How Should You Build SaaS Sales Territories?

August 31, 2016 Geoffrey Walters

For a long time, sales territories have been the way managers divide up their sales teams. So long, in fact, that it’s often done without thinking. For many, it’s a given in the sales industry. Divide ‘em up and let ‘em go—and don’t ever think about revising the completely arbitrary system afterward.

Managers didn’t see the point of changing things when they’d always been done that way. Meanwhile, reps who had a plum territory—selling tech to New York, for example, instead of to the rural Midwest—would defend their patch with all the zeal of Breaking Bad’s Walter White.

But are geographically attributed territories defensible in 2016? While the majority of SaaS companies still divvy up their reps on that basis, there is an increasing feeling that flexibility and dynamism can best be found by looking at different ways of assigning territory—or by doing away with the idea altogether.
 

Are Geographical Territories On The Way Out?

'People just don’t need sales reps like they used to,' writes Conrad Bayer, CEO of Tellwise. 'Who needs to call a salesperson in Washington, D.C., to buy a widget when a quick Google search rounds up all the widgets in the world, compares the prices, outlines the pros and cons, and lists reviews?

'Armed with a computer or a smartphone, there are no geographical boundaries for online sales, with the only drawback being perhaps the cost of shipping products purchased.'

This is the central problem with the old territory mechanism of basing territories on the map. When anyone can buy anything from anywhere, your patch can’t be a place. And clinging to the old way of constructing territories can leave organizations too unwieldy to respond to new market challenges.

'[T]he market dictates a lot of where we go so we are trying to be fluid and have the ability to adapt quickly [rather than] being slow-moving and boxed into a certain way of doing things,' Darren Suomi, vice president of sales at HootSuite, told The Bridge Group.

The geographical-territory system is one sure-fire way of boxing reps in.

'Perhaps all of these changes mean that a salesperson’s territory should be based on industry or segment size rather than location,' writes Bayer. 'This allows sellers to have many smaller, different customer types with expertise related to each one. It’s easier to sell to this kind of a group rather than a geographical one.'
 

Don’t Get Stuck In The Past

Despite the thoughts of these eminent sales professionals, many companies are still assigning territories on a purely geographical basis. A 2015 Bridge Group survey on inside sales showed that assigning territories geographically was still the most popular practice among SaaS companies, with 30% of respondents saying they used this method.
 

How territories are assigned

Source

For Nick Hedges of Inc.com, there is no doubt: geographical territory assignment is a dead duck and needs to be done away with. 'We are in the midst of a sales revolution,' he wrote in 2015. 'Buyers’ and sellers’ geographical locations have become almost entirely irrelevant for many sales organizations. And there are far better criteria than geographic boundaries to organize a sales team’s efforts.'

Hedges says that the old sales technique of approaching the buyer on their home turf to tell them all about your product is completely redundant, and it’s hard not to agree with him. In a world where 57% of the buyer’s journey is complete before they even contact a supplier, the notion of straightening the tie and ringing the doorbell before launching into a well-rehearsed pitch seems ludicrous.

'The typical buyer doesn’t want you to turn up in their conference room or on their doorstep to educate them,' writes Hedges. 'They already know about your solution because they’ve done their research and learned on their social networks and the Internet.

'They have identified questions for your sales team, and they want answers quickly. They want to speak to you by phone, email, text or tweet, but probably not face-to-face. Even if you still have a field sales team, look at what that team is doing now. They probably take phone calls four to five times more often and spend much less time in meetings than even five years ago.'
 

Territories Still Work—If Divided Properly

This last point from Bayer is key: it’s not that territories don’t work, it’s that basing them purely on geography means they’re unevenly distributed. Uneven distribution is a theme that comes up again and again when researching this topic.

'Market dynamics don’t respect the neat lines we’ve drawn on a map,' writes Trish Bertuzzi of The Bridge Group. 'Although marketing would love to ensure even lead distribution—it just doesn’t happen.'

The problem for a lot of people is that the word 'territory' implies a geographical location. When people say that sales territories are on the way out, they mean the assigning of leads based on their geographical origin no longer makes sense.

'If your team is conducting sales from inside company offices, why are they organized into geographical territories across the country or the globe?' asks Hedges. 'How important is local knowledge in a sale? For most companies, the answer is ‘not very important’.

'There are so many effective new ways to organize a sales team’s activity, and at most, geography should be just one of the many factors that determine how leads are distributed.'

However, the solution, suggests Bertuzzi is not to begin creating algorithms and complicated equations to make the territories fairer. Instead, it’s about trying to break away from the rigid lines of the traditional structure.

'Rather than building in complexity to compensate for unfairness, I’m seeing companies begin to move away from traditional (line-in-the-sand) sales territories,' she writes.
 

The Benefits Of Redesigning Your Sales Territories

Thus far, we’ve seen a lot of opinion on why a rethink of your sales territory design can be beneficial, but little in the way of facts. So if your company is one of the 30% that divides up its territories along purely geographical lines, what are the persuasive statistics that would show you the benefit of switching to a more flexible approach?

