Territories are a huge part of your sales plan, and when they’re divided correctly, your sales territories can help you maximize seller opportunities.
Let’s take a closer look at why sales territories play such a critical role in your organization’s success and how you can define and divide them effectively for your business.
What is a Sales Territory?
A sales territory is a defined geographic area, industry segment, or customer group assigned to a sales rep or team. It gives each rep clear ownership over a set of accounts, which prevents overlap and ensures every prospect has someone responsible for their relationship.
Why Are Sales Territories Important?
Sales territories help you understand where your opportunities are within a specific geographic region. When you can see all of your potential sales opportunities clearly, it helps you determine your sales capacity needs more accurately and design more strategic quotas and sales compensation plans.
But when they’re not divided properly, sales territories can lead to a slew of problems, including:
- Poor morale, which leads to increased turnover
- Large numbers of missed opportunities
- High, inefficient travel costs
- Lower overall sales performance
Benefits of Using Sales Territories
When used effectively, sales territories do more than improve sales performance. Some other benefits include:
- Better sales coverage: Ensures target accounts and markets have appropriate sales attention.
- Higher rep productivity: Gives sales reps clear areas of responsibility so they can focus on selling.
- Clear account ownership: Reduces confusion and prevents multiple reps from pursuing the same accounts.
- Balanced opportunities: Helps distribute accounts and revenue potential more evenly across the sales team.
- Greater market visibility: Helps sales leaders identify underserved markets and potential growth opportunities.
- Scalable sales growth: Creates a framework that can evolve as the company expands, adds reps, or enters new markets.
What Makes Sales Territories Effective?
Effective sales territories fit three key criteria: balanced, fair, and well-informed. For instance:
- Balanced: Every territory has an equal amount of sales opportunities (whether that be new business or customer accounts), and there is adequate sales capacity and coverage in each area.
- Fair: Each sales rep, regardless of their territory assignment, has an equivalent amount of opportunities and resources (tools, accounts, etc.) to hit and/or exceed their quota and goals.
- Well-informed (aka data-driven): Your entire sales territory map is designed from a combination of the most recent internal and third-party data sources, and that data is being cross-referenced with sales territory maps.
This is where sales territory design can be extremely helpful, alongside territory planning best practices. Together, they help you create a foundation to ensure your territories are data-driven and balanced and set your sales team up to succeed.
Note: You should always adjust your sales territories to fit your organization’s unique market and industry. It’s one of many sales territory planning best practices.
Considerations for Dividing Sales Territories
As the most successful enterprises grow, their sales territories tend to scale and become more extensive, complex, and data-driven. But there are a few things you should consider when dividing sales territories. These include:
Overall Geography Density
Before drawing any lines, you need to understand the area your sales reps work in.
Sometimes a densely populated area may justify its own territory with several sales reps; a sparse rural region might span several states with few reps.
Revenue Earning Potential
Another element you need to consider is the total addressable market and potential revenue within a territory.
If you don’t, high-value opportunities get the same attention as small ones, or worse:high-value prospects and customers are left out entirely.
Industry-Knowledge
Do you want reps who know where to go, or reps who know what to say, or both? The sweet spot is the latter. For example:
A sales rep who has more knowledge within the healthcare space is going to be able to penetrate the accounts more effectively than someone who doesn’t speak the jargon and pain points of someone in the industry.
The result is clear: more closed deals.
Customer Demographics
Who you're selling to should also shape how you divide territories.
Before dividing your sales territories, you need to determine whether you’re dividing your territories for growth, retention, or both.
Depending on the answer, you’ll know whether your territories need to be for new or existing customers.
Rep Capacity
When dividing your territory, another element to consider is the actual human bandwidth. This means understanding the account load and travel times of your sales reps. In other words:
- Are your reps going to be overwhelmed with too many accounts?
- Is it going to take them a long time to get from one account to another?
- Does managing one account take too long compared to another?
If the answer to the above questions is yes, then you need to make another adjustment.
Sales Quotas and Goals
Before finalizing any sales territory, the last thing you need to consider is the sales goals you set. And with that, you want to make sure your sales reps have a fair shot at achieving their sales quotas and receiving their incentive compensation.
Just remember: Gut feelings aren’t accurate. The only way to be entirely sure is by using data.
How to Divide Sales Territories: 4 Data-Driven Strategies
There are several ways you can divide sales territories. But there are four specific methods you should know how to divide sales territories effectively based on data.
1. Biggest Market Potential
This is the most classic example of a sales territory to create. Traditionally, it involves dividing your sales territory to your target market out by the largest cities.
