You Gotta Know the Territory

In Meredith Wilson’s “The Music Man”, the anvil salesman melodically tells the people around him on the train “you gotta know the territory.”

For the sales manager of an inside sales force, one of the primary management quandaries is the territory assigned to a salesperson. Typically, a territory may consist of customers, prospects and suspects.

Customers are organizations that have bought something in the past, typically three years. The salesperson is assigned to maintain the relationship and build customer loyalty, to build market share, and to cross- and up-sell other products and services.

Prospects are organization that are not customers, but have expressed some interest in the selling organization. For example, they may have responded positively to an email or postal mail offering, filled in a lead form on the website, or entered information on an inquiry form.

Suspects are organizations the selling organization determines could be customers, because of their demographics and psychographics. Demographics are descriptors such as number of employees, SIC code or location. Psychographics are behavior indicators, such as attending a certain trade show, or subscribing to a periodical or newsfeed.

What is a good blend?

The sales manager probably has a dual focus: short-term and long-term growth. Short term growth is the revenue needed to meet the quota this month and year. Long-term is beyond this time frame. Short term growth is more likely to come from existing customers, and sales pressure may be required to keep the current book of business from shrinking. Many of our clients have found they can achieve a 20% increase in revenue by assigning a telephone salesperson to an uncovered account. Long-term growth is also dependent on adding new customers, both to replace customers that attrite, and to grow the business beyond its current customer base. If the manager knows the total cost of the telephone sales position, the gross profit on sales, and their organization’s internal return-on-investment requirements, it is easy to calculate what revenue the telephone salesperson must generate in a year. Typically, customers will be assigned to this number, based on last year’s revenue and the projected gain from the additional sales pressure (typically 20%).

Second, what is the customer attrition rate or the expectation for growth beyond the existing account base? Prospects should be added first, they’ve already expressed interest. A rule of thumb is normally about 1 out of 5 prospects will convert to customers. Your experience may be different. Determine what your typical first year revenue is from a new account. Is that enough?

Third, if prospects do not produce enough revenue, add in suspects. If you have created a good list (demographic and psychographic qualified), a good rule of thumb is 5 out of 100 will become prospects (show some interest) and 20% of those interested will close. Again, your market may be different.

That’s music to any sales manager – “you gotta know the territory”.