining wedges can be equalized
by balancing the travel time between the urban and rural
areas.
• The circle-shaped territory is appropriate when companies
have their accounts distributed across equally sized areas.
 TERRITORY SHAPES
• In a circle-shaped territory, a salesperson is based
in the central part of the area and travels
uniformly to different areas.
• Companies concentrating in urban areas like
Maruti Udyog Limited, Hyundai Motors, and Park
Avenue follow this kind of territorial design.
• The cloverleaf design is used when accounts are
distributed randomly throughout the territory.
• Careful call-planning makes each visit to the
clover a timely affair on the basis of a weekly,
daily, or a periodic schedule for salespeople.
 Route Exercise A

You are a salesperson for a large consumer goods manufacturer. You call on a set of retailers
on a regular basis to ensure proper distribution of your products and to sell merchandising
ideas for moving more of your product lines. You are expected to make 8 calls a day on the
purchasing managers of your accounts. Normal operating hours for these stores is from 10:00
a.m. to 6:00 p.m., though most purchasing managers will arrive earlier and generally leave
between 4:30 and 5:00 p.m. . Like most salespeople you work out of your own home. Below
is the geographic lay-out of the accounts you plan on seeing tomorrow. Design a sales route
for seeing these 8 accounts using the largest angle method.

A
B

D
E
H

Home G G
 Largest Angle Method
Preliminary Route

A
B

D
E

F
G

Home
 Largest Angle Method
Final Solution

A
B

D E

F
Home
 Alternative Solution
Travel Time Minimized

D E

H
G

F
Home
Computing the Cost per Call for an Industrial Products Salesperson

Compensation
Salary, commissions, and bonus $60,000
Fringe benefits (hospital, life insurance, social security) 9000 Rs69,000
Direct Selling Expenses
Automobile 7000
Lodging and meals 5250
Entertainment 2250
Communications 3500
Samples, promotional material 1750
Miscellaneous 1500 21,250
Total Direct Expenses Rs90,250
Calls Per Year
Total available days 260 days
Less:
Vacation 10 days
Holidays 10 days
Sickness 5 days
Meetings 18 days
Training 12 days 55 days
Net Selling Days 205 days
Average calls per day 3 calls
Total Calls per Year (205 X 3) 615 calls
Average Cost per Call (Rs90,250/615) Rs146.75
 Procedure for sales territories

Use build
method

Select a control Find location

and potential Decide basic
unit territories
customer

Use
breakdown
method
 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 equalize the workload of salespeople
 Build up territories
District A District B
Customer Call No of No of calls No of No of Calls
Type Frequency Customers per year Customers per year
per month

A 4 3 144 4 192
B 2 7 168 8 192
C 1 20 240 28 336
30 552 40 720

Assuming that a sales person is able to make 5 calls a day, and no. of working days
in a year are 250, then in a year he can make 1250 calls.
 Break down method

•Estimate company sales potential for total market

•Forecast sales potential for each control unit
•Estimate sales volume expected from each salespeople
•Make tentative sales territories
•Develop final territories
 Multiple – Factor Index Method
• A company is manufacturing and
marketing detergents all over India.
The company wants to find out the
market potential of all detergents in all
cities including Banglore. The major
factors that influence sale of
detergents are population, personal
income and retail sales.
• Population =0.4
• personal income =0.3
• retail sales =0.3
• Suppose Bangalore has :-
• India’s population=0.7
• India’s disposable income=1%
• India’s retail sales 0.9
• 0.4(0.7)+0.3(1)+0.3(0.9)=0.85
• Indian detergent forecast=55000million
• Market potential of Bangalore =0.85 % of
55000
• =467 m
• Direct selling cost is estimated =6,00,000
• Cost of goods sold =60% of sales
• Expected profit =15%
• Minimum sales expected from salesperson
• Profit = Sales- Cost of sales- Direct selling cost
• .15x = x – 0.6x – 6,00,000 where sales= x
 Break down Method

Classify customer into category

Determine Frequency and Length of calls for account in

each category

Calculate Workload to cover entire market

Determine Time available per salesperson

Apportion salesperson time by task performed

Calculate the number of salespeople needed

 Break down method
• TYPE A : Large Account – 100 (expected
revenue 50 million)
• TYPE B: Medium accounts – 400 (expected
revenue between 10-15 million)
• TYPE C: Small account – 700 (expected
revenue less than 10 million)
Type of Account Call Frequency Call Length

Class A Once a week 60 min

Class B Once a month 30 min

Class C Once a quarter 20 min

• Calculate the number of contact hours for
each class of customer
• Class A :52 times per year x 60 minutes per
call = 3120 or 52 hours
• Class B :12 times per year x 30 minutes per call
= 360 or 6 hours
• Class C :4 times per year x 20 minutes per call
= 80 or 1.33 hours
• The total workload to cover the entire market:
• Class A 100 accounts x 52 hours per account
=5200 hours
• Class B 400 accounts x 6 hours per account
=2400 hours
• Class C 700 accounts x 1.33 hours per account
=931 hours
• Total Workload = 8531 hours
 Sales persons required
• Sales persons spend
• 29% on face to face selling
• 25% on phone selling
• 17% on waiting and travel
• 16% Administrative tasks
• 13% Service calls
• They work for 6 days & 8 hours a day & 52
weeks a year – total 2496 hours per year
• 54% of total 2496 hours spend on selling
=1348 hours/year
• No. of sales persons required to serve entire
market = Total workload/selling timer per
sales person
• 8531/1348 = 6.32 sales person or 7
• Suppose you are a new salesperson working for a
medical supplies to small doctors in rural areas of Bihar
. The doctors generally buy from your company but
give small orders of about 1000/- each per month.
However, they expect you to pay weekly visits to them.
Your cost per call is currently 50/-. However, your boss
wants to improve your sales call productivity by
limiting your selling costs to 10% of net sales.
1. Should you be calling on these small physician
practices?
2. What is the smallest size customer you should pursue
in order to meet your company’s selling objectives?
• We apply the break-even sales volume=
• (cost per call)x(Number of calls to close)
Selling costs as per percentage of sales
(50x4)/.01 = 2000/-