Ensuring sales individuals are aligned with market opportunities, balancing potential and complexity to allow for an appropriate work-life balance, and considering past territory performance and sales capacity can indeed be complex.
Fortunately, there are methods to design sales territories, ensuring they are appropriately sized and structured so that salespersons receive a fair share of the market. With these methods, it becomes easier to set sales targets across salespersons with varying levels of expertise and experience.
The development of local metrics required for sales territory design brings significant additional advantages, the most obvious being the ability to calculate estimates for local market share and local visibility. By understanding deals won by your company and your competition, using an appropriate Customer Relationship Management (CRM) system, the local market share can be estimated, providing key marketing information.
Understanding which sales territories are too large and which are too small is evidently crucial.
This is where you learn where the market is not being addressed as desired and money is being left on the table because a territory is too large, usually with salespersons easily meeting their targets. On the opposite, this is where you understand why some salespeople with territories that are too small cannot meet their sales targets, potentially leading them to leave for the competition.
It is often said that optimized Go-To-Market allows for revenue growth by an average of 4% to 8% compared to the situation where it is not optimized. It is easy to be convinced of this if you have experienced losing a long-standing, experienced salesperson who was under pressure to achieve a bigger volume when their territory potential was, in reality, too low. Or if you discovered a salesperson with an excellent track record and high order volume actually had a significantly larger territory than their colleagues. Unbalanced sales territories can be a major issue.
Aligning sales territories solely based on territory potential, with all salespersons having exactly the same number of customers or opportunities, is also not efficient. Some territories may require more effort to visit customers because of long car distances, for instance, or some may face stronger local competitors. Additionally, some salespersons may be more junior and less experienced, requiring smaller territories or smaller targets initially. Multiple factors must be considered to distribute the market efficiently across sales teams.
Not aligning sales territories efficiently leads to two problems. First, the risk of losing the best salespersons when they perceive that their sales territory is inadequate, too complex, or has unreachable or unfair targets. Second, the risk of not maximizing revenues when some sales territories are too large, leaving money on the table.
The Go-To-Market strategy is the response to priorities set as part of a marketing program, clarifying which market segments are considered and with which offering. The business questions related to territory management are numerous:
Where are the targeted market opportunities, and how are they distributed? Which market segments are addressed?
Who are the targeted customers? What is the customer perception of our company and competition? What about retention and capture rates? Who are our company’s loyal customers and where are they located? How and where should we grow our loyal customer base?
What are our opportunities in the short, medium, and long term? Where should we invest to grow faster and better than the competition?
What strategy should our company deploy? Defensive or offensive? Should we aim to outcompete rivals? To leverage local strengths and quietly expand in key areas? Should the company prepare actions to surprise the market and defeat the competition? What is the strategy of our competition, and how might they respond?
Multiple questions can be derived from the market assessment that is part of the marketing mix. Threats must be assessed, and approaches to strengthen market position must also be identified. Their answers are determined through multiple actions outlined in the marketing plan and, of course, involve the complete go-to-market strategy, the famous marketing mix. Aligning a sales team to the market is one of those essential components.
Multiple success criteria can be considered to design sales territories, but three stand out as particularly important: fairness, flexibility, and sustainability. Additional criteria such as integration, education, and communication are key for acceptance across teams – sales and support functions. Additionally, short-term costs of implementation and long-term support for the approach must be managed properly.
Fairness is important to ensure an equitable distribution of sales territories across salespersons. Creating territories that are either too large with easily achievable targets or too small with large targets will result in a loss of confidence among salespersons. Some may leave for other companies, resulting in a significant loss of competencies and customer knowledge. 
A fair distribution means that every step of constructing the sales territories is well understood and communicated. Salespersons discuss challenges and constraints among themselves. Ensuring fairness in the distribution of sales territories and sales targets is critical for a successful sales team.
Flexibility is also key in setting territories and sales targets. Unexpected events may occur, possibly with a positive or negative perceived impact, and the organization must be able to adjust quickly. Territories may need to be recalculated and adjusted accordingly. Appropriate tools may allow for swift and efficient adjustments to territories, with sales individuals informed of the rationale behind the decisions.
Sustainability is essential not only for optimizing sales territories one time but also to ensure the sales organization is continuously optimized and can address a constantly changing market environment. 
A sales organization, by its very nature, is competitive and will negotiate fiercely for lower targets and better sales compensation. It can be tempting to ignore market growth signals, risking missing out on important opportunities.
By implementing a sales territory design with attention to fairness, flexibility, and sustainability, organizations position sales and support teams optimally to achieve their plans, ready to respond efficiently to unexpected challenges in a timely and effective manner.
