Management of Sales

Territories and
Quotas

This chapter will enable you

To understand the concept of and reasons for
establishing Sales Territories.
To learn the procedure for designing Sales Territories,
and for assigning salespeople to territories including use
of information technology.
To know the management of territorial coverage, which
includes routing, scheduling, and time management.
To understand objectives and types of Sales Quotas.
To learn the methods of setting Sales Quotas, and some
of the insights into setting and administration of Sales
Quotas.

Sales Territory
Sales Territory consists of existing and potential
customers assigned to a salesperson.
The Territory may or may not have geographic
boundaries. However, generally, a salesperson is
assigned to a geographic area consisting of present
and potential customers. For instance, a salesperson
is asked to look after customers located in Mumbai
territory.

The basic concept of a sale territory is that a

territory or a market is made up of present and
potential customers, rather than a geographical area.
Hence, in defining a sales territory
the keyword is customers, instead of geographical
area.

Reasons for Setting up or Reviewing

Sales Territories
Some of the reasons for companies to
establish sales territories are:
(a)Increase Market ( or customer) coverage,
(b) Control selling expenses,
(c) better evaluation of salesforce
performance,
(d) Improve customer relations,
(e) Increase salesforce effectiveness,
(f) improve co-ordination,
(g) benefit salespeople and the company.

(a) Increase Market or Customer Coverage

A well-designed sales territory allows salespeople to spend
sufficient time with present and potential customers, which
improved the market coverage.
Better coverage of market, results in gaining competitors
customers.
Sales territories should be large enough to ensure reasonable
workloads to salesforce but small enough to that all existing
customers and prospects are visited adequately as needed by
the customers.
The field sales managers can control the activities of
salespeople, if the sales territories are set up properly.
Well-designed sales territories allow salespeople to cover
existing
and potential customers economically and adequately.

(b) Control Selling Expenses

By setting-up well designed sales territories

salespeople spend less time on the road, fewer

nights away from home, resulting in less cost of
travelling and less expenses on lodging and food.
The result is reduction of selling expenses as
percentage of sales revenue.
With no geographic sales territories, the
salespeople would have to travel to their customers
from the sales office, as and when needed, spending
more time and money in travelling.
With proper sales territories, there is a better
control on the selling expenses of salespeople.

(c) Better Evaluation of Sales Force

Performance
The sales manager can evaluate the performance of each

salesperson in a better way, when the salesperson is assigned to

a specific territory.
Each sales territory business potential (or market potential)
can be estimated.
Sales quota ( or sales goal) for each salesperson can be
decided based on the companys share of market potential of the
territory.
The actual sales performance can be measured on weekly,
monthly, quarterly and yearly basis, and the same is compared
with the respective sales goals of the salesperson.
The performance evaluation of the salesperson assigned to
specific sales territory can be done not only with respect to
sales, but also on terms of selling expenses, customer service,
customer satisfaction levels, as the

(d) Improve Customer Relations

The Customer relationships are developed over a long

period of interactions between the salesperson and the

buyers.
These interactions and regular visits are possible because
each salesperson is assigned a group of customers.
Some salespeople develop collaborative or partnering
relationships with a few high profit potential customers, for
mutual benefits of buying and selling firms.
The selling firms becomes a sole or preferred supplier, as a
result of a long term, mutually beneficial relationship between
the buying and the selling firm.
The salesperson is the basic building block of such a
partnering relationship.

(e) Increase Salesforce Effectiveness

When the sales territory is properly designed, the

salespersons workload is reasonable and the conflicts are

minimum as specific customers are assigned to them.
A salesperson is clearly responsible to maintain good
relationship with specific customers.
All these positive factors contribute to improve the
salespersons performance and effectiveness in terms of
consistently achieving and exceeding the goals or quotas.

Improve Co-ordination
The companys sales performance improves substantially if the
salesperson is involved in co-ordinating various elements of
marketing
communication
(or promotion). For instance,
distribution of sales promotion materials (like coupons, point-ofpurchase (POP) displays, and samples) to retailers ensuring
adequate stocks at stores before a major advertising campaign,
and training retailers salespersons.
Integrated marketing communication (MC) concept can be
effectively implemented by co-ordinating through the salespeople
to the customers in various sales territories. Other functions and
activities like market research, telemarketing, and the internet can
also be carried out in sales territories, which will help salespeople
improve their performance.

Benefit salespeople and the company

Proper territory design and allocation of salespeople to
territories will result in improved salesforce performance,
which in turn benefits the company. When the companys
sales revenue increases, and the selling expenses are
controlled, there is a marked improvement in the profits.
Thus, the company is benefited due to improvement in
top-line (sales revenue) and bottom-line (net profits). When
the performance of salesforce improves, the salespeople are
rewarded, through good increments, incentives, and in some
cases promotions.
Due to the benefits received by the salesforce as well as
the company, the overall working environment improves.

Reasons for not Setting-up Sales Territories

In spite of earlier mentioned reasons or advantages of settingup sales territories, there are certain situations when sales
territories are not required.
Some of the reasons for not setting up territories are:
(a) A small company with one or few salesperson(s) selling in a
local market may not need set up sales territories
(b) Personal contacts or relationships is the basis of making
the sales, such a life insurance policies and network
marketing,
(c) The salespeople are demotivated due to restrictions of
sales territories, and
(d) Management of the company may not be aware of the
advantages or benefits of developing sales territories or
may not know
how to set up sales territories.

PROCEDURES FOR DESIGNING SALES

TERRITORIES

The design of sales territories is very important to salespeople

and management of an organization as sales and profit
performances are linked to the well-designed territories.

The ideal objective in territory design is to have equal

opportunity (or sales potential) and equal salesforce workload for
all sales territories. Typically, this objective is difficult to achieve
in practice, although sales managers make great efforts to
achieve the same.

Any differences in sales potential and workload of salesforce in

different territories, which remain at the end, can be taken care
of when sales quotas are set up for salespeople and sales
territories.

