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Chapter 4 
Management of Sales 
Territories and Quotas 
SDM-Ch.4 1
Learning Objectives 
• To understand the concept of and reasons for 
sales territories 
• To learn designing sales territories and assigning 
salespeople 
• To know territory coverage, including routing, 
scheduling, and time management 
• To understand objectives and types of sales 
quotas 
• To learn the methods of setting sales quotas 
• To get insight into setting and administration of 
sales quotas 
SDM-Ch.4 2
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 salesforce performance 
• Improve customer relationships 
• Increase salesforce effectiveness 
• Improve sales and profit performance 
SDM-Ch.4 3
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 
SDM-Ch.4 4
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 
SDM-Ch.4 5
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 equalise sales potential of territories 
SDM-Ch.4 6
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 
(B) Salesperson’s 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 
SDM-Ch.4 7
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 salespeople’s time 
• Using time-management tools 
SDM-Ch.4 8
Routing 
• 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 of routing depends on the application: 
• 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 
SDM-Ch.4 9
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 
• Computerised mathematical models are developed 
• Commonly used routing patterns are: 
B 
Circular 
B 
Clover Leaf 
Base 
(B) 
C 
5 
C 
1 
C 
4 
C 
3 
C 
2 
Straight line / Hopscotch 
SDM-Ch.4 10
Scheduling 
• Scheduling is planning a salesperson’s visit time to 
customers. It deals with time allocation issue 
• How to allocate salesperson’s 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 
SDM-Ch.4 11
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 
SDM-Ch.4 12
Time Management – for Sales Managers 
• High-tech equipment : Laptop Computers, Smart 
Phones. 
• Computerised support systems 
• CRM 
• ERP 
• Make plans – daily and weekly 
• Minimise unnecessary interruptions 
• Prioritize activities – use ABC analysis 
• Learn to delegate 
SDM-Ch.4 13
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 
• 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 
SDM-Ch.4 14
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 can be stated in (a) rupees / 
dollars, (b) units, or (c) points 
• Rupees / dollars sales volume quotas are 
appropriate when salespeople are required to sell 
many products 
SDM-Ch.4 15
Sales Volume Quotas (Continued) 
• Unit sales volume quotas 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 are appropriate when 
the company wants salespeople to sell products 
that contribute more to profits 
SDM-Ch.4 16
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 
• Expense quotas 
• In many companies, expense quotas are stated as a 
percentage of sales 
• Expense quotas to be administered with flexibility, to make 
salespeople cost conscious, allowing reasonable expenses 
SDM-Ch.4 17
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 
SDM-Ch.4 18
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 Quota Actual Percent 
Quota 
Weight 
(Importance) 
Percent 
Quota x 
Weight 
Sales Volume (Rs) 5,00,000 4,50,000 90 3 270 
Receivables (days) 45 50 89 2 178 
New Customers 
04 05 125 1 125 
(Nos) 
Total 6 573 
• 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 
SDM-Ch.4 19
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 
• Territory potential 
• Past sales experience 
• Executive judgement 
• Salespeople’s estimates 
• Compensation plan 
We shall briefly discuss each of the above methods 
SDM-Ch.4 20
Total Market Estimates Method 
• The Process followed by established 
companies is as under: 
1) Estimate next year’s total market demand, or 
industry sales forecast, using sales forecasting 
methods 
2) Decide the company’s estimated market share 
for next year 
3) Company’s next year sales forecast= (1) x (2) 
4) Find each territory’s percentage share out of the 
total company sales in the previous year 
5) Territory sales quota = (3) x (4) 
SDM-Ch.4 21
Territory Potential Method 
• The procedure followed by new companies is as under: 
1) Estimate next year’s industry sales forecast or market 
potential, using sales forecasting methods 
2) Estimate multiple factor index (MFI) for each territory, 
based on factors that influence sales of the product. 
These factors are given weights corresponding to the 
degree of sales opportunity. 
3) Industry sales forecast in a territory (or territory market 
potential=(1)x(2) 
4) Territory sales quota = (3) x estimated market share of 
the company in the territory 
SDM-Ch.4 22
Past Sales Experience Method 
• The process consists of taking past one year’s 
sales (or an average of previous 3 to 5 year’s 
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 
SDM-Ch.4 23
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 
Salespeople’s Estimate Method 
• Some firms ask their salespeople to set their own 
quotas 
• Many salespersons either set very high or too low 
sales quotas 
SDM-Ch.4 24
Salespeople’s 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) 
• Sales quotas should not be based only on this method, 
because it would “put the cart before the horse” 
SDM-Ch.4 25
Insight into Setting & Administration of Sales 
Quotas 
• Set realistic quotas 
• Understand problems in setting quotas 
• 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 
SDM-Ch.4 26
Key Learnings 
• A sales territory consists of existing and prospective 
customers, assigned to a salesperson 
• While assigning salespeople to territories, sales 
manager should consider relative ability of salespeople 
and salesperson’s effectiveness in the territory 
• Management of territorial coverage includes routing, 
scheduling, and time-management tools. 
• Routing is a travel plan used by a salesperson for 
making customer calls in a territory 
• Scheduling is planning a salesperson’s visit time to 
customers, based on sales and profit potentials of 
customers 
SDM-Ch.4 27
Key Learnings (Continued) 
• Time management tools available to outside salespeople 
are high-tech equipment and inside salespeople 
• Time management for sales managers include high-tech 
equipment, computerised support system, and right 
practices. 
