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Sales Territory and Quota

LBSIM
10th Oct 2016

Sales Territories
A sales territory consists of existing and potential
customers, assigned to a salesperson
Most companies allot salespeople to geographic
territories, consisting of current & prospective
customers

Major Reasons / Benefits of Sales


Territories
Increase market / customer coverage
Control selling expenses and time
Enable
better
evaluation
of
performance
Improve customer relationships
Increase salesforce effectiveness

salesforce

Procedure for Designing Sales


Territories
Select a control unit*
Find location and potential of present and
prospective customers within control
units**
Decide basic territories by using
Build-up method,
Or
Break-down method
*A control unit is a geographical territorial
base
**Unnecessary & expensive for consumer
products

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 equalise the workload of
salespeople

Example of Build Up Method


Decide customer call frequencies
Calculate total customer calls in each control unit

District X

District Y

Custome Call
r Type
Freq./Mont
h

No. of
Customer
s

No. of
calls/Year

No. of
Customer
s

No. of
calls/Year

144

192

168

192

20

240

28

336

Total

552

720

Estimate workload capacity of a


salesperson
A salespersons normal workload capacity is estimated
by multiplying average numbers of calls a salesperson
can make in a working day by number of working days
in an year.
Ex: The average number of calls a salesperson makes
in a day works out to be 5, based on average travel
time of 30 minutes per sales call, the average length
of one hour for each call, and eight hours per day
working. If the number of working days in a year is 250
then estimated workload capacity for the salesperson
per year works out to be = 250*5=1250 calls.

Make Tentative territories


The company should group adjoining
control units until yearly number of calls
needed in those control units equals the
total number of calls a salesperson can
make(Workload of sales person).
So in the example adding the district X and
Y together need 552+720 = 1272 calls per
year which is almost equal to 1250 calls of
a normal workload of a sales person.

Procedure in Breakdown
Method
Estimate company sales potential for total
market
Forecast sales potential for each control
unit
Estimate sales volume expected from each
salesperson
Make tentative territories
Develop final territories
Objective is to equalize sales potential of
territories

Breakdown
Estimate company sales potential for
total market
Forecast sales potential for each
control unit

Estimate sales volume expected from each salesperson


The direct selling cost for next year is estimated as
Rs. 6,00,000/- , the cost of goods sold is estimated at
60% of sales and expected profit of 15% of sales ,
then the minimum sales expected from each
salesperson is ;
Profit= Sales- Cost of sales- Direct Selling Cost
0.15x= x-0.6x-600000
X = 24,00000
Using judgment, the sales manager decides the
salesperson to be little over twice the above sales
figure around 50,00,000 per annum.

Make tentative territories

In this step, the sales manager


decided and makes the tentative
territory by adjoining all control units
until the sales potential of each
territory is equal to or greater than
the expected sales volume for each
sales person.

Assigning Salespeople to
Territories
Sales Manager should consider two criteria:
(A)Relative ability of salespeople
()Based on key evaluation factors:
(1) Product knowledge, (2) market knowledge,
(3)
past
sales
performance,
(4)
communication, (5) selling skills
Evaluation Factor

Weightage Evaluation

Salesperson
s Score

Product Knowledge

0.15

0.9

0.135

Market Knowledge

0.10

0.8

0.080

Past sales
performance

0.40

0.400

Communication

0.15

0.8

0.120

Selling Skills

0.20

0.9

0.180

Ability Index

1.00

0.915

(B) Salespersons Effectiveness in a


Territory
Decided
by
comparing
social,
cultural, and physical characteristics
of the salesperson with those of the
territory
Objective is to match salesperson to
the territory

Management of Territorial
Coverage
It means: How salesperson should cover
the assigned sales territory
It includes three tasks for a sales manager:
Planning efficient routes for salespeople
Scheduling salespeoples time
Using time-management tools

Routin
g
Routing is a travel plan used by a salesperson
for making customer calls in a territory
Benefits of or Reasons for routing:
Reduction in travel time and cost
Improvement in territory coverage
Importance
application:

of

routing

depends

on

the

Nature of the product Important for FMCG


Type of jobs of salespeople Important for
driver-cum-salesperson job, but creative
selling job needs a flexible route plan

Procedure for Setting up a


Routing Plan

Identify current and prospective customers on a


territory map
Classify each customer into high, medium, or low
sales potential
Decide call frequency for each class of customers
Build route plan around locations of high potential
customers
Commonly used routing patterns are:

Base
(B)