Procedure for Designing Sales Territories

Select a Control Unit

The first step in territory design is to select a geographical territorial base,
called control unit that will used in the territory analysis. Commonly used
control units are states, metros (metropolis), cities, districts, towns, pin-code
areas, industrial estates, and major customers.
In general, the sales manager should select smallest control unit.
The reasons are:
(a) control units market potential and the company sales potential should be
possible to calculate, and
(b) adjustments (additions or deletions) of control units should be possible
when tentative territory boundaries are modified to make final territories.
For example, if a company wants to reduce one control unit (say, Hosur
industrial estate) from Chenmai territory and add it to Bangalore territory, for
minimizing the cost and time of contacting customers, it can be done if the
control unit is small (such as industrial estate or area). A brief description of the
above mentioned
control units, as applicable to Indian situation, is as follows.

States

A few companies may consider building their sales

territories around states, by selecting the same as the
geographical control unit, if they have a few salespeople
for covering the entire national market, with a selective
distribution strategy.
However, most companies would not consider states
(likes Andhra Pradesh, Kamataka Mahashra) as a control
unit, because it is a large area and adjustments of
territories will be very difficult, for any specific reasons like
minimization of time and cost of travelling of salespeople.

Metros

These are also called as metropolis or metropolitan

areas, with large populations in urban and suburban areas.
They have a large number of households, with high levels of
buying incomes and retail sales.
These are concentrated markets for many consumer and
industrial products. The information on market forecast of
metros is also available. Some of these metros in India are
Mumbai, Delhi, Chenmai, and Kolkata. However, metros are
too large for consideration of geographical control units.

Cities/Towns/Districts

The administrative set up varies from one country to

another.
In USA, cities and postal zip-code areas are used as control
units. However, in India, the administrative set up consists of
districts, tehsil/talluk, towns and villages.
It is possible to get statistical market data for various
products at town and district levels.
But below the district level (tehsil/talluk and village) it is
difficult to get statistical market data. Hence, in India, district
or towns can be used as a control unit.

Find Location and Potential of

Customers
The next step is to find the location and sales potential (or
business potential) of present and prospective customers in
each control unit.
Information of present customers should be available from
the companys sales analysis, However, the information on
prospective customers can be obtained not only from the
companys salespeople, but also from telephone directories,
and market research studies.
For industrial products and services, where often there are a
few buyers, identification of business is desirable and possible.

However, for consumer products and services, it is

unnecessary and expensive to carry out identification of final
consumers.
After the present and potential customers are identified,
the company should estimate the total sales potential for all
customers in each geographical control unit. For this, first
market potential or market forecast should be estimated, based
on the use of one or two of the forecasting methods discussed
earlier. The sales potential ( or business potential ) for the
company is decided by estimating the company share of the
market potential in the control unit. The estimation of the
companys share depends upon the present market share,
strengths and weaknesses of the company in comparison to
competitors , and the companys relationships wit existing
customers.
After the sales potential of control units are calculated, it is
necessary to classify the customers based on their sales and or
profit potential. One of the commonly used methods is ABC
analysis. In this method, all the customers.

 After the sales potential of control units are calculated, it is

necessary to classify the customers based on their sales
and or profits potential. One of the commonly used methods
is ABC analysis.
In this method, all the customers are entered in the
reverse order of their sales/profit potential is the highest.
Then the name of the customer with second highest
potential entered.
This process is repeated till the names and potential figures
of all the customers. A customers are those whose
sales/profit potential add up to 70 per cent of the total. Next
customers whose business potential add up to 20 percent
are classified as B and the balance 10 per cent potential is
accounted by C customers.

Decide Basic Territories

The third step in designing sales territories are set up by
the building up from the control units. The objective to be
achieved is to equalize the workload of salespeople.
1.

Decide call Frequencies It means how many times a

customer should be visited by the companys
salesperson per year. The factors that influence call
frequency are the customers sales/profits potential,
cost of visiting the customers, buying behaviour of the
customer, and the nature of the product or service
offered. The optimum call frequencies. For different
types of customers, can be decided by using computer

District-X

District-Y

CUSTOM
ER TYPE

CALL
FREQUE
NCY PER
MONTH

NO. OF
CUSTOM
ERS

NO. OF
CALLS
PER
YEAR

NO. OF
CUSTOM
ERS

NO. OF
CALLS
PER
YEAR

144

192

168

192

20

240

28

336

30

552

40

720

Table. 4.1. The call frequencies for type A customers, with high
sales and profit potential are four times a month, and for B and C
types of customers, it is decided to call twice and once a month,
with medium and low sales and profit potential respectively.

Figure 4.2 Build up Method of Territorial Design

Step 1

Step 2

Step 3

Step 4

Step 5

Decide
Call
Frequenci
es

Calculate
total
number
of calls in
each
control
unit

Estimate
Workload
capacity of
a
salesperso
n

Make
tentative
territories

Develop
final
territories

2. Calculate the total number of calls

in each control unit.
In example shown in Table 4.1, the total number of
sales calls needed in districts x and y (which are the
control units) are 552 and 720 respectively. This is
done by multiplying call frequency per month by
number of customers and 12 months.

3. Estimate workload capacity of a

salesperson
.

a salespersons normal workload capacity is estimated

by multiplying average number of calls a salesperson
can make in a working day by number of working days
in a year. For instance, the average number of calls a
salesperson makes in a day works out of five, based on
the average travel time 30 minutes per call, the
average length of one hour for each call, and eight
hours per day working. If the number of working days
in a year is 250, then the estimated workload capacity
for the salesperson per year works out to be 1250 calls
(250 x 5).

4.Make tentative territories

.

In this step, company should group (or gather)

adjoining control units (which share their borders) until
yearly number of calls needed in those control units
equals the total number of calls a salesperson can
make (workload of a salesperson). In our example
shown in Table 4.1, districts x and y together need
(552+720) 1272 visits (or calls) per year, which is
almost equal to 1250 calls of normal workload of a
salesperson.

Develop Final Territories

In cases where workloads of salespersons

are not equalized, adjustments of tentative
territories are made by adding or removing
certain control units.
The objective is to achieve equalized
workload for each salesperson.
Before a sales manager finalizes the sales
territory design, he should discuss with
salespeople, who are familiar with customers
and the territories. This may bring out certain
changes, which need to be carried before
making final sales territories.

Breakdown
Method

As mentioned earlier, this is another method of

territory design that is used by companies who have
decided to have intensive distribution strategy,
mostly for selling consumer product. The objective
is to equalize the sales potential of territories. The
procedure (or the steps followed) for implementing
this method is given in figure 4.3.