Delivering sales territories across a sales team in a fair and effective way requires taking into account multiple factors, including sales potential, territory complexity, historical presence across the company and competition, and ensuring that sales targets consider the sales team’s capabilities. Fortunately, achieving this balance is quite feasible with appropriate methodology and tools.
To achieve this, we recommend using four sets of metrics to measure four different dimensions of sales territories: territory potential, territory complexity, territory presence, and territory target:
Territory potential: This metric estimates the addressable market in a given territory. It is certainly not the addressed market or the company’s loyal customers that CRM can easily provide but rather an estimate that may be influenced by what salespersons choose to report. It is used to estimate how the market potential is shared across a sales team.
Territory complexity: This metric estimates the total workload for salespersons. It can be the sum of all sales activities – time spent – if salespersons were to visit every single customer to close deals. Alternatively, it can be an estimate taking into account factors like the number of cities in a territory and the total number of customers. This metric aims to facilitate the distribution of workload across a sales team.
Territory presence: This metric measures the company’s market presence in a given territory. Understanding the local presence of loyal customers or installed base versus competition helps determine the local strengths among different market players. Territories where customer sockets are with competition are often more challenging to win than territories where your own company is already present. Understanding this dimension can motivate different strategies to grow or protect locally. It can also result in identifying different sales profiles based on company and competition presence in a territory.
Territory target: This optional metric represents the local targets assigned to the salesperson. Sales targets are often assigned as a whole to a salesperson, but when assigned locally, it permits the assessment of what share of the local market was assigned. It provides an opportunity to compare it with the other three metrics and assess possible errors in setting sales targets. It offers more flexibility if territories must be redesigned and new targets must be calculated.
It’s important to note that measuring these metrics can be challenging, and continuous optimization based on past experience and feedback is necessary. Instead of relying on a single metric, using a few correlated metrics can be an efficient solution to demonstrate how a metric makes sense. Further discussion on metrics can be found in the description of the proposed tool on this site.
Tools for territory management are often connected to CRM systems or can be integrated with them. This is a clear advantage for CRM users to quickly identify account ownership and track business activity.
On the other hand, it can be a disadvantage when attempting to measure business potential solely from CRM data, which may be biased by the quality and accuracy of the data. Deals not logged in the CRM may not be counted, affecting the estimation of territory size. This can reinforce the practice of not reporting certain deals to minimize sales territories and receive smaller sales targets. Accurate metrics must be designed for effective sales territory management.
Sales territories can be delineated by grouping smaller geographic elements, often referred to as Geographic Elements or sometimes Geounits. Metrics for sales territories can then be calculated by aggregating the metrics for these elements. For example, the total potential for a salesperson’s territory would be the sum of the potential for each Geographic Element included in that territory.
There are several approaches to defining these Geographic Elements, with ZIP codes, cities, and NUTS (in Europe) being the most common. ZIP codes are useful because many metrics can be aligned to them, and customer addresses, when available and accurate, allow for quick identification of ZIP codes and thus of Geographic Elements. However, ZIP codes can be numerous and inadequate for creating sales territories in some cases. NUTS, on the other hand, are geographic units that carry administrative and business metrics, which can sometimes be easier to use for territory design.
Customer grouping can also be an approach, especially when customers collaborate or are part of the same network and prefer a single sales contact. There is a need to find a compromise between data availability, accuracy, applicability to territory sizing, and the selection of Geographic Elements. Testing different approaches can help determine the best solution to meet your needs. This is closely tied to the tool you will use to determine sales territories:
There are many tools available to support sales territory design, most of which allow for the visualization of sales territories on a map and the display of relevant metrics. It is crucial to distribute market potential fairly and minimize complexity, particularly by reducing travel times. 
Considering the salesperson’s residence may be an option in some countries, while in others, privacy concerns regarding salesperson information may prohibit this practice.
Leveraging information from the CRM system is beneficial when the data is reliable and can be consolidated with appropriate accuracy. The ability to consider additional data from other sources is also important, such as metrics from administrative sources like population and number of households, which can be used to assess market size by Geographic Elements and by sales territory.
Tools may display geographic areas, dots, or both, with some allowing for the display of administrative regions as well. Territories can be complex, where a salesperson may own a geographically defined territory but with exceptions where certain customer accounts are allocated to others.
Regardless of the approach used, it’s important to create sales territories that are easy to quantify and map, and to organize them into salespersons’ territories. These territories must also be easy to understand, visualize, and communicate so that each salesperson knows their battlefield.
Leverage the criteria of fairness, flexibility, and sustainability for your tool selection, ensuring it supports your needs for efficiency, simplicity, ease of implementation and deployment, and cost management. Also, ensure it supports the use of metrics to quantify potential, complexity, presence, and local sales targets as mentioned.