C
1

B
B

C
5

C
4

C
3

Straight line / Hopscotch

C
2

Circular

Clover Leaf

Scheduli
ng
Scheduling is planning a salespersons visit time
to customers. It deals with time allocation issue
How to allocate salespersons time?
Sales manager communicates to salesperson
major activities and time allocation for each
activity
Salesperson records actual time spent on
various activities for 2 weeks
Sales manager and salesperson discuss and
decide how to increase time spent on major
activities
Companies specify call norms for current
customers, based on sales and profit potentials,
and also for prospective customers

Time Management - for


Salespeople

To help outside salespeople* to manage their


time efficiently and productively, the tools
available are:
High-tech equipment like laptop computers
and cellular phones
Inside salespeople to provide clerical
support, technical support, and for
prospecting, and qualifying, as they remain
within the company
Outside salespeople can then spend more
time getting more orders & building
relationships with major customers
*Outside salespeople travel outside the
organisation

Time Management for Sales


Managers
High-tech equipment : Laptop Computers,
Smart Phones.
Computerized support systems
CRM
ERP
Make plans daily and weekly
Minimise unnecessary interruptions
Prioritize activities use ABC analysis
Learn to delegate

Sales
Quotas

What are Sales Quotas?


Sales quotas are sales goals or targets set by a company for
its marketing / sales units for a time period
Marketing / sales units are regions, branches, territories,
salespeople, and intermediaries
Sales quotas can be set on
sales volume, expenses, profit margin, activity, customer
satisfaction and on some combination.
Generally, company sales budget is broken down to sales
quotas for various marketing units
Objectives of Sales Quotas
To use quotas as performance standards or performance
goals
To control performance
To motivate people by linking quotas to compensation plans
To identify strengths and weaknesses of the company

Types of
Quotas

Organisations set many types of sales quotas:


(1) sales volume, (2) financial, (3) activity, (4)
combination

Sales volume quotas


For effective control, sales volume quota
should be set for the smallest marketing
units, such as salesperson, districts /
branches, product items / brands

Sales Volume Quotas


(Continued)
Sales volume quotas can be stated in (a) rupees

(b)

units, or (c) points

Rupees sales volume quotas are appropriate


salespeople are required to sell many products

when

Unit sales volume quotas(litres, numbers, tonnes) are suitable


when

Salespeople are selling a few products


Prices of the product fluctuate rapidly
Price of each product / service is high
Point sales volume quotas(Sales volume quota conveyed
in points)

are appropriate when the company wants

salespeople to sell products that contribute more to profits. (2


products, for one sale of 1st : 2 points and for one sale of 2 nd: 1
Point)

Financial
Quotas
Financial quotas control (a) gross margin or net profits,
and (b) expenses of marketing units
Gross-margin / Net-profit quotas
Calculate gross margin by subtracting cost of goods
sold (i.e. cost of manufacturing) from sales volume.
Sales managers are not responsible for cost of
manufacturing
Net profit quotas are generally accepted by sales
mangers as it is calculated by subtracting direct
selling expenses from the gross margin

Net Profit Comparison of


Salesperson of a branch
Ashok

Sunil

Ramesh

Total

Sales

41008000(a
)

38515000

46007000

125530000

Cost of
sales

30756000(b
)

28886250

34505250

94147500

Gross
Margin

10252000(a
-b)

9628750

11501750

31382500

Salary

124000(X)

115000

140000

379000

Other
selling
expenses

390000(Y)

310000

470000

1170000

Total
Selling
Expenses

514000(X+Y 425000
)

610000

1549000

10891750

29833500

Profit
9738000(Z)
contributio

9203750

Finance Quota
Expense quotas
In many companies, expense quotas are stated
as a percentage of sales(Mostly 1% of sales)
Expense quotas to be administered with
flexibility, to make salespeople cost conscious,
allowing reasonable expenses

Activity
Quotas
These are set when salespeople
perform both selling and non-selling
activities
Objective is to direct salespeople to
carry out important activities
For effective implementation, activity
quotas are combined with sales
volume and financial quotas
E.G. Calling on high potential
customers, payment collection from
defaulting customers

Activity Quotas: Example


Activities

Priori
ty

Quotas

Calling on present customers

4 calls/month

Calling on hot prospects

5 calls/2months

Calling on retailers

All retailers of
territory should at
least be called
once in a month

Payment collection from


payment overdue customers

Avg. 3 calls per


month

Obtaining and reporting market


information

4 times a month

Combination
Quotas

Used when companies want to control salesforce


performance on key selling and non-selling activities
Focus on a few types of quotas, to avoid confusing
salespeople. An example:
Type of Quota