Figure 4.3 Breakdown Method of Territorial

Design
Step 1
Estimate
Company
sales
potential
for total
market

Step 2
Forecast
sales
potential
for each
control
unit

Step 3

Step 4

Estimate
sales
volume
expected
from each
salesperso
n

Make
tentative
sales
territories

Step 5

Develop
final
territories

1. Estimate the Company sales potential for total market- the

first step in the procedure is to estimate the company
salespotential for it's total market by using the sales
forecasting methods.

2. Forecast sales potential of each control unit- in order to

forecast or estimate the sales potential of the each control
unit, the salesmanager multipliers the total sales potential
of the company by a multiple factor niying index of each
control unit. Thus, the total sales potential of the company
is broken down to the individual control units.

3. Estimate the sales volume expected from each salespersonhere the salesmanager must estimate how much salesperson
must sell, in order to ensure profitable operation.
For this, the sales manager studies the past sales as well as the
cost and profitability analysis as shown in the following
example. The direct selling cost for next year is estimated as
Rs. 6,00,000, the cost of goods solds is estimated at 60% of
sales, and expected profit at 15% of sales, then the minimum
sales expected from each salesperson is calculated as follows:
Profit= Sales-Cost of Sales-Direct Selling Cost
0.15x=x-0.6x-6,00,000, where x=Sales
by solving the above equation, x=Rs. 24, 000.00

Using this judgement, the sales manager decides the sales per
salesperson to be little over twice the above sales figure,
at Rs. 50,00,000 per annum.

4. Make tentative sales territories- in this step, the sales

manager makes tentative territories by combining adjoining
control units (which will share a broader) until the sales
potential of each territory is equal or greater than the expected
sales volume from each salesperson. Continuing with the
example discussed above, the sales potential of each territory
should be equal to or greater than Rs. 50,00,000 (or Rs. 5
million). Care should be taken to ensure that the boundaries of
the each territory coincide with the border of the control units.

5. Develop final territories- the tentative territories need to be

adjusted due to special considerations such as geographical
locations of customers, or unequal sales potential of some
territories, the adjustments are done by moving specific
customers or control units from one territory to another
territory. The objective is to achieve equal sales potential of
territories.

ASSIGNING SALESPERSON TO
TERRITORIES
Once the sales territories are designed, the sales manager is ready to assign
or allocate individual salesperson to each territory. In designing the sales
territories, we assumed implicitly that the salespeople have equal selling
abilities and that each salesperson would perform equally well in territory.

In any given salesforce, salesperson differ in selling abilities and

effectiveness. A salesperson may succeed in one territory, even though sales
potential and workload are the same in the two territories. This happens
because interactions of the salesperson with present and potential customers
are affected by factors like social and cultural characteristics of customers.

In assigning salespeople to territories the sales manager should consider two

criteria:
(a) relative ability of salespeople
(b) salesperson effectiveness in a territory.

RELATIVE ABILITY OF A SALESPEOPLE

A sales manager should evaluate the relative abilities of a
salespeople based on key factors, such as product and market
knowledge, past performance in achieving sales quotas (sales
goals), ability in verbal and written communication and selling
skills. By either giving equal of different weightages, the sales
manager evaluates each salesperson on relative ability and
decides an ability index with maximum score of 1 as shown in the
table 4.2. Relative abilities of salespeople are linked to business
potentials of various territories.
It should be understood that the weightages of evaluation
factors may vary from company to company and evaluation factors
may also differ, depending upon product and customers
characteristics. In the example shown in table 4.2 the "ability
index" of the salesperson is 0.915.

SALESPERSON EFFECTIVENESS IN A
TERRITORY
The sales manager should judge the effectiveness of a salesperson by
comparing the salesperson's social, cultural and physical characteristics with
those of the territory

It would also help of the salesperson is familiar with the local language and
customs of the territory. The objective of the sales manager in matching
salespeople to territories is to maximize the sales and profit potential of
territories.

This objective is achieve by making the salesperson comfortable with the

customers in the territory and the customers comfortable with the salesperson.
Thus the decisions on assigning salespeople relationship between salespeople
and customers and between salespeople and the sales manager.

The existing excellent relationships between the salesperson and customers

should not be disturbed by the sales manager while carrying out
the task of assigning or deploying salespeople to territories.

USE OF I.T. TERRITORY MANAGEMENT

For designing and aligning sales territories, computers and
mapping software are increasingly used by salesmanager.
The advantages of using information technology in territory
management over manual working of break down or build up
methods are that the task will be done faster as well as more
comprehensively.
Geographic Information Systems (GIS) is a technology that
provides a framework to manage, analyze, and disseminated
geographical knowledge. GIS technology can be integrated in
a company's enterprise information system framework.

There are a number of softwares available (such as Arc

Editor, Arc GIS Data Models, Arc GIS Survey Analyst), which
are capable of running simulations and optimizing territorial
design.
Using the software for simulations helps in improving the
territorial design because the computer can examine more
combinations than the manual work done by a salesmanager
The problems in using some of the high-end software are
the high cost and no considerations given to the geographic
obstacles likerivers, mountains, and forests faced by
salespeople during their sales calls. However, as more and
more companies develop software for use in designing and
revising sales territories, the cost will come, and
salesmanagers would find easier and much more accurate.

MANAGING TERRITORIAL COVERAGE

After designing sales territories, and assigning salespeople

to different sales territories, the next task of the sales
manager is the management if territorial coverage, or in other
words, how each salesperson should cover the assigned sales
territory.
This consists of three activities:
(a) planning of efficient routes for salespeople
(b) scheduling the salespeople's time, and
(c) using time management tools.

ROUTING, SCHEDULING AND TIME

MANAGEMENT

Planning of efficient routes for salespeople is a

managerial activity. often as sales managers, initially
train salespeople in route planning, and subsequently
ask them to prepare their own route plans.
Routing is a travel plan or pattern used by a
salesperson for making customer calls in a territory.

The main advantages of routing are:

(a) reduction in travel time and cost by excluding backtracking
and criss-crossing by salespeople in their territory,
(b) improvement in territory coverage, as salespeople reduce
their travel time and increases selling time.

There are, however, certain objections to routing. Some

sales managers are of the opinion that routine reduces
salespeople's flexibility and initiative, particularly when
customers' needs change and mark conditions vary. This
objection can be overcomed by using computers for
updating the routeplans.

