Chapter Summary

A sales territory is comprised of a number of present and potential customers located within a geographical area. This area is assigned to a salesperson or to an intermediary. There are several benefits to be derived from establishing sales territories. However, formal territories may not be needed in a small company with a few salespeople selling in a local market.

Different procedures are available for designing sales territories, and some of these approaches involve sophisticated mathematical models. Basically, however, a company’s territorial structure depends on (1) the potential business in the company’s market and (2) the workload required from the sales force. The plan we propose includes three broad steps: The first step is to select a geographical control unit to serve as a territorial base. Commonly used control units are states, counties, cities, zip-code areas, and metropolitan statistical areas (MSAs). The second step is to determine the location and potential of each customer. The third step is to determine the basic territories, which can be accomplished manually by either the buildup or the breakdown method.

Using the buildup method, management determines the desirable call frequencies for each customer and the daily call rate for the sales rep. Contiguous control units are then combined until the total annual calls needed in the control unit equal the total number of calls the rep can make in a year.

Under the breakdown method, we start with sales forecasted for the total market and allocate it to the control units based on some type of market index. Then the sales volume expected from each salesperson is determined. With this input, management can set its basic territories by combining control units until the total potential in those units at least equals the expected sales from each rep.

Alternatively, the basic territories can be determined by a computerized process, such as GIS. A complete GIS system requires software, hardware, territory data, and trained personnel. Note that whatever method is used for step three, the territories’ boundaries may have to be modified to account for special circumstances in that geographic area.

After the territories have been established, management must assign individual salespeople to each district. As companies and markets change over time, the territorial structures may become outdated and need revision. Revising boundaries is usually a very difficult job. A key principle that management should follow is to avoid overlapping territories.

Once sales territories are designed and reps are assigned to them, management should turn its attention to planning how each rep will cover his or her territory. The management of territorial coverage involves two main tasks—routing the salespeople and managing their time.