• Sales quotas are sales goals or targets set by a 
company for its marketing units like regions, territories, 
salespeople 
• Firms set many types of quotas like sales volume, 
financial, activity, and combination of above 
• Companies use more than one of the several methods 
used for setting sales quotas. These are: total market 
estimates, territory potential, past sales experience, 
executive judgment, salespeople’s estimates, and 
compensation plan 
• Companies should select a few quotas, which should be 
realistic and should be administered with flexibility 
SDM-Ch.4 28

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sales territories and quotas

  • 1. Chapter 4 Management of Sales Territories and Quotas SDM-Ch.4 1
  • 2. Learning Objectives • To understand the concept of and reasons for sales territories • To learn designing sales territories and assigning salespeople • To know territory coverage, including routing, scheduling, and time management • To understand objectives and types of sales quotas • To learn the methods of setting sales quotas • To get insight into setting and administration of sales quotas SDM-Ch.4 2
  • 3. 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 salesforce performance • Improve customer relationships • Increase salesforce effectiveness • Improve sales and profit performance SDM-Ch.4 3
  • 4. 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 SDM-Ch.4 4
  • 5. 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 SDM-Ch.4 5
  • 6. 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 equalise sales potential of territories SDM-Ch.4 6
  • 7. 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 (B) Salesperson’s 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 SDM-Ch.4 7
  • 8. 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 salespeople’s time • Using time-management tools SDM-Ch.4 8
  • 9. Routing • 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 of routing depends on the application: • 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 SDM-Ch.4 9
  • 10. 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 • Computerised mathematical models are developed • Commonly used routing patterns are: B Circular B Clover Leaf Base (B) C 5 C 1 C 4 C 3 C 2 Straight line / Hopscotch SDM-Ch.4 10
  • 11. Scheduling • Scheduling is planning a salesperson’s visit time to customers. It deals with time allocation issue • How to allocate salesperson’s 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 SDM-Ch.4 11
  • 12. 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 SDM-Ch.4 12
  • 13. Time Management – for Sales Managers • High-tech equipment : Laptop Computers, Smart Phones. • Computerised support systems • CRM • ERP • Make plans – daily and weekly • Minimise unnecessary interruptions • Prioritize activities – use ABC analysis • Learn to delegate SDM-Ch.4 13
  • 14. 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 • 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 SDM-Ch.4 14
  • 15. 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 can be stated in (a) rupees / dollars, (b) units, or (c) points • Rupees / dollars sales volume quotas are appropriate when salespeople are required to sell many products SDM-Ch.4 15
  • 16. Sales Volume Quotas (Continued) • Unit sales volume quotas 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 are appropriate when the company wants salespeople to sell products that contribute more to profits SDM-Ch.4 16
  • 17. 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 • Expense quotas • In many companies, expense quotas are stated as a percentage of sales • Expense quotas to be administered with flexibility, to make salespeople cost conscious, allowing reasonable expenses SDM-Ch.4 17
  • 18. 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 SDM-Ch.4 18
  • 19. 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 Quota Actual Percent Quota Weight (Importance) Percent Quota x Weight Sales Volume (Rs) 5,00,000 4,50,000 90 3 270 Receivables (days) 45 50 89 2 178 New Customers 04 05 125 1 125 (Nos) Total 6 573 • 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 SDM-Ch.4 19
  • 20. 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 • Territory potential • Past sales experience • Executive judgement • Salespeople’s estimates • Compensation plan We shall briefly discuss each of the above methods SDM-Ch.4 20
  • 21. Total Market Estimates Method • The Process followed by established companies is as under: 1) Estimate next year’s total market demand, or industry sales forecast, using sales forecasting methods 2) Decide the company’s estimated market share for next year 3) Company’s next year sales forecast= (1) x (2) 4) Find each territory’s percentage share out of the total company sales in the previous year 5) Territory sales quota = (3) x (4) SDM-Ch.4 21
  • 22. Territory Potential Method • The procedure followed by new companies is as under: 1) Estimate next year’s industry sales forecast or market potential, using sales forecasting methods 2) Estimate multiple factor index (MFI) for each territory, based on factors that influence sales of the product. These factors are given weights corresponding to the degree of sales opportunity. 3) Industry sales forecast in a territory (or territory market potential=(1)x(2) 4) Territory sales quota = (3) x estimated market share of the company in the territory SDM-Ch.4 22
  • 23. Past Sales Experience Method • The process consists of taking past one year’s sales (or an average of previous 3 to 5 year’s 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 SDM-Ch.4 23
  • 24. 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 Salespeople’s Estimate Method • Some firms ask their salespeople to set their own quotas • Many salespersons either set very high or too low sales quotas SDM-Ch.4 24
  • 25. Salespeople’s 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) • Sales quotas should not be based only on this method, because it would “put the cart before the horse” SDM-Ch.4 25
  • 26. Insight into Setting & Administration of Sales Quotas • Set realistic quotas • Understand problems in setting quotas • 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 SDM-Ch.4 26
  • 27. Key Learnings • A sales territory consists of existing and prospective customers, assigned to a salesperson • While assigning salespeople to territories, sales manager should consider relative ability of salespeople and salesperson’s effectiveness in the territory • Management of territorial coverage includes routing, scheduling, and time-management tools. • Routing is a travel plan used by a salesperson for making customer calls in a territory • Scheduling is planning a salesperson’s visit time to customers, based on sales and profit potentials of customers SDM-Ch.4 27
  • 28. Key Learnings (Continued) • Time management tools available to outside salespeople are high-tech equipment and inside salespeople • Time management for sales managers include high-tech equipment, computerised support system, and right practices. • Sales quotas are sales goals or targets set by a company for its marketing units like regions, territories, salespeople • Firms set many types of quotas like sales volume, financial, activity, and combination of above • Companies use more than one of the several methods used for setting sales quotas. These are: total market estimates, territory potential, past sales experience, executive judgment, salespeople’s estimates, and compensation plan • Companies should select a few quotas, which should be realistic and should be administered with flexibility SDM-Ch.4 28