Introduction to Sales Territory Design

September marks the start of a new beginning.  Kids and teachers are returning to school, bags filled with shiny new supplies, unused notebooks and freshly sharpened pencils.  Professionally, work starts to pick back up as we reach  the end of the (slightly) more relaxed work days of August when team members are out of office and deadlines are pushed further out to account for scheduling conflicts.  For sales, operations, and finance departments September often marks the start of annual planning and with that the design of territories.  

Sales Territory Design is simply the allocation of accounts (existing or prospective) to sales reps.  It’s a key element to the broader GTM Strategy and typically one of the three main factors for Sales Ops annual planning (the other two being quota setting and compensation plans).  Sales Territory Design takes the entire addressable world to which sales can sell to and carves it up into patches for each rep (or sales pod) to cover.  The result is, ideally, an optimized coverage plan where Sales Ops has allocated everything “just right.”

Territory design is an under-appreciated exercise.  When done correctly, with well carved territories no one will notice the design work.  But get it wrong, and in the best case you are the winner of a year’s worth of complaints; in the worst case the company misses its numbers, commission expenses run rampant and you’ve added another year to the infamous “three-to-five year plan.”  In other words, sometimes the best you can hope for is that nothing terrible happens.

Positioned like that, who would possibly raise their hand for this thankless task?  Enter the brave Sales Ops leader and her team of analysts. Armed with nine-months of sales performance and perhaps some third-party data sources this group of quantitatively minded professionals attempts to solve the complex optimization problem of Sales Territory Design.

In the following article, we’ll walk through what Sales Territory Design is and the technical aspects of planning – covering the “big rocks” or factors everyone needs to take into account as well as the “sure, but…” elements where sales leaders highlight the nuances and niche examples meant to poke a hole in your plans.  We’ll also look at what happens when you get it wrong and how to best avoid some of the obvious landmines.  We’ll conclude with the roll-out plan and recommendations for gaining buy-in to the new territory maps.

First Pass: Big Rocks

To begin the territory planning process, Sales Ops must get the answers to a series of  key questions.  Sometimes just getting alignment on these is a herculean task, but having the “Big Rocks” sorted out at the beginning will make the rest of the planning process much smoother.  Assuming Sales Territory Design work starts in September, it’s critical to have these questions answered by the end of the month.

For a Sales Ops Analyst embarking on their first territory carve, it can seem like a daunting task with no clear place to start.  We recommend getting alignment on a first round of key questions (listed in the table below).  Based on the answers to these questions, our first-time designer can start to find a solid path to follow.

If the answer to the first question is “yes,” you can stop reading now.  No Sales Territory Design work is needed. Once the initial wave of relief and joy passes over you, pause to consider that using the same territories as last year would mean: there is no planned growth in sales headcount, there are no new markets being targeted, and your messaging / offering has not matured enough to warrant a new approach.  While the chances of this occurring are never 0; I’ll wager the answer to “can we just use the same ones” is most likely somewhere between “absolutely not” and “mostly but with some tweaks”

Once we’ve established that some level of work is needed for next year’s coverage model, we’ll want to know how many reps there will be so we know how many territories to create.  You might actually find that you need more territories than you have reps, if you are attempting to future-proof the business or if in the early days of international expansion / verticalization.  But for now, let’s start with the number of territories is equal to the number of reps (we can adjust in later iterations as needed)

Knowing we have thirty reps and therefore thirty territories is a good start, but we’ll need to take into account the organizational structure. Let’s assume we sell into three theaters (N. America, EMEA and APAC), we will need to allocate the right number of territories per theater.  If there are six reps in APAC; APAC will need six territories.  North America may need more territories if there are more reps located there.  Based on the size and the structure of your organization you may have to repeat this allocation process through multiple levels.

Continuity of coverage is always a challenge, as this topic is the most common source of  “yeah, but” comments.  Sales will often tell you, in theory, continuity of coverage is important but should not be the driving factor for design, especially in a growing business where there are more territories this year than last year.  If you are adding territories, accounts will need to be reallocated to create the new patch.  Calling this issue out early, and getting a sense of how critical a factor it is will help down the round.

Verticalized sales teams are, simply put, more sexy than geographically based sales teams.  And are often unnecessary. Verticalizing makes sense if your company’s offering is dramatically different for specific verticals (meaning your marketing material is different, the product is different, the use-case is notably different), or selling into the vertical requires a highly specialized sales professional.   Public Sector sales is the obvious example.  If you have a business with sales into the FED or SLED space, I recommend pulling those accounts out to the side and treating them the way you would a geographical theater (e.g., EMEA).  Otherwise, an honest reflection on the business may prove that the same person can just as easily sell to a large manufacturer as they can to a large retailer.  

Even if the business does not require verticalization, it may require some segmentation based on prospect account size.  For example, businesses with a mid-market offering and an enterprise offering may find the sales motion is significantly different and thus it makes the most sense to create territories of just enterprise accounts (i.e., Fortune 500) and just mid-market accounts.