Sales Volume (Rs)

Quota

Actual

Percent
Weight
Quota (Importance)

5,00,000 4,50,000

Percent
Quota x
Weight

90

270

Receivables (days)

45

50

89

178

New Customers
(Nos)

04

05

125

125

573

Total

Total point score=573/6=95.5 for a salesperson


Typically use points as a common measure to resolve
the problem of different measures used by various types
of quotas

Type of
Quota

Quota

Actua
l

Perce
nt
Quota

Weight
(Importa
nce)

Percent
Quota x
Weight

Sales Volume
(Rs)

450000

427500 95

285

Selling
Expenses

450

495

90

90

New
Customers
(Nos)

24

29

120

240

615

Point Score = 615/6 = 102.5


(So performance wise this salesperson has achieved better)

Methods for Setting Sales


Quotas

Several methods are used for establishing


sales quotas
In practice, companies use more than one of
the following methods to increase their
confidence in sales quotas
Total market estimates
Past sales experience
Executive judgment
Salespeoples estimates
Compensation plan

Total Market Estimates


Method

The Process followed


companies is as under:

by

established

1) Estimate next years total market


demand, or industry sales forecast, using
sales forecasting methods
2) Decide the companys estimated market
share for next year
3) Companys next year sales forecast= (1)
x (2)
4) Find each territorys percentage share out
of the total company sales in the previous
year
5) Territory sales quota = (3) x (4)

Past Sales Experience


Method
The process consists of taking past one
years sales (or an average of previous 3
to 5 years sales), adding an arbitrary
percentage (or a percentage by which
the market is expected to grow), and
thus setting each territory sales quota
The assumption that future sales are
related to past sales may not be always
correct
This method should not be the only
method used
Past sales should be one of the factors
used for deciding sales quotas

Executive Judgement Method


Senior executives use their judgement when
the product, territories, and the company
are new or very little market information
is available
Executives predict company sales budgets and
also territory sales quotas
This method should generally be used along
with other methods

Salespeoples Estimate Method


Some firms ask their salespeople to set their
own quotas
Many salespersons either set very high or too
low sales quotas(Very good method:
Bottom Up approach)

Salespeoples Estimate Method (Continued)


For setting proper quotas, many sales managers use 2
or 3 of above methods, discuss with salespersons to
get their inputs, and decide sales quotas

Compensation Plan Method


Some organizations set quotas to fit with their sales
compensation plan
E.G. A company wants to pay a monthly salary of Rs
5000, and a commission of 3% on monthly sales above
Rs 1,00,000. The quota of Rs 1,00,000 is set in such a
way that salesperson would find it very difficult to cross
total compensation of Rs 8000 per month (5000+3000)
but it may be used as % attainment for motivating
sales force and slabs can be made.
Sales quotas should not be based only on this method,
because it would put the cart before the horse

Insight into Setting & Administration of


Sales Quotas
Set realistic quotas(Xerox and 3M)
Understand problems in setting quotas(Under and
over estimation)(higher number of products)
Ensure salespeople understand quotas
By allowing salespeople to participate in the
process
By continuous feedback to salespeople on their
performance compared to quotas
Have flexibility in administering quotas
Change quotas in cases of major changes in
market demand or company strategies
Use monthly or quarterly quotas for incentives and
annual quotas for performance evaluation
Select a few quotas that have relationships with
marketing environment and sales situations

Now, your turn


Ashok was transferred from western region, where
he worked as area sales manager of CG
engineering company to, eastern region as
regional marketing manager. He was told by the
companys GM(Sales) that he was transferred
from western region to eastern region to set
things right, as eastern region was not performing
well on sales and profits. Ashoks main
responsibilities were to manage effectively 11
sales engineers and achieve the sales volumes
and contribution quotas. For Ashok not only the
sales Engineers but the customers were also new.

The sales engineers were compensated based on


straight salary and prerequisites like HRA, DA and
medical benefits. There was no incentive
scheme. He felt that the sales engineers are not
covering the market adequately and were not
following any system of routing and scheduling.
He also thought that sales people were spending
more time in travelling and less time in selling.
After talking to sales engineers individually he
got an impression that most of them were not
motivated as they were not give adequate
freedom of operating and recognition whenever
they got good orders. He thought that there was
a good scope of applying what he had learnt.