- What is a territory split/change
- Why should you split a territory?
- The measures that drive territory changes
- Best practices
What is a territory split/change?
As your sales revenue increases or changes over time, you may require a territory split or change. It involves dividing a sales territory, geographic region, or accounts into two or more territories. So, the existing rep's workload is shared with another new rep.
Most organizations normally have a territory re-alignment "season" in Q3 as you plan for the upcoming year.
Types of sales territory realignments
- Split – Dividing the territory into two or more new areas
- Dissolve – Merging two or more territories into a single geographic alignment
- Re-optimize – Also known as a re-alignment. A scenario might be "we want to go from two reps to three reps. What is our optimal alignment ensuring we maximize sales potential and balance workload"?
1. Splitting a sales territory
Splitting two territories above into three territories below.
2. Dissolving a sales territory
3. Reoptimizing a sales territory
Why should you split territories?
- Growth – You want to grow revenue. Sounds obvious once you have optimized your sales territories and routes. It may be time to add new sales territories to accommodate new growth opportunities. If you are dealing with fixed geography, the only way to progress is to split geographic regions.
- Extended leave – You may have a requirement to cover maternity leave, sabbaticals, illness or internal organization changes.
- Custom needs - You may have a high-performing rep approach you with a proposal for a 3-day week, prompting a split as you want to retain their position. And you may need some reps to cover wider areas temporarily.
- Loss of market share – You may have competitors that are making strides and capturing market share. There are two options: add more reps (as your competitor may have more reps) and recapture share. Or you scale backward and adjust your cost of sales.
What are the benefits of territory splits?
- Better coverage – In sales operations, your goal is to unlock maximum sales potential and minimize the cost of sales. Splitting and re-alignment can yield these results. Experienced leaders and reps realize that often you can generate more revenue in smaller, more compact territories. And you benefit from lower service costs and happier customers.
- Shorter drive times – Driving less as a result of more compact better, designed territories impacts selling time. More time spent selling to high-profit customers results in higher utilization and revenue. And in these crazy times where fuel costs are rocketing, you cut fuel costs dramatically.
- Better relationships and more sales calls – Customers approve, and sales reps love it because more time is spent doing what they love most, negotiating and improving business impact.
- Fewer accounts, more focus - Time and time again, we see the results of customer realignments. And contrary to entrenched beliefs (that it will reduce revenue) it has the opposite impact. Fewer accounts result in a higher share of customer voice and revenue.
Important drivers for territory changes
Optimizing territories is about maximizing the capacity of your field sales team. When considering changes, a workload metric is proven and invaluable. Your goal is to decrease travel time to free up more worktime, balance workload across territories, and achieve equity of effort and sales potential.
An example of a workload index:
Sales territories before applying a workload index
Sales territories after applying a workload index
You have a rep generating $1,000,000 in a sales territory, but you assess the potential to be $1,500,000. That is $500,000 untapped sales revenue that can be captured by adding a resource. Now you have two salespeople generating $750,000.
Count of accounts/prospects
It is a regular challenge for sales operations leaders to ensure that territories have a balance on account and prospect numbers. When you take into account call frequencies, you may notice a mismatch between total call capacity (what is planned) and actual call capacity (what is realistic).
Who benefits from territory splits/realignments?
- Reps benefit from more equitable territories, selling time, and less drive time.
- Customer satisfaction improves as service levels increase
- CFOs are happy as your travel costs and cost of sales decrease
- CROs see the increased revenue potential
- CSOs see improvements in customer satisfaction
- Critical stakeholders benefit from higher profitability and market share
1. Optimize automatically and use a workload index
Leverage the power of an algorithm and modern solutions to automatically optimize territories and achieve more accuracy.
Use a workload index to ensure you balance territories on effort.
2. Conduct what-if analysis
Scenario planning is critical. It involves you testing a number of options on alignment design.
Below is an example of a comparison. The left side shows the territory before changes are applied. The right side shows the adjusted territory.
Often the algorithm delivers 95% of the result you need. The addition of feedback from your sales managers and key stakeholders offers the human input needed to finetune alignments. Your ability to share scenarios, get feedback and fine-tune changes the game.
3. Use territory centers
Placing your reps in an ideal location is another important factor in territory optimization. Territory centers offer you a guide. There are two types of territory centers.
- A geographic center. Is the actual center of your territory.
- A weighted center. Bases the center on the area of the highest concentration of accounts. It is an optimal center ensuring the minimal effort required to service the highest number of accounts.
The example below shows a weighted center for each territory as a red circle with a solid red dot.
4. Incorporate account exceptions
Building on your scenario planning, it is good practice to incorporate account exceptions. You always strive to minimize disruption to customers and salespeople. You don't want to damage key relationships by transferring accounts. So you need to ability to realign territories but "lock in" accounts, ensuring relationships are retained.
The image below shows account exceptions, the accounts from territory 6 are brown. Note that there are brown (territory 6 accounts) in territory 4.
You should consider "holdbacks" as you transfer accounts. For example, you may have a transition period of a quarter where both reps manage an account to ensure a smooth handover. Then the account is transferred at the end of the transition period.
If you are moving zip codes and accounts, it is also important to ensure HR is involved in the process to avoid conflicts relating to quotas and commission structures. Higher sensitivity is inevitable if you are downsizing your structure.
Ownership changes can result in pushback, which is avoidable with smoother communication.