Regardless of whether you have industry specific verticals, you will need to factor in geography.  If most of the selling requires face-to-face interactions, you’ll want to build territories around central hubs, with sales people living within the region,  keeping accounts tightly packed so as to limit travel.  In a post-COVID world where video calls will often suffice, geographical constraints are lifted a bit but differences in time-zones, languages and regional cultures should be accounted for.  

Asking how to define an account may seem like a trivial step, but rest assured this question can take weeks to fully unpack.  In the complex world of B2B sales, what constitutes an account can be challenging to define.  For example, many hospitals are associated with universities – are the hospitals separate prospects or should they be treated as part of the university?  Healthcare has also seen considerable consolidation, is United Health Group (UHG) a single account, or should the various organizations be treated independently.  Large organizations may have multiple business units that function relatively independently, how should these whole-owned entities be handled (think Whole Foods and Amazon : one account or two?)  For multinational corporations with significant presence in two or more countries, will they be covered from a single territory or handled independently (Toyota-Japan vs. Toyota-USA).  As private equity continues to expand its holdings, should these portfolio companies be treated as separate or grouped together to keep alignment with the PE firm?  Lastly, how will separate but affiliated organizations be handled (think Major League Baseball and the various teams).  There is no clear right answer and much of this depends heavily on who the target buyer is.  But it will be impossible to design a territory without addressing what is considered an account.

Armed with answers to the “Big Rock” questions, our Sales Ops team is ready to attempt a first pass at the Sales Territories. Leveraging either data from the CRM, or a third-party sourced list, Sales Ops places the known accounts into groups. 

Territory Design will take multiple iterations (don’t be afraid of version 12) so it’s often best to just draw up the first pass of territories.  As a best practice, territories should be designed without the assigned Rep in mind.  Companies frequently fall victim, consciously or unconsciously,  to building a territory for a specific person by assigning them preferred accounts and centering the patch where they reside, only to find it harder to backfill when the person moves on. 

Iterative Approach: “Sure, but…”

The vetting of a Sales Territory Design can be a tricky task.  Sales professionals generally expect some changes to their territory each year, but sharing possible changes too early can distract them from year-end prospecting.  On the one hand, it’s better to keep proposed territories confidential and avoid reps asking why they should try to build pipeline if they won’t have a chance to close it next year; on the other hand, getting sales input is critical, and getting during early interactions will save a significant amount of rework later in the process.  

Ideally, Sales Ops will have a few sales leaders (CRO, Theater-leads, long tenured first-line managers) they can work with to share the proposed territories.  You’ll note in our first round of questions we did not ask questions about the ideal number of accounts in a territory.  Focusing on the number of accounts prematurely can quickly lead you astray.  Not all accounts are created equal, so trying to create groups of equal quantity can result in really uneven territories.  Another argument for not worrying about the number of accounts, is if you subscribe to the belief that territories should dictate quota, it’s less important to have equal territories and more important to have alignment between quota and territory.  

During the iterations of territory design, it’s helpful to present sales with a list of accounts and some summary data for each proposed territory.  Key metrics to share include: 

• Number of current customers
• Number of known prospects
• Open Pipeline ($) associated with accounts in territory
• Open Opportunities (#) associated with accounts in territory
• Estimated TAM (total addressable market) for the territory (may need third-party support)

It’s also helpful to show a map with the accounts marked and, for geography-based territories, the boundaries of the proposed territories.  

During these reviews, Sales Ops should expect to be asked to ‘trade’ accounts (moving one from territory A to territory B).  This is also the time Sales Ops will be challenged with the “sure, but…” argument. A big challenge for Sales Ops will be sifting through the comments and sorting out the ones with validity.  We’ve outlined common push-backs and items to consider in the table below.  Unlike the initial set of key questions, how you handle these will be entirely company and situation specific: 

The risk of too many / too few accounts is very real, but is often overstated by Sales Leaders.  To frame it objectively: a territory is too big if the rep lacks the bandwidth to qualify in or out each lead.  If that happens, or is expected to happen, it’s time to split the territory and add an additional seller.  A territory is too small if the rep has called on every possible account and is no longer able to generate new leads or pipeline.  

Impact on the Business

Good territory design often goes unnoticed.  This is not because it doesn’t matter, but rather because Sales runs smoothly when its territories are designed well.  With a well designed territory, a Salesperson has enough accounts to prospect into without dropping leads and without a significant amount of down-time.  They have just the right number of accounts to keep them engaged and busy without risking burn-out.  

Sales Territories are a key component to the overall GTM strategy and annual planning.  Once territories are set, quotas can be assigned to them and compensation plans can be designed to motivate sellers.  I would always recommend setting the quota based on the territory and not trying to build a territory around a quota.  

The link between quota and territories is easy to overlook.  When a rep misses quota the first question that should be asked is “was their territory designed correctly?”  Unfortunately, companies tend to jump to macroeconomic issues (e.g., hard market to sell into; budget cuts industry wide) or seller-specific skills (e.g., they aren’t prospecting enough; they lack a sense of urgency to close business) and don’t look at the likely culprit, which is that the territory wasn’t optimized.  As the old saying goes: if you hear hooves, think horses not zebras.  Much the same: if a sales rep with a track record of success is failing, think territory.  

