Are Sales Territories Essential?

While recently discussing sales strategy with Paul Ringuette, a colleague of mine from our Monster days, we analyzed the question of assigning hunter sales reps territories or directing them based on changing opportunity.  Retention or "farmer" reps will typically be assigned accounts to retain and grow.  What follows applies to new business acquisition or "hunter" reps:

There are definite pros and cons to the concept of assigned territory vs. working leads that produce the highest ROI regardless of territory.  Assigned territories can provide geo based accountability to ensure coverage in the respective market.  Someone is responsible for that geo and there is a micro universe of potential customer records for that territory that can be identified and tracked.  Also, action plans can be created specifically to address market factors in certain geo based territories with someone specifically responsible for executing on those plans.

Territories can be geographical or vertical-based depending on the product or service offered. A geo based territory set up could make sense where product appeals uniformly to a large mass of customers across many industry groups,   Verticals may be required if sweet spot industries to target are concentrated in few areas.  Verticals also make sense when the selling process requries a unique approach for certain sweetspot industries.

Territories, however, can be cumbersome if reps are not easily directed to where the opportunity is.  A sales manager with data intelligence can point the team in a different direction to get more sales conversion results if there were no territory limitations.

An alternative to territories: when you're trying to maiximize revenue by focusing your greatest asset (your sales force) on high value activities, one of the greatest levers to pull is sales optimization.  Sales optimization, or efficiency, minimizes sales "dead" time and increases productivity per head.  Calling on the wrong prospect records to connect on 1 out of 100 calls is pure insanity.  If you had a way to use data captured through the CRM, your website and financials, to create analytic models, you could then score prospect records and leads based on success trends and "push" these high yielding customer prospects to your reps.  Your reps' success ratios could then improve dramatically to say 1 out of 25 calls.  Now that's greased lightning productivity boost multiplied by the number of reps you have!  You might now even be able to afford adding more reps as the cost of sales and rep ramp time improve.

This is where the strategic method of using analytics for lead generation may require doing away with structured territories and instead pushing these highly scored prospects via CRM to your sales force.  The main advantage of this method is your sales reps are calling on the most fruitful segment of prospects.  In time, as more data is fed into the analytics algorythm, prospect scoring will become more and more accurate.  Of course, accountability can still be measured using coverage data on the number of prospects contacted and the resulting conversion (success) ratios of respective reps compared to the companywide standard. 

Another advantage to focusing reps in this manner is the flexibility to shift direction as market factors change.  You can position your sales reps based on current conditions rather than be stuck with hard coded territories.

The difficulty with running this model is the need for superior operational process to keep the flow of prospects coming into the CRM's prospect pool to keep your reps busy.  This will require business analysts and impeccable CRM management on a day-to-day basis, as well as, disciplined data capture by sales reps, Marketing and Finance. 

Which model is best for your company?  Comments and thoughts on this topic are welcome.