I recently helped a high-tech client revamp its North American sales territories. At the start of the project, while looking at a map of the United States, I recalled a quiz from 5th grade for which I had to memorize all 50 states and write their names on a blank map. Then it clicked: Geography matters. Even in an increasingly digital ecosystem, the geography of a sales territory influences the effectiveness of the sales rep assigned to it, regardless of the rep’s individual capability.
Here are three ways that sales managers can leverage what they learned from their 5th-grade geography assignments to enhance their company’s sales force design:
1. Know where the work is. According to a July 2012 article in Harvard Business Review, co-written by ZS principal Michael Ahearne, U.S. companies spend more than $800 billion per year on sales compensation, so they ought to invest in the right places. The first step is to calculate differential workload. Large customers generally have more complex organizational structures than small customers, so they require more work to service. While reps need more time to complete the sales cycle with a prospect than with an existing customer, the average time that reps spend with each prospect is less than what they spend with each customer.
Reps will spend little to no time with the majority of prospects for a myriad of reasons. More time is required to service a customer on the outskirts of Idaho than one in the heart of Manhattan. Workload also can differ by industry vertical due to varying levels of market penetration or regulatory complexity. Even if a sales force has adequate headcount for overall workload—one full-time equivalent (FTE) per territory—coverage commonly is disproportionate to workload within individual territories. If 10% of profitable work is lost due to having territories above one FTE, then another 10% inherently would be missed as reps in lighter territories waste time targeting less profitable accounts.
2. Remember the Pareto principle. Just as 80% of Italy’s land is owned by 20% of the country’s population, 80% of sales often are derived from 20% of customers. This isn’t a myth. I tested the theory by analyzing a current client’s recent sales data. Among its customers who had sales last year, 20% of them comprised 76% of sales.
Companies that define the fairness of sales territories by the number of customers should consider the next level of balancing territories by “Pareto customers.” These may lie within a few key industry verticals. Is it possible that the top 20% of reps are successful because they happen to cover the top 20% of customers? This likely is the case in a poorly balanced sales organization. Location intelligence tools such as heat maps enable sales managers to pinpoint where concentrations of high-value customers are situated geographically. They can then distribute these equally, providing low-performing reps a fair chance at proving their actual capabilities. Afterward, sales routes can be planned to efficiently maintain a cadence of interfacing with important customers.
3. Become a frontiersman. At a certain point in their growth, companies often settle for maintaining key customer relationships and become complacent with hunting for new ones. Although such focus is important, it can blind executives to where future growth awaits when existing customers are tapped out. If they can hit quotas with customers, sales reps will have a disincentive to expend energy on prospects. This mentality causes a lag in capturing opportunity if reps don’t seek it until they’re forced to.
Measuring account-level potential can show which key verticals and geographies circumscribe the bulk of the total addressable market. Sales managers can leverage these insights to target the “next best” prospects. Trailblazing into new prospects, industries and geographies will have the best payoff when done with data-driven insights. To find the valuable needles buried in a haystack of unviable prospects, burn the haystack and use a magnet. Only a subset of the prospect universe is ready and willing to adopt certain networking, cloud or software-as-a-service solutions.
Geography matters to your sales territory planning even more than it did on your 5th-grade quiz. This isn’t merely applicable to field reps. Inside sales teams should be aligned to familiar geographies, cultures and time zones so that they can collaborate with channel partners to effectively serve customers.
High-tech companies should move to the forefront of factoring geography into differential workload coverage, customer prioritization and “next best” prospect targeting. By leveraging tools that overlay data visualization with cartography, sales managers can unveil where untapped opportunity awaits and determine how much effort is necessary to capture it. Because no sales organization or external environment is static, managers should audit the health of their territory design every one to two years. The boundaries of the 50 United States may not have changed since your 5th-grade geography quiz, but the underlying workload and opportunity within those boundaries may have.