A well designed territory should take into account the market conditions.  In a hot market, sellers will need fewer accounts, while during a pull back in spending they will require more accounts to compensate for fewer prospecting truly being “in market” for the given year.  

Selling to Sales

As the fiscal year draws to a close, it will be time for Sales Ops to begin rolling out the territory plans.  Often territory plans are released alongside quota and commission plans.  In a perfect world this is done in the weeks following the new year and prior to sales kick-off.  Having the territories released quickly allows sales to begin account planning and prospecting, it also helps alleviate the stress of a new year and the resetting of performance.  

It is tempting to just issue the new commission plans with quotas and territories, run the updates to the CRM and be done with the Territory Planning work.  In fairness, our brave Sales Ops team that embarked on this optimization project in September has been dedicating a significant amount of time to Territory Design for four months now and is most likely ready to be done, never to think of it again – until next September.  

Alas, they are not done just yet.  The Sales Ops team, along with Sales Leadership, will be well served to provide education to the sales team on how the territories were designed.  It’s helpful to put together a quick summary of the factors that went into the territory design, how these elements were weighted and what guidelines or guardrails were used. Sharing with sales things like:

• Geographical constraints: accounts within the Atlanta Territory are within 150 miles of the Atlanta Airport
• Continuity of coverage: 80% of accounts remain in the prior year territory / with the prior year salesperson
• Adequate and appropriate quantity of accounts: each territory has a minimum of 300 prospect accounts and no more than 450
• Significant opportunity to achieve quota: the estimated spend for accounts in market within the territory is 10x quota and there is 1.5x quota already in open pipeline carrying over from the prior year

Tangent to Territory Design are a series of related policies which will be important to have outlined at the time the new territories and coverage models are announced.  The first question likely to arise is what happens to opportunities associated with accounts that will have a new seller covering them.  Allowing for hold-over Opportunities with predetermined splits and set time-to-close rules is optimal.  An example of this could be: Open Opportunities which are being transferred will have commission / quota retirement split 75% to the prior rep and 25% to the new rep for the first 3-months.  This split will flip to 25% to the prior, 75% to the new in months 4-6 and there will be no split after 6 months.  A policy like this allows sales reps time to close their late stage pipeline or be rewarded for a deal that might have slipped out of the year at the last minute without distracting the team by having them work deals outside their territory.  Sellers should transfer early stage opportunities which won’t close within the 3 month time frame to the new rep and will still be rewarded for their initial effort with the 25% split.

Another policy that should be well thought out is how to handle new accounts, merging accounts and account disputes.  For new accounts (not known at the time of planning) the easiest solution is assign to the geography and/or vertical they belong.  In other words, if a new prospect is discovered in the Denver area, it should be assigned to the Denver Territory.  Mergers and acquisitions involving prospect accounts can be a bit harder,depending on the size of the accounts and the nature of the merger you may need different policies.  For example, the general policy may be that the accounts are treated separately for the remainder of the year for fortune 500 accounts since buying decisions and budgets are unlikely to have been consolidated.  Alternatively, the policy may be that the account is assigned to a territory based on the location of the parent account.  This is where having defined what constitutes an account in the early stages of planning will become critical.  

Lastly, and this is most common when deploying a verticalized or segmented territory design, is how to handle account disputes.  Sales Ops should, and likely does, try to classify accounts correctly either by industry (vertical) or size (geography).  Sales Leaders during the vetting process likely raised concerns with some accounts and how they were classified (e.g., a Mid-Market account based on revenue but with a significant need for the product may actually behave more like an enterprise account and place very large orders).  Sales Ops should have a process in place to field requests for accounts to be reassigned based on new information.  One path for this is within the CRM where sales can request an account be reassigned, provide some justifications, and it can be reviewed and approved by Sales Ops.  

Conclusion

A well designed territory plan sets a successful foundation for the sales team.  Not putting the time and effort into the Territory Design creates a weak base on which the business will rest.  Sales Ops and leadership in general should plan to dedicate multiple months to working on iterations of territories.  It is not a small undertaking.  Often it will make sense to bring in additional resources and help for just this exercise as it is time consuming.

Asking the right questions upfront can help avoid significant pain later in the process.  No one wants to be four or five weeks into designing territories only to learn that the accounts being allocated out are not actually viable accounts, or that an additional territory is needed in a specific location.  

Planning to iterate on the design with a select group of experts over a series of weeks can also help ensure the territories are well thought out and will be well received by the sales team.  Having sales participate in the design helps give them a sense of ownership and avoids the sentiment that Sales Ops is forcing territories on them without having the knowledge gained from being out “on the street.”

Once finalized, Sales Ops should leave itself a way to make minor adjustments throughout the year as things unfold.  Sellers may attrite and not be backfilled, forcing territory consolidation.  Prospects will inevitably close or merge and new ones will be discovered.  Territory Design should be firm and relatively unchanged but there will be adjustments needed and it serves the business well to plan for these minor tweaks.

Sales Territory Design is no small task, the pressure to get it right is very real and it’s virtually impossible to do it perfectly.  However, with a focused approach and adequate time allocated to work through iterations it is possible to deliver well structured Territories at the start of each new year.