Sales Territory - Definition, Importance, Steps & Example
What is Sales Territory?
Sales territory is a designated geographical area or a group of customers which are assigned to a sales team or individuals in order to achieve allocated sales objectives and targets. This is where the sales teams would be spending their sales efforts. This sales territory is responsibility and accountability of that particular sales team. The sales team ensures that the sales in that area increase and meets sales targets every year.
Any company creates a territory based on geographic area, population demographics, sales potential etc. This territory is assigned to sales persons as their operating territory.
A sales person cannot go beyond the designated territory in an ideal scenario.
Importance of Sales Territory
Dividing the territory has a specific purpose. The sales territories are identified based on any one of the factors stated above. The division is made to balance the workload among the sales persons. Otherwise someone may end up doing more sales and less customer service and someone may do less sales and more customer service.
In both of these cases the company ends up losing. In the former case the customers may switch to other brand due to less customer service and hence there will be loss in terms of SKUs sold in the long run.
In the latter case the company may spend too much on a few customers and hence the per-unit cost to the company will increase.
Thus each sales representative will have his own target based on the sales territory and it leads to improved efficiency and competition among the sales reps which adds to the profit of the company.
Steps to plan and define Sales Territory
Following are the high level steps to start with defining effective sales territories:
1. Define Market and Groups
The first and foremost step in defining a sales territory is to define an overall market with potential. Until and unless the overall population is not defined, finer sales territories would not be accurate. Also a company needs to see if they need to define by geographical borders or through customer demographics or groups.
2. Evaluate Competition
The next step is to understand the market better along with the competitors and complementary services. It is good to see how the competitors in the market structured in terms of territories. If multiple competitors are already competing on a basis of a type of territory then either the company can also follow the same structure or may be try to differentiate through different type of sales territory formation.
3. Define Sales Objectives
After the first 2 steps are completed, next step would be to define the size of the territory along with the sales objectives in terms of targets, budgets, team size and efforts to be put to make it profitable.
4. Execute and Improve
The last step is to deploy sales force in the created territories and start monitoring the performance. If the team is able to achieve the objectives well while maintaining profits margins, the same can be continued and used across company and subsidiaries else proper analysis should be done to improve the issues through data and feedback.
Example of Sales Territory
Let us assume a computer sales company who sells PCs and laptops to customers in a state. The sales team can be divided into different territories as per geographic areas in the state. Let us assume the state is already divided into 3 major areas based on geography. The sales team can use these 3 major areas and divide them further into 2 territories.
Now these 6 sales territories can be used by the 6 sales teams. But in actual world it is not this simple. Actual process involves sales targets and quotas along with customer density in these areas.
Many times to compete with the competitor, the computer company might need to have similar territories to compete efficiently in the market. Sales territory planning requires a lot of data and work and also it needs revisiting the plan frequently. the territories should be dynamic and change as per the market shifts.
Hence, this concludes the definition of Sales Territory along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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