PROCEDURE FOR SETTING UP A

ROUTING PLAN
The first step in setting up a routing plan is to identify the
present and potential customers on territory map.
Next, each customer should be classified into high,
medium, or low sales potential, and call frequency for each
class of customer to be decided. For instance, high potential
customers are to be visited four times a month, medium
potential customers twice a month, and low customers once
month
The route plan should be built around locations of high
potential customers. Some of the commonly used routing
pattern are shown in Fig. 4.4

In

straight

line

route

pattern,

the
salesperson starts from office or home base and makes sales
calls in one direction. This can be combined with hopscotch
pattern, in which a salesperson starts at the farthest point from
home or office base and names sales calls on customers on the
way back to home/office.
This process is repeated in different directions. In circular
route pattern, the salesperson starts from his base and move in
a circle, making sales calls, ending back at the office/home. In a
cloverleaf pattern, the first route covers a part of the territory,
the next trip of the salesperson covers the adjoining circle and
this is continued until the entire territory is covered.
Computerized mathematical models have been developed to
help the sales managers decide the route that will minimize the
travel cost or maximize the selling time.

APPLICATION AND IMPORTANCE OF

ROUTING
The degree of importance to the application of routing depends
on two factors:
(a) the nature of the product, and
(b) the type of the job of salespeople. For fast moving consumer
goods (FMCG), like softdrinks, bread, and grocery products, sold
to retailer, they need frequent servicing, route plan is absolutely
necessary.
Similarly, driver-cum-salesperson type of jobs should have
proper route plans, since if the calls are not made regularly, the
company can lose important retailers. However, the sales jobs
with creative selling may need a flexible route plan. In general,
application of routing is
important for all companies, bur some companies should be
flexible in its implementation

SCHEDULING
Scheduling is planning a salesperson's
specific time of visits to customers.
Scheduling the salesperson's time should be
considered as the time allocation problem.
Studies have shown that the best
salespersons are those who manage their
time effectively.

ALLOCATION OF TIME
The sales manager must first decide and
communicate the major activities or duties of the
salesperson, and the amount of time that should
be allocated to each activity.
Although the activities or tasks vary from
company to company, generally these are
classified into the following areas, along with the
time spent, as shown in Table 4.3

 It is interesting to note that 19 per cent time is spent

by a salesperson on the telephone.
Many companies are using telephone selling in order
to reduce the cost of selling. The toil that is used widely
to help the salesperson to understand how they spend
their time is called "time and activity analysis.
The salesperson records the time spent on various
activities over a period of two weeks. The sales manager
and the salesperson then discuss and decide how to
increase the time spent on major activities.

Customer Calls
Company often state norms of visits to existing customers
and prospects to their salespeople.
This is done because, if left to there own wish, many
salespeople will spend most of the time with the present
customers, who are known to them. However, the company
wants business from new customers also.
For instance, Compton Greaves Limited asked in sales
engineers to spend 80 per cent of their time with the present
customers and 20 per cent of their time with prospects, its a
condition that they should stop visiting a prospect after four
unsuccessful calls.

 A study has found that some salespeople spend too much time selling
to small and less profitable present customers, when they should be
putting more efforts on selling to large and more profitable customers.
Companies, therefore, specify call norms for existing customers,
depending upon their sales and profit potentials. A real life example of a
regional marketing manager, who was transferred from western region
to eastern region in India, is worth mentioning here.
The sales were stagnant in eastern region one of the decisions taken
was to ask the salespeople to make four sales calls a month to high
sales potential customers, two call a month to medium sales potentials
customers and only one call a month to low salespotential customers.
These were existing industrial or business customers.
The sales of eastern region jumped up substantially for four successive
years, after which the regional marketing manager was transferred
a promotion as marketing manager.

Time Management Tools for

Salespeople
There are many supports to help salespeople manage their
time more efficiently and productively.

These are:
(a) use of computers, mobile communication equipment, and
other high-tech equipment and
(b) inside salespeople.

High-tech equipment
Desktop and laptop PCs, CDs, automatic dialers, e-mail, fax
machines, tele-conferencing, videophones, cellular phones, air
phones and Blackberry are the time management tools that
are available to salespeople and sales managers.
In particular, in some companies salespeople have laptop
computers that they carry as they travel around their
territories. The main objective of having high-tech equipment
is to help salespeople make more efficient use of their time.
Salepeople use computers to enter and transmit their visit
reports and customer orders, get information on inventory and
delivery status, access a customers file to get up-to-date
information before making the sales call, exchange messages
with customers and sales managers,
and make sales presentation to customers.

Inside Salepeople
To reduce time demands in their outside salesforce, many companies
are increasingly using inside salespeople who remain within the
organization.
There are three types of inside salespeople:
(a) sales assistants to provide clerical support for outside salesperson,
such as delivery follow-up with production confirm customer
appointments, answer customers questions. And so on;
(b) technical support people to give technical information and answers to
customers questions; and
(c) telemarketers to find new leads on prospects, qualify them, and refer
them to outside salespersons for high and medium sales potentials
prospects or sell for low potentials customers.
() Outside salespoeple, who travel outside the organization are then free to
spend more time selling to major existing customers, getting more orders
from major prospects, and building long-term
relationships with major customer.

Time
Management
Tools

for Sales
Managers

Computerized Support System

are used by many companies for effective use
of management resources including time and to
improve the efficiency of an enterprise.
Examples of Computerized Support System:
CRM
(Customer
Relationship
Management)
ERP (Enterprise Resource Planning)

Direct Benefits of ERP System

(a) business integration
(b) flexibility and
(c) better analysis and planning capabilities.

Example:
Coverking Company, a manufacturer and distributor of customized
automotive accessories, wanted to achieve a growth rate of 30%.
However. It had a problem that most of its over 500,000 orders for
customised car covers, floor mats, and other accessories were
received by phone every year. The company wanted to reduce the time
it spent on order entry, without compromising on customer service.
The solution to the problem was found in ERP package of Bann IV,
along with other Microsoft software, operating system and databases.
Customers could enter orders from any computer equipped with web
browser and check inventory via the internet. The system provided
customers a comprehensive menu of order options. Users could select
a product, fabric, colour, etc., to place a customised order in a fraction
of time required for a phone order. Apart from a remote order entry
solution, the ERP system reduced the turnaround time for
manufacturing customised products by 25%. Overall the company had
a saving of about $200,000 annually.