Research by the academics Andris A. Zoltners, PK Sinha and Sally E. Lorimer published in the Harvard Business Review showed that sales territory redesign can increase sales by as much as 7%—without altering strategy or budget.

'The distribution of customer workload and opportunity across the sales force has a direct impact on salespeople’s ability to meet customer needs, realize opportunities, and achieve sales goals,' they write. 'Our research shows that optimizing territory design can increase sales by 2-7%, without any change in total resources or sales strategy.'

The reason, say Zoltners, Sinha and Lorimer, that so many companies are overlooking the benefits of territory redesign is that CEOs simply can’t see the problem. It simply doesn’t cross their mind that the territorial division could be the root cause of a lot of their ills.

'Quite often, the symptoms of poor design are misdiagnosed and attributed to other causes,' they write. 'Is the sales force targeting the wrong accounts? If a sales force has some salespeople who don’t follow up on good leads and others who spend too much time with low-potential prospects, it could be that salespeople can benefit from better targeting data and coaching.

'But it could also be a symptom of a territory design issue. If some salespeople don’t have enough good accounts to stay fully busy, they may over-cover low-potential prospects. And if other salespeople have too many accounts, they will ignore good leads because they are too busy to follow up and can make their quota by focusing on ‘easy’ accounts.

'The solution to better targeting may be to redistribute account workload more equitably among salespeople.'

Likewise, Zoltners, Sinha and Lorimer say that problems such as high staff turnover or a flawed incentive plan can be misdiagnosed as being the fault of poor training or dodgy metrics when it fact it’s down to unfair distribution of leads due to bad territory design. That unfairness impacts the organization as well as individual reps because it forces some reps to spend too little time on good leads, while other reps are spending way too much time on those with less potential - because they’re in their territory.

As a CEO in the modern SaaS age, it’s imperative that you are aware of the huge importance properly divided sales territories can have on your business. There are real, quantifiable benefits to be had from moving away from rigidly geographical design. The task of fair distribution of leads should no longer be overlooked or misunderstood.
 

Different Approaches

It’s all very well saying we should move away from geographical territories, but what are the alternatives? They vary, ranging from new takes on the geographical-territory approach to its utter rejection in favor of more dynamic, flexible models.
 

Round-Robin Approach - Silverpop

This approach allows referrals to be taken on by the rep that receives them rather than being forced to pass them on because they are out outside their geographical remit.
 

Freeing-Up Of Referrals - HootSuite

Previously, referrals would have been passed to the rep responsible for their area of origin. Freeing these up so that they can be used by the rep that has secured them can make operations a lot more fluid.

'We…believe that referrals are key to expanding business,' says Darren Suomi. 'If a rep gets a referral from a client they are free to run with it [instead of] having to pass it to another rep.'
 

Doing Away With Territories Altogether - ConnectAndSell

This is the most extreme approach, and it’s one that takes guts.

'We were pretty nervous about throwing out conventional wisdom and designing an unorthodox market coverage strategy,' Mark Godley, VP of market development, admitted to The Bridge Group.

'I’m happy to report that we now have an amazingly dynamic methodology in place that allows reps to pursue territory potential as they wish while also optimizing market coverage for our company. It has worked far beyond our expectations and bookings are up hugely as a result.'
 

Achieving A Balance

Whether you adopt the territorial system or do away with it completely, distributing leads properly is paramount. Whether you call that 'assigning territories' or not, good lead distribution is what separates the progressive companies from the inert. And, as Hedges points out, it’s not all about giving the best salespeople the best leads every time. Instead, like Godley, he encourages flexibility and dynamism.

'The secret to a successful performance-based distribution program is to remain flexible as you implement it,' Hedges writes. 'This means that, just because I have the best sales record with pharmaceutical companies in the Midwest, does not mean that I should be sent every opportunity that meets these criteria. Just send me more of those than someone who has a worse sales record with that type of opportunity.'

The reason for this is simple: trying to improve the reps that do not make quota, which is normally the majority of them. Part of helping them to improve has to be giving them a chance at converting the better leads. Otherwise their underperformance becomes a self-stoking cycle.

'[T]he system needs to learn,' Hedges continues. 'If all my best leads go to my best reps, for instance, lower-performing reps will never get the chance to prove their ability to convert good leads.'

Some reps prefer certain types of leads. Perhaps someone that has been underperforming simply hasn’t had the leads they mesh with, and this is where flexibility can be an advantage. Being willing to experiment with the type of leads a rep is receiving could see them find their niche, which they can then work into a fine groove.

'It’s all about ratios,' Hedges goes on. 'Our experience with implementing performance-based programs at a number of organizations is that a typical rep can more than double their lead conversion by receiving more leads similar to those that they have been found to be ‘skilled’ at converting.

'For any sales leader, that isn’t just a compelling reason to rethink geographic territories, it should be a burning call to action to make the switch today.'

If you’re a SaaS CEO, it’s time to think outside the rigid box of geographical territories. It could seriously change things for the better.

*Featured Image Source

About the Author

Geoffrey Walters

A serial entrepreneur and digital nomad, Geoffrey has been running his own marketing consultancy for the past year.

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