The logic behind this is that these areas will be more densely populated and contain more business opportunities for your sales teams to reach.
The Advantage
This is a quick rule-of-thumb metric and will put you in hot-spot areas where there are likely a large number of potential buyers and opportunities.
The Disadvantage
It can be difficult to get the right spread with this sales territory. For example, if you’re creating the sales territory on size, do you keep San Diego as its own area, lump it in with somewhere else, or completely write it off?
2. Based on Internal Data
Another way you can divide sales territories is based on performance data. By dividing using your internal historical data, you’re able to inform your sales territory decisions based on customer and prospect accounts, as well as how similar accounts have acted before. This helps you consider:
- Where your existing customers are located.
- Where your current opportunities are in the pipeline.
- Where all of your accounts are in your CRM system.
The key to dividing your sales territory this way is about using data to help you expand and reach new prospects in areas where you’re already seeing success.
The Advantage
Dividing your sales territory from historical data helps you identify where you sell more frequently and successfully. With at least three data points to go off of, you can create territories in a more balanced way.
Disadvantage
Unfortunately, because you’re only using your own data, your sales territories are only centered around where your company’s customer base is, not the potential you're missing, which means you could be missing out on additional opportunities in other areas.
3. Third-Party Industry Data
This way of dividing sales territories uses third-party data from your industry, verticals, and marketplace to identify opportunities in your hot-spot target areas.
For example, if your business sells parts for corporate office buildouts (e.g., desks, chairs, etc.). Your sales territories might include:
- New business developments: Keep track of new construction and watch for retail, commercial, or other building developments related to your industry that are popping up.
- Permits at the state/city level: Where are organizations looking to build or set up shop.
- Articles of incorporation: Where are new companies beginning their business journey.
The Advantage
This way of dividing sales territories allows you to maintain a steadier flow of new accounts in your hot-spot (and often, highly-saturated) target markets.
It also allows you to get a head start on newer business opportunities because you’re identifying them from the latest, up-to-date information.
The Disadvantage
While you’re finding additional prospects, this strategy only focuses on areas that you have already identified as good areas to sell into.
You could still be missing out on white space opportunities in areas that you are overlooking or have deemed “un marketable.”
4. Combining Multiple Data Sources
Out of all of the ways to divide sales territory, this is the most sophisticated and data-driven.
This expands your third-party data beyond your established target areas and existing customer base, enabling you to divide territory effectively based on the following:
- Census data: This helps you see where people are located and what cities/states are seeing the largest growth in population, which could indicate increased business activity.
- Economic changes: This helps you see how economic scenarios could impact different areas and verticals and consider if all of your customers/prospects would be affected the same way
- Buyer and consumer trends: This data keeps track of how individuals and businesses are buying, what their preferences are, and how they’re interacting with sellers.
The Advantage
This opens the door to explore places normally outside your target markets and take advantage of previously overlooked white space areas. Plus, it gives you a head start to move into newly emerging market areas.
The Disadvantage
The only disadvantage here is that you might not be using technology to apply this type of data-driven strategy to the entirety of your sales planning.
Additional Ways to Divide Sales Territories
Depending on your business model, market, and team structure, there are a few other ways you can divide sales territories. Usually, the best route is using a combination of a few.
5. Location
This is the most traditional approach of dividing sales territories. Location-based territories assign reps to a defined area: a city, region, state, or country.
It works well for field sales teams where physical proximity to customers matters, and it's easy to visualize and manage.
But there is a tradeoff: location alone doesn't consider the account density, revenue potential, or rep workload for the territory alone.
6. Account Size
Dividing territories by account size is another option, and it helps ensure your best reps are matched to your biggest opportunities. Small business, mid-market, and enterprise accounts each carry different sales cycles, deal complexity, and revenue potential. As such, dividing territories by size keeps reps focused on the motion they're built for.
7. Products
If you sell multiple product lines, it could be helpful to divide your territories around them. Product-based territories allow your sales reps to develop deep expertise in a specific offering, which shortens sales cycles and improves win rates.
8. Niche
By dividing sales territories based on niche, you narrow your areas on purpose. Rather than covering a broad market, your reps will focus on a specific industry or use case. This gives them an advantage when they can speak directly to the challenges their specific customer faces every day.
How Xactly Helps You Divide Sales Territories
When designed well, your sales territories can truly increase your sales performance. But it’s difficult to do this with static sales planning. You need to equip your team with the right tools and technology.
Xactly’s sales planning software and sales territory mapping software help ensure you have adequate sales coverage to find new opportunities where you need it.
Get More Out of Your Sales Territories
Interested in learning more about how Xactly can help you divide sales territories that drive revenue growth?