Example:
Another example is about the problem of manual
billing process, and resulting delays and error,
faced by Alcone Company, which also wanted to
provide greater information access to its staff. The
company decided on ERP system from PeopleSoft
Select, with operating system and database from
Microsoft,
to
solve
the
problem.
After
implementation, the billing process was automated,
resulting in increased billing, improved efficiency
and tremendous savings in time and effort. The ERP
system paid for itself within two years.

Increasing number of companies are

using CRM software to integrate sales,
marketing and customer service functions
and to give all customer integrating persons
and departments access to share customer
data in real time. Many banks were the first
ones to use CRM systems.

In addition to using high-tech equipment and

support systems, sales manager should also
practice a few simple rules of effective time
management as follows:
Make plans for each day and each week.
Make or take phone calls twice before lunch and at the end of the day.
Learn to be brief.
Read and reply e-mail/ fax messages at one or two times in a day.
Interruptions from the boss and customers have to be responded.
Unnecessary interruptions from others to be minimized by politely saying
no.
Priorities and activities/work in terms of importance and urgency, based
on ABC analysis of activities.
Concentrate efforts on major (or A type of) activities/tasks during prime
hours when we work most effectively.
Learn to delegate routine and less important tasks of activities to others.

We all, including the Salesforce and sales

managers, have one thing in common a 24-hour
day. Its how we use our time that makes the
difference.

SALES QOUTAS OR SALES

TARGETS
After finalizing the sales forecast and
the sales budget, the next logical step
for a company is to set up the sales
goals or sales quotas, for marketing (or
sales) units, such as regions, sales
territories, salespersons, distributors,
and dealers. We shall now discuss the
various parts of sales quotas, which
are
often
tied
to
Salesforce

What are Sales Quotas?

Sales quotas are sales goals (or quantitative
objectives) set by a company for its marketing
units for a certain period of time. A marketing unit
includes a region, a territory, a branch, a sales
person, a distributor, or a dealer. Sales quotas can
be set on sales volume, expense, profit margin,
activity, customer satisfaction, and combination.
Annual sales quotas for each marketing unit are
broken down to quarterly and monthly quotas.

Sales quotas are developed from the

annual marketing plan of the company. After
preparing the sales forecast, the company
decides its sales budget, which includes the
companys sales volume and selling
expenses. The company sales budget is then
broken down to sales quotas for regions and
sales territories. Each territory manager
divides the territorys quota among the
salespersons, distributors, and dealers, who
are attached to the territory. How the
territory manager or the sales manager sets
the sales quotas for the marketing units
reporting to them will be discussed

Objectives of Quotas
Importance or objectives of
sales quotas include:
(a) Making available performance
standards,
(b) Controlling performance,
(c) Motivating people, and
(d) Identifying strengths and weaknesses.

Making Available Performance

Standards
A sales quota makes available to the sales manager a tool
to measure the performance of the salesperson. A quota also
provides a goal (or a target) to the salesperson. Hence, a
quota is a performance standard, against which the actual
performance is compared to understand whether the
salesperson is performing well or not. For example, a branch
manager of a consumer durable marketing company set
sales quotas for his salesperson in terms of sales volume and
selling expenses per annum. The yearly quotas is further
broken down to quarterly and monthly quotas for each
salesperson. The branch manager uses these quotas as
performance standards for each salesperson, and measures
the actual performance to compare with the quotas on
monthly and quarterly basis.

Controlling Performance

By setting quotas for a salespersons activities, sales

volume, and selling expenses, the sales manager is
controlling the performance of salespeople. For
instance, when a quota of eight calls per day on
retailers or five calls per day on business customers is
set, the salespeople know that they have to make
those
many numbers
of calls.
The sales
manager
has power
to influence and direct the
behaviour of salespeople reporting to him/her. By setting
quotas on sales volume, the sales manager directs the
efforts or activities of salespeople towards the achievement
of performance on sales. If the actual performance of the
salesperson is a favourable in comparison to the quota, the
sales manager should appreciate and reward the
salesperson suitably.
However, if the salespersons performance is unfavourable,
consistently over a period of time, the sales manager
should find out the reasons for poor performance, by
understanding the reasons or causes of poor performance,

Motivating People
Most salespeople are motivated by money. Sales force compensation is
often tied to the extent or degree of achievement of sales quotas. The
financial compensation includes salaries, commission and /or bonuses
(also called as incentives). The incentives, in most companies are linked
to the quotas. If salespeople believe that the quotas are achievable, they
will put extra efforts to achieve the quotas and earn the rewards of
incentive payments or recognition. Motivation of the salesperson is linked
to the setting of quotas. Sales managers should not set sales quotas that
are too high and non-attainable. At the same time, they should not set
easily attainable quotas. In both these situations, motivation of
salespeople decline.
Sales contest are the additional motivating factors for special selling
efforts of Sales force. The performance during the period of the sales
contest is linked to quotas set for individual salespersons. Typically,
special quotas are set for sales contests in order to create enthusiasm
among salespeople, resulting in superior performance. The incentives or
rewards of achieving special quotas during sales contests are also
attractive, in terms of winning trips abroad - Australia, Singapore,
Thailand, and Sri Lanka.

Identifying Strengths and Weaknesses

When actual sales performance is compared with
respective quotas of different territories and salespersons,
the sale manager can identify successful and unsuccessful
performers. Further, analysis of causes of poor performance
may
reveal
that
the
training
programme
needs
improvement, better product quality required to meet
customer needs, and positioning strategy needs to be
reviewed. This analysis helps identify weaknesses as well as
strengths of the company in comparison to its competitors.
Salespeople are closes to the customers and customers
perceptions are important to know the companys strengths
and weaknesses. Sales managers should, therefore, review
the actual performance of salespeople with their quotas on
regular basis.

Types of Quotas
Companies set many types of quotas
the most common types of quotas are:
(a) Sales Volume,
(b) Financial,
(c) Activity, and
(d) Combination

Sales Volume Quotas

Most companies have sales volume quotas for
individual salespersons, distributors, retailers,
geographical areas, or products, for a specific
period of time. For effective control, it is proper to
set sales volume quotas for the smallest marketing
unit. For instance, instead of setting quotas for
regions (such as north, east, west and south), it is
better to set quotas for branches or districts within
a region. Similar approach is used for setting sales
volume quotas for products for specific time
periods.

