Sales Territory Potential
In this project, we studied a large regional direct salesforce to see if we could find some innovative ways to improve its productivity. The company had tried most of the standard approaches but productivity growth had stalled in recent years. Using standard approaches, the situation had become a serious competitiveness issue but management was reluctant to simply throw more money at the problem.
We started out by analyzing sales and gross profit data at the account and ship-to level for each salesperson and branch office. When we ranked the sales by account, salesperson and office, it quickly became clear that:
1. Offices had quite similar distributions of sales productivity. Top performers and weak performers were present in roughly the same proportions in each office.
2. We were unable to tell whether the high and low performers reflected true sales performance or sales territory potential differences.
It seemed likely that the sales compensation system was rewarding top performers who were top only because they had especially rich territories and penalizing potentially top performers who had quite bad territories. This is a fairly common problem in sales management.
Our conclusion at this point was that we needed to have some measure of account potential so we could re-rank the salespeople by performance relative to territory potential.
Then, with this new ranking in hand, we could identify the true top performers and begin to understand the reasons why they performed so well. This is a best practices approach as we have defined it.1
Gotcha! Measuring Account Potential
At this point, reality weighed in. Measuring potential is not a big deal in most cases. You just dig up a bunch of account demographics from any number of providers like D&B and do some regression analyses. These should tell you which account attributes are best able to explain account sales.
Typically, a small number of account attributes do an acceptable job of predicting account potential. Once you have an account potential estimating model, you can re-rank sales performance relative to territory sales potential.
Reality in this case appeared in the familiar form of data problems. Company-defined accounts could not be reliably or easily matched to demographics establishment data.
We eventually solved this difficult problem by brute force.
Data Hell, As Usual
Data vendors like D&B offer an amazing range and depth of potentially useful data. In practice, however, there are nearly always problems ... more ...
1 A best practices approach involves: (a) identifying best practitioners according to a sound metric set; (b) assessing these people on a variety of possibly causal (i.e., actionable) factors; (c) analyzing assessments to identify the strongest correlations between practice factor and performance; and (d) testing each strong correlation on small-scale and sample rep groups to determine which correlations are causal (and thus are actionable) and which are not.
Sales Territories
Most sales territories are defined as a more-or-less contiguous set of zip codes. Direct sales normally involves a great deal of driving from one customer to another, so that minimization of driving time is critical.
Once a territory has been defined, it is typically adjusted to add specific accounts (which may not be in the base zip code set) and to expand to peripheral zip codes. Territories may also be consolidated or broken up for any number of reasons.
What we do not often see is an attempt to define territories by account sales potential or, in a further refinement, by account profit potential.
These approaches might add driving time in order to improve the sales from an especially high potential account. It might also redefine a territory around complementary accounts, with geography being a minor consideration.
The first step is building a reliable estimator of account potential.
Process Commentary
Data Hell, As Usual
How we strong-armed two vital datasets on sales potential and sales performance into compatibility.
Estimating Account Potential
Estimating account sales and gross margin potential for sales territory definition, balancing and strategy.
Potential vs. Penetration
Account potential vs. account penetration provides the foundation for sales territory definition, balancing and strategy.
Balancing Territory Potential
Looking at sales territories in terms of potential, you are likely to discover great differences in total sales potential and performance relative to potential.
Best Practices
How you can apply a best practices approach and sales territory potential to substantially improving sales rep performance.