Interesting statistics about territory management. Using spreadsheets is not uncommon… Using them correctly is important 🙂
https://www.xactlycorp.com/blog/sma-research-findings-territory-planning-statistics
Here a good and simple reading introducing territory management:
https://sonarsoftware.com/blog/terriroty-management-best-practices/
Large business companies such as SAP or SFDC are now investing territory management. However, there is a significant difference between allocating customers to sales teams – that is relatively easy – and constructing a complete environment to track potential, visibility, performance across multiple specialized teams allowing for geographic display of sales territories and optimization of those territories:
https://help.salesforce.com/s/articleView?id=sf.tm2_territory_mgmt_overview.htm&type=5
For that reason, multiple companies have identified opportunities in developing solutions to support territory management and optimization:
Galigeo is one of those companies proposing a great application for use with various CRM vendors. Their application is fast and efficient, optimized to deliver appropriate metrics side by side as we think is key. Ensure to contact them to get an understanding of their offering:
https://www.galigeo.com/en/geomarketing/
See also Geomarketing definition by WIGeoGIS. A good reading on optimizing sales territories:
https://www.wigeogis.com/en/sales_territory_planning
There are many others, just check according to your needs and preferences. Beware to work with companies with both solutions and expertise.
Measuring the waterfall – Measuring visibility and presence
Understanding the market waterfall from total market to addressed market, to quoted, to won opportunities at local levels is key for territory design. Consider asking those vendors you will approach about their approach to measuring and displaying sales local performances by territory. This is key for sales management to analyze sales performance and challenge salespersons who either do not report their opportunities or simply ignore some part of the geography that they own.
Concretely, local market share and local visibility can be estimated. They will provide clarity on where your local sales team possibly has a stronger presence and where, on the opposite, competition has a stronger presence and can possibly become a target to grow.
In practice, these tools are key also for marketing and should be available by geographic elements at either the smallest elements or at larger elements. You may discover some regions or customer segments that could be addressed better by your company and become an opportunity to grow with appropriate coverage. Consider also asking if you can display sales territories owned by different teams, for instance, account managers and sales specialists that may have different geographical organizations. Understanding the performance by team can be extremely useful.
The flexibility to design sales territories on-the-fly and display metrics on a map can be particularly powerful, especially when integrated with a CRM system. These tools can provide a clear and concise picture of performance, allowing businesses to understand market potential and opportunities.
Suitable metrics, such as territory potential, complexity, presence, and target history, once associated with each geographic element, allow for accurate measurement of sales territories. Local performance metrics can be determined, allowing for an understanding of local presence and an estimate of the local market share. Strategies for growing local presence can be formulated.
Making a decision for a tool to determine sales territories is essential for long-term success. Ensure that all your performance criteria for selection and implementation are included at the time of selection. Territories will then be designed with a fair distribution of potential and complexity across the sales team, while understanding your presence and past performance to effectively address target setting fairly and efficiently.
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Optimizing sales territories requires specialized tools, often provided by companies that leverage CRM data. Not all tools assess territories along the dimensions discussed in this chapter. Additionally, data quality is crucial; in some markets, reliable data may be lacking, as only reported deals are tracked. This can disadvantage salespeople who report all deals—including lost ones—compared to those who do not report as consistently.
When comparing territory design tools, be sure to validate your needs and priorities, set clear objectives, and develop appropriate scorecards to assess and compare solutions. It is vital to ensure that needs and priorities are well captured (typically in the left column of scorecards). A good validation method is to describe objectives by stating “what success looks like” for all stakeholders and sponsors.
The following section may include tools, some free, some with a fee to support this site development. If you consider a tool should be presented in this section and is missing, please let us know at: contact@marketingdecision.org
The Market Waterfall provides a comprehensive view of the market journey, from the total market perspective down to what is successfully captured at each step. 
This tool is particularly beneficial when working through distributors, as it allows for independent data collection and analysis. It offers key insights to facilitate discussions on market presence, visibility and competitive positioning.
For organizations with a direct salesforce, the Market Waterfall provides an opportunity to evaluate performance against expectations, assess CRM utilization for visibility, analyze sales coverage, expertise, and alignment with market opportunities. In these discussions, it is crucial to involve both Sales and Marketing teams to foster collaboration and alignment.
Demo available on YouTube: https://youtu.be/MSDdvVlQi4E
Use this waterfall tool to evaluate the waterfall chain for one single segment or multiple ones.
Explore tools related to the topics covered in this section. For a wider selection, visit our webshop using the link below, or continue browsing our marketing mix pages for additional insights and solutions.
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