Better direction and control by setting

quotas for individual product items and
brands, instead of setting it for entire
product lines. Similarly sales volume quotas
are broken down to quarterly and monthly
quotas. Generally, companies establish sales
quotas for all those items for which they
make a sales budget.
Companies set sales volume quotas in
rupees or dollars sales volume, unit sales
volume, and/or point sales volume.

Rupees/ Dollars Sales Volume

When sales people are required to sell many products,
it is easier to manage if quotas are set in rupees or
dollars. For instance, in Compton Greaves when the
organization structure was changed from product division
to customers segment orientation, the salesperson
handling industrial customers were required to sell all 31
products of the company and their sales targets or quota
were expressed in rupees lacs (or million) per year,
which were further broken down to quarterly and
monthly quotas.
Another reason for using rupees sales volume quotas is
that it allows an analysis of selling expenses to sales
expressed in percentage or ratio

Unit Sales Volume

Companies set sales volume quotas in unit
(numbers, tones, and liters) of products in three
situations. One situation is when salesperson is
selling a few products. For instance, a company
which marketers precision steel tubes to business
customers has set sales quotas to branch managers
and salespersons in rupees as well metric tones
(MTs). The second situation is when prices of the
products fluctuate rapidly, resulting in salespeople
achieving the rupee sales quotas easily due to
increase in prices. The third situation is when the
price of each product or service is very high and it is
easy to understand unit sales quotas. For instance,
a company manufacturing power transformers sets
sales volume quotas in number for its regions and

Point Sales volume

Some companies use sales volume quotas,
conveyed in points. It is used in a situation
relatively contribute more to the profits. For
instance, a company had two products, product As
contributions to profit was two times that of product
B. In order to improve the profitability, the company
set sales volume quota In points, by assigning two
points for each MT sales of product A, and one point
for ach MT sales of product B. Salespeople could
achieve their sales quotas in points easily by selling
product A more than product B. This also helped the
company to achieve its profitability goal.

Financial Quotas
Financial quotas are the
goals set to control
gross
margin or profit contribution,
and expenses of various
marketing (or sales) units,
such as sales territories
(branches,
regions),
salespeople, and products.

Gross-Margin or
Profit Contribution Quotas
Gross margin quota is decided by subtracting cost of goods
sold from sales volume. Cost goods sold is equivalent o cost of
manufacturing the products. The problem of gross margin
quota is that sales managers and salesperson have in control
on the cost of manufacturing and hence, they are not
responsible for gross margins. Some companies, therefore,
decide profit contributions quotas by subtracting cost of goods
sold and salespeoples direct selling expenses from sales
volume as shown in Table 4.4.
Direct selling expense of salespeople include their salaries
as well as travelling, lodging, boarding and customer
entertainment expenses. The problem of profit quotas is at
some salesperson may reduce necessary expenses like
travelling, which may a negative effective on sale. This can be
seen in the case of salespeople Sunil as shown in Table 4.4.
Companies use profit quotas to convey to field sales managers

Expense Quotas
Companies are trying to control rapidly
increasing costs of selling, such as travelling,
lodging and food. The objective of setting expense
quotas is to control the costs of marketing (or sale)
units. Such as sales territories and salespeople.
Often expense quotas are used along with sales
volume quotas, so that selling expenses are kept n
line with sales volume. Therefore, expense quotas
are stated as percentages of sales, so that
salespeople give importance both to sales volume
and selling expense. In some companies, other
selling expenses have a quota of 1 percent of sales

Table 4.4 Net Profit Comparison of Salespersons of Ludhiana

Branch

Sales
Cost of Sales
Gross Margin
(75%)
Salary
Other Selling
Expenses
Total Selling
Expenses

Profit
Contribution
Profit/Sales
Percentage

Ashok

Sunil

Mahindra

Rs.
4.10.08.000
Rs
3.07.56.000
Rs
1.02.52.000
Rs 1.24.000

Rs
3.85.15.000
Rs
2.88.86.250
Rs 96.28.750
Rs 1.15.000

Rs
4.60.07.000
Rs
3.45.05.250
Rs
1.15.01.750
Rs 1.40.000

Rs. 3.90.000

Rs 3.10.000

Rs 4.70.000

Total
Ludhiana
Branch
Rs.
12.55.30.000
Rs.
9.41.47.500
Rs.
3.13.82.500
Rs.
3.13.82.500
Rs. 3.79.000

Rs 5.14.000

Rs 4.25.000

Rs 6.10.000

Rs. 11.70.000

Rs 97.38.000

Rs 92.03.750

Rs
1.08.91.750

Rs. 15.49.000

23.7

23.9

23.6

23.7

Activity Quotas

Many companies set activity quotas so as to

direct salesperson to carry out important job related
activities. These activities are useful for achieving
performance targets of salespeople. The process of
deciding activity quotas includes (a) defining the
important activities, (b) finding out the time
required for carrying out these activities, (c)
deciding the priorities to be given among the
various activities, and (d) deciding the quotas or
frequency for important activities. Table 4.5 shows
how a company selling lighting products to
household and business customers determine
activity
quotas
for
it
salesperson.

Table 4.5 Activity Quotas for a Lighting Products Company

Activity of a
salesperson
Calling on
present business
customers
classified into A,
B, C
Calling on hot
prospects
Calling on
retailers
Payment
collection from
payment
overdue
customers
Obtaining and
reposting market
information

Time required

For A = 60 mins
B = 30 mins
C = 15/20 mins

Priority
(Importance)
1
4
8

Quotas
(Frequency)
4 calls per month
2 calls per month
1 call per month

30-60 mins

5 calls in two month

20-30 mins

Av. 2 calls per month

15 mins

Av. 1 call per month

6
7

During sales calls

4 times a month

Inf. Gathering
10 mins per
customers
Reporting = 30
mins each week

It should be understood that activity quotas

are set when salesperson not only have to
carry out selling activities, but also important
non-selling activities. Some of the important
non-selling activities are payment collection
and getting market information. One problem
faced by sales managers is how to ensure
salespeople perform their activities effectively.
One of the methods used is to combine activity
quotas with sales volume and financials
quotas. That leads us to combination quotas.

