What is a territory? “ a collection of present and potential customers (accounts) within a given geographical area that are assigned to a salesperson or agent.” Territories are made up of people, not places. Territory size is measured in terms of purchasing power not square miles.

Managerial Benefits Derived from Territories: Ensure proper coverage of the market. Reduce selling costs. Improve customer relations. Increase reps’ morale and effectiveness. Aid in evaluation and control.

Control Unit “the building block of a territory; the basic geographical unit used to form a territory.” Types—state, county, city, zip code, metropolitan statistical area (MSA) MSA—a county or group of counties with (a) a central city of at least 50,000 or (b) an urban area with at least 50,000, and a total population of 100,000

Sales Potential vs. Workload Ideally, territories should be equal in sales potential and workload. Sales potential—the total dollar volume of sales possible in a territory Workload—the number and types of accounts called on and the levels of service they require

Example: $2 million territory with 50 large accounts requiring 2 calls per month (12 x 2) x 50 = 1200 calls $2 million territory with 100 small accounts requiring 1 call every quarter (3 months) 4 x 100 = 400 calls

Buildup Method: This method equalizes workload. Step 1. Determine optimal call frequency for each type of account. Example—Class A accounts need 2 calls per month (24/yr). Class B accounts need 1 call per month (12/yr). Class C accounts need 1 call every 2 months (6/yr). Call frequency is usually based on dollar volume, order frequency, and service needs of the account.

Buildup Method: Step 2. Determine the total # of calls needed in each control unit. Step 3. Determine workload capacity—(the average # of calls a rep can make in a day) x (the # of days worked per year). The daily call rate must take into account travel time. Step 4. Draw tentative territory lines and modify as needed.

Breakdown Method This method equalizes sales potential. Step 1. Determine sales potential in the company’s entire market. Step 2. Determine sales potential in each control unit. Step 3. Determine the expected sales volume from each rep. Based on number of hours worked, COGS, selling costs, and desired profit. Step 4. Draw the territories and modify as needed.

Territories may need adjusting when: Reps are “skimming” the territory—calling on only the best accounts. Reps are “claim jumping”—selling in someone else’s territory. Customers are complaining about lack of service. Reps are complaining about too little or too much work—and its shows in their performance levels.

Territory Reductions Reps are reluctant to “lose” accounts after the hard work and build up. A different combination of accounts may mean less earnings or less earnings potential. Morale may suffer during the transition period. The manager should show the rep how the new territory can lead to comparable or even higher earnings.

Options. 1. Create a new position to draw the ad sketches. 2. Hire more salespeople. 3. Have Steve take over the largest accounts.

How many new salespeople need to be hired? Reps can make 8 calls per day and work 5 days per work. 5 x 8 = 40 calls/wk. However, 40 x.6 = 24 calls/week are actually possible. 24 calls/wk x 50 wks/year = 1200/year Of 800 accounts, 400 are “very active” and require 1 call per week (48 per yr). The other 400 are “less active” and require 2 calls per month (24 per yr).

Case 13-2 (Continued): 400 x 48 = 19, x 24 = 9,600 28,800 28,800/1200 = – 8 = 16 new reps needed