SDM-Ch.

4
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Chapter 4
Management of Sales
Territories and Quotas
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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
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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
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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
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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
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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
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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) 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
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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
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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
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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
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Scheduling
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
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Time Management Tools
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
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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
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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
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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
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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
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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
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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
(Nos)
04 05 125 1 125
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

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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
Salespeoples estimates
Compensation plan
We shall briefly discuss each of the above methods
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Total Market Estimates Method
The Process followed by established
companies is as under:
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)
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Territory Potential Method
The procedure followed by new companies is as under:
1) Estimate next years 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
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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
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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
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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)
Sales quotas should not be based only on this method,
because it would put the cart before the horse
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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
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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 salespersons 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 salespersons visit time to
customers, based on sales and profit potentials of
customers

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Key Learnings (Continued)
Time management tools available to outside salespeople
are high-tech equipment and inside salespeople
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 judgement, salespeoples estimates, and
compensation plan
Companies should select a few quotas, which should be
realistic and should be administered with flexibility