Combination Quotas
Companies set combination quotas or
goals when they want to control salesforce
performance on both key selling and nonselling
activities.
Combination
quotas
typically used by various quotas discussed
earlier. Table 4.6 illustrates how points
system in combination quotas.

Table 4.6 Evaluation of salespeople

with combination quotas
Type of Quotas

Quota

Percent
Quota

Actual

Weigh
t

% Quota x
Weight

For Salesperson:
Srinivas

Sales Volume (Rs)

4,50,000.00 4,27,500.00

95

285

Selling Expense (Rs)

4,50.00

90

90

120

240

615

New Customers (Nos)

4,95,000
24

Total Point Score:

29

102.5

For Salesperson:
Pradeep

Sales Volume (Rs)

4,25,000.00 4,46,25,000

95

315

Selling Expense (Rs)

4,25.00

95

95

80

160

570

New Customers (Nos)

Total Point Score:

4,46,250
30

24

95

 In Table 4.6, expense quota is one percent of sales volume quota.

Although Pradeep exceeded his sales volume quota, because he
could not develop new customers to the extent of quota, his total
point score was less than 100. In case of Srinivas, the total point
score exceeded 100, although he achieved 95 percent of sales
volume quota. This makes combination quotas difficult for
salespeople to understand. To overcome this problem, actual
performance should be continuously monitored, with respect to
quotas, with the help of personal computers, and sales manager
should also supervise on regular basis to ensure that some smart
salespersons do not try to beat the system in any ways.
Another application of combination quotas is to evaluate
salespeoples performance in selling various products of the
company. The company decides weights for various products
based on profitability of each product. Each salesperson has a
sales volume quota for each product. Similar process, as shown in
Table 4.6, is followed to calculate the performance of each
salesperson by calculating the total point score.

Methods for Setting Sales Quotas

Sales quotas are set by companies
by using several methods. The quotas
are set based on territory potential,
past sales experience, total market
estimates,
executive
judgment,
salespeoples
estimates,
and
compensation plan.

Methods for Setting Sales Quotas

Territory potential
This method is commonly used by large organizations for setting sales
quotas. The procedure used includes first estimating the market potential
(or industry sales forecast) for a product line for a geographical area,
using top-down approach and sales forecasting methods discussed earlier
in Chapter 3.
The second step is to estimate the multiple factor index, as described
earlier, for each sales territory. Next, the expected industry sales in each
territory (also called as the territory market potential) is obtained by
multiplying the industry sales forecast by multiple factor index. Finally,
the companys estimated market share in the territory is considered out
of the territory market potential in order to come up with sales volume
quota for the territory.
For example, estimated market potential (or industry sales forecast) for
skin care products in India is Rs. 13.50 billion. The multiple factor index,
using population and buying power, of Mumbai is estimated at 1.5. Then
expected industry sales for skincare products in Mumbai is Rs. 202.5
million (13.50b x 0.015). Further considering the companys market share
of 20 percent, the sales volume quota for Mumbais salespersons would
be Rs. 40.50 million (=202.5 x 0.20).

Methods for Setting Sales Quotas

Past sales experience
Some companies consider past sales only for setting sales volume
quotas. They take the past years sales for each geographical sales
territory, add an arbitrary percentage and decide the figures as sales
volume quotas. Another alternative method is to take an average of
previous three or five years sales of each territory, add a percentage by
which the market is expected to grow, and thus set sales quota for each
territory. This method is better than the earlier method, because it
considers the importance of the sales trend.
Companies that use this method only for setting sales quotas assume
that future sales are related to past sales. This assumption may not always
be correct. Besides, if past sales were achieved by poor market coverage,
the past mistakes will be carried on in future without any correction. Hence
companies should not consider past sales as the only factor for deciding the
territory sales quotas. It should as one of the many factors for determining
sales quotas.

Methods for Setting Sales Quotas

Total market estimates
Some companies set quotas for sales territories based on the following
years total market estimates (also called market potential or industry sales
forecast) as described in Chapter 3. They then decide the companys
estimated market share for the following year from the total market
estimate to arrive at the company sales forecast. The next step is to find
out reach territorys percentage share of the total company sales in the
previous year. For instance, if a territorys past years sales was seven
percent of the total company sales, then the territorys sales quotas would
be seven percent of the total company sales forecast for the next year.
However, if the company is new and there is no information on past sales,
the management first determines the market potential (or total market
estimate) for its products. The company then estimates what portion (or
share) of the market it could achieve in the first year. Thus, the company
sales forecast is calculated by multiplying market potential by estimated
market share. Thereafter the company sales forecast (or sales budget) is
broken-down to individual territories by multiplying it with multiple factor
index for each territory. This procedure is used by new companies for
setting sales volume quotas for its newly establishment territories.

Executive Judgment
Sometimes companies use executive judgment method when the
company is new, the product and territories are new, or very little market
information is available. In these situations, senior executives or managers
use their judgment, based on their past experience, to predict not only the
company sales, but also sale quotas for territories. For instance, managing
director of material handling company asked its newly appointed vicepresident (marketing) to double the previous years sales to decide the
company sales budget as well as well as sales quotas of several territories
for the years 1994-95 and 1995-96.
This decision was taken based on the discussions the managing director
had with the chairman in the absence of market information. Although
territorial sales performance varied as compared to sales quotas, the
company managed to achieve its sales budgets. However, when the
management again set double sales targets in the year 1996-97, it failed
to achieve its sales goals because of recession in the economy. Based on
this and several other examples, it is said that executive judgment method
should be used along with other methods, but it should not be only
method for deciding sales quotas.

Salespeoples Estimates
Some companies ask their own salesperson to set
sales quotas in situations, such as starting a field sales
operation, and expanding sales into new geographic
regions or territories. Asking salespeople to set their
own quotas happens rarely, because salespeople either
overestimate their abilities to set very high sales quotas,
or set too low sales quotas to earn high commissions or
incentives. Salespersons morale is down when they find
that they could not achieve their sales quotas with their
salespeople. Sales managers use forecasting methods,
past sales figures, and combine these with the inputs
from salespeople, before coming up with final sales
quotas.

Compensation Plan
Some companies set quotas to fit with theirs sales compensation
plan. For instance, the sales quota for this year is based on the
past years sales. If the last years sale was Rs. 12 million, the
sales quota for this year is set at Rs. 12 million, and the
salesperson is paid an incentive of percentage of sales achieved
over the quota of Rs. 12 million. Another method used by some
companies is based on salary plus commission plan.
For example, the company wants to pay a monthly salary of Rs.
5000 plus a commission of three percent on all monthly sales over
Rs. 100,000. The sales quota of Rs. 100,000 is set such a way it is
very difficult for the salesperson to exceed a total compensation
of Rs. 8000 (Rs. 5000 salary plus Rs. 3000 incentive) per month.
Although compensation plan is often tied to the degree of quota
achievement, sales volume quota should not be based on the
compensation plan alone, because that would put the cart before
the horse.

Insights into Setting and

Administration of Sales Quotas
Set realistic quotas.
Some companies, like Xerox, believe in setting high quotas that most
salesperson find difficult to achieve, but are attainable by a few salesperson with
extra efforts. Some other companies, like 3M, set modest quotas that majority
of sales force can achieve so that salespeople would accept quotas as fair and
attainable. However, a general view is that the salespersons quotas should be at
least equal to the last years sales plus a percentage of the difference between
the territorys market potential and lasts sales. When sales quotas are related
to territory market potential. They are considered as realistic. If salespeople
feel that the quotas are unrealistic. They will not be motivated.

Understand problems in setting quotas.

Underestimation and overestimation of territory potential. Based on

which the sales quotas are set, create problems. For instance, if the
company underestimates its sales potential, salespeople will easily achieve
their
quotas and the company will pay incentive amounts more than
required.
On the contrary, if the company overestimates its sales potentials,
the salespersons will find it very difficult to achieve their quotas which may
lead to demotivation and dissatisfaction. This problem can solved by making
the quotas realistic as suggested in a general view in the earlier paragraph.

 Ensure salespeople understand quotas.

The company management must ensure that the
salespeople understand quotas and quota setting procedure.
This is important because if the salesperson understands the
process of
setting quotas, they feel the quotas are fair,
accurate, and
achievable. If salespeople do not understand
how the quotas are set, they feel bitter and suspicious. There
are methods available to
help salespeople understand
quotas. These are:
Participation in Quota-setting
Purposes of Quotas
Companies not using quotas

Participation in quota-setting
By allowing salespersons to take part in the process of quotasetting, not only the understanding of salespeople about quotas
increase, but also their questions are answered properly and
salespersons inputs can be used in quota setting.
Continuous feedback
Sales manager should give continuous feedback to
salespeople on their performance in relation to quotas and what
should be done by salespeople to improve their performance.
Flexibility in administering quotas
Any major changes in market demand or the companys
strategies or policies must be looked into and the quotas should
be change suitably. For example, if the company increases its
prices by 10%, due an increase in the cost of raw materials and
other inputs, the sales quotas have suitably adjusted. However,
small changes in market condition, which do not have much
impact on the company sales, can be ignored.

Purposes of Quotas
Salespeople should be informed that
monthly or quarterly quotas are used
for incentives or rewarding and annual
quotas are used for performance
evaluation.

Purposes of Quotas
Understand relationship between Quota
Selection and Marketing Environment
Successful companies select the type of quota that is
important to them based on the marketing environment and
company objectives. As mentioned earlier in the combination
quotas, companies have a few number of quotas, generally not
more than 3. If salespeople have too many quotas, their efforts
and energy gets scattered and they get confused. The following
illustration would help to understand how successful companies
select a few quotas that have relationships with marketing
environment and sales situation:

Purposes of Quotas
When the company has too many new salespeople, it is
proper to have one or two activity quotas to ensure that
salespeople do the right things.
When the companys products are in growth stage of product
life cycle, or in a high growth economy, the quotas should be
on the percentage growth in sales or growth in market share.
When the companys product or service is in maturity stage,
the sales growth will be limited, and profitably quotas would
be important for salespeople and territories.
When the companys objective is to increase sales from the
existing customers, the quotas for salespeople should include
sales growth and customer satisfaction or customer service.

Companies not using quotas

Some companies do not use sales quotas for different reason,
Companies such Nortel and Siegel thick that sales quotas drive
salespeople to achieve sales volume, ignoring customer service and
customer satisfaction, which have long-term impact of repeat business.
These companies want to use more numbers of parameters for
evaluating and rewarding salespeople. Some other companies have
difficulties in setting accurate quotas by combining various factors like
territorial potential, salespersons abilities, and territory coverage
difficulty. Some sales managers do not used the word sales quotas, but
prefer to use the words sales goals or sales objectives. These sales
managers use quotas, but other different names.
In a situation, when a product or service is in short supply, sales quotas
are not suitable. This is called sellers market. Thus, sales quotas are
proper in buyers market.
Any organization that decides not to use quotas should have forceful
reasons, because if they do not have sales quotas or goals, they cannot
achieve the company goals and objective.

Summary

 A sales territory consists of present and

potential customers. The reason for setting
up sale territories are: (a) it increase market
or consumer coverage, (b) it controls selling
expenses, (c) it better evaluates of sales
force performance, (d) it improves customer
relations, (e) it increases sales force
effectiveness, (f) it improves co-ordination,
and (g) it benefits salespeople and the
company. There are reasons, under certain
situation, when sales territories are not
required.

 The procedures followed in designing sales

territories include the following steps: (a) select a
control unit from commonly used control units,
such as states, metros, cities, towns, and districts,
(b) find location and potential of customers, (c)
decide basic territories by using either build-up
method or break-down method.

After the sales territories are designed, the sales

manager should assign individual salespersons to
territories. This is done by matching salespeople to
territories and maximizing sales and profit
potential of territories. Sales managers are
increasingly using computers and software for
designing and aligning sales territories.

 The next task of sales managers is the

management of territorial coverage, which
includes three activities: planning of efficient
routes for salespeople , scheduling salespeoples
time and using time management tools. Time
management tools are useful not only foe
salespeople but also for sales managers. For
effective use of resources including time,
companies are increasingly using computerized
support. For effective use of resources including
time,
companies
are
increasingly
using
computerized
support
systems
like
CRM
( Customer Relationship Management) and ERP
( Enterprise Resource Planning ).