Leaning into FY24 Territory Design
Annual Planning season is upon us. By now you’ve hopefully completed some rather BIG ROCKS in your planning motion, namely: TAM analysis, top line target setting, bottoms up revenue operating model, headcount capacity model, quota allocations, and incentive compensation. But now you’re also tasked with designing new territories.
Let’s dig into territory design.
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But now it's time to start carving some delicious territories for the reps. So what should you consider in your territory design and execution phase.
When should you start planning?
NEVER SOON ENOUGH. That’s the real answer. Ideally you’ve already started to put together your TAM/SAM/SOM together. For large, mature companies annual planning starts as early as July/August. Below is a sample view of breaking out planning into its various phases. Territory Analysis starts as early as September in the example below.
For smaller firms such as startups this starts much later, typically in November/December. The benefit of starting late is the ability to “see” how existing territories played out in terms of generating revenue. But it does squeeze the planner with a much shorter runway to develop new territories. I highly suggest starting TAM/SAM analysis no later than October and initial territory designs no later than November.
First Principles
When planning for the new year one of the first criteria to set is what are you optimizing for. I find asking some simple questions to be helpful for business planning purposes
Do we optimize for equal sized territories?
Do we optimize for distributing the best territories to the best reps?
Do we optimize for industry subject matter expertise?
Do we optimize to reduce potential headcount churn?
Once we've decided on a set of principles to operate under it also makes practical sense to work out edge cases.
Edge Cases
Carving territories can be an exercise in precision. But no matter how scientific your approach, there will inevitably be situations upon which you have no straight answer to. In these situations, publishing your edge cases rules will help to mitigate noisy complaints from the field.
Account rotation to keep your hunters hunting
In some situations you may want to keep your hunting skills sharp. One way of doing this is to set limits for how long a rep can hold onto an account. Perhaps you have a policy where a rep can not work an account for more than three years. This constant rotation of accounts will have the advantage of reducing the farming portion of a rep's revenue base. It would also have the downside of changing POCs. However, if you have a three year policy it likely hedges against the downside since a lot can change within three years.
Stretch your reps
Part of a rep's resume for career advancement is the ability to demonstrate they could stretch themselves and achieve success on a limited basis. This is an audition to moving to the next step in their journey. For example, you have a Mid Market AE who has been asking for the promotion path to the Enterprise AE position. Why not consider adding one or two Enterprise accounts into their territory?
Holdovers
At year's end, it's never as easy as saying that on January 1st that accounts with an in-flight opportunity should move over to the new rep. Depending on your business culture, the act of transitioning accounts is either a carefully orchestrated act or one that is more informal. In a proactive organization, transitioning existing customers from one territory to the next requires thoughtful communication to the customer.
One thought for the Revenue Operations organization is to design a template for the handoff process. Additionally, putting together a holdover policy helps to ease the feeling that the previous rep is losing the account. A holdover policy may look something like this:
"If an opportunity is open on the date of 12/31 then the outgoing sales rep reserves the right to continue working the opportunity for another 90 days should it also meet the following three conditions".
You can decide what those conditions are. At the end of the holdover period, in this case 90 days, the account will move over no matter what.
How many accounts can a rep manage?
I'm a big fan of doing bottoms up math. So let's do the same here. Let's assume your sales reps aren't putting in crazy hours after 5 PM. If that's the case, then your reps have roughly 2,080 hours to work with (52 weeks x 5 business days x 8 hours). Subtract out roughly 10 holidays x 8 hours and you get to exactly 2,000 hours.
Of course, you operate such a tight ship that only 10 hours or less per week are dedicated to non-selling activities. That would place 75% of time to selling activities.
75% selling time x 2,000 hours a year = 1,500 hours
Now each type of account has a different set of dedicated coverage. Global Account Managers at Salesforce for example may only have one or two account they work throughout the year. While a Mid Market rep may spend 10 hours per account for the whole year.
Global Account: 250 to 750 hours per account per year
Strategic/Enterprise Account: 75 to 250 hours per account
Mid Market Account: 30 to 75 hours per account
SMB Accounts: 10-30 hours per account
Putting the math together will yield the following territory sizes:
2-6 Global Accounts
6-20 Strategic/Enterprise Accounts
20-50 Mid Market Accounts
50-150 SMB Accounts
What's right for you will differ but doing the math exercise above will approximately yield the appropriate territory sizes for your business.
Selling motion will also triangulate territory size
Most sales leaders will err on the side of assigning more accounts per rep in order to maximize coverage. Ask any sales rep if they have too many accounts. All of them will tell you NO!
Use data to cut territories
A majority of companies cite that the biggest gap for territory management is having a robust set of metrics and dashboards to measure territory performance and health. Companies want to move from gut-feel and field’s word on territory performance, to utilizing data and KPIs to guide decisions. It is absolutely critical to have comprehensive and accurate data to complete territory analysis.
Develop a territory and/or account score. One great tool to build is a Wallet Share Potential metric. This could be as simple as a heuristic that's backed by interviewing customers.
Here's how I would set this up:
Firmographic data enrichment via ZoomInfo or Clearbit
Develop your Wallet Share Potential at the account level
Sum up the total revenue per account (use roll-up fields)
Set up your territory model inside of your CRM
Instead of territory reporting within the CRM consider moving them to a Tableau setup. This will allow for broad metric sharing in your org.
Weighted Scorecard approach to territories
When creating territories consider building out a scorecard. It’s never going to be perfect but it will be useful when facilitating conversations with your leadership team. Here’s a sample scorecard you could consider using:
Number of accounts per rep
Potential wallet share score for territory
Potential average wallet share score per account
Historical pipeline generation for proposed territory
Historical business closed for proposed territory
Territory options and domino effects
Design multiple territory options. This is instrumental if you're making changes for the new year. By designing multiple options you're making changes for certain reps. They may feel they've gained in one area but lost in others. It's this sense of loss that reps tend to gravitate towards. Psychology studies have shown that behavior tends to anchor around avoiding loss.
As revenue operations professionals we need to carefully orchestrated a successful change management process. Here's a sample process to follow:
What's changed
Domino effects
Why these changes were made
On top of that make sure you get manager support for the process. In fact, I'd argue that it should be sales managers that delivers the communication. Not everyone will agree with the changes but that's part of being a part of a team.
Dissent and commit is a core value of a team sport.
Here's one way of presenting a territory option:
You’ll always want to present multiple options and what it means for the team. Here’s option 2.
How often should I change my territories?
No more than twice per year. First upfront with annual planning, and secondly as an optional change at the six months mark. This introduces significant thrash into the business however.
One method I suggest is to allow for changes intra-territory particularly around tiering accounts. For example, you may ask the rep to designate Tier A, Tier B, and Tier C accounts every quarter. You may elect to develop specific coverages for each tier such as:
Tier A (10 to 20 accounts): AE only
Tier B (20 to 50 accounts): AE + SDR
Tier C: only inbound
What dimensions should I use to cut my territories?
There are a couple of dimensions which you could consider cutting across.
The first is industry/vertical. There are some pieces you’ll need in place in order to accomplish this such as:
Strong sense of ICP
Industry lingo
Personas and job titles per industry
Strong product marketing and sales enablement partnership
The second one is geography. If you’re selling door-to-door you may even get down to the zip code level.
The third one are employee segments. Segments matter because buying committees increase exponentially as company size increases. In fact, in a recession environment you’re seeing buying/signature levels move up a level. Before where you only needed Director level signature you now need VP authority.
Who moved my cheese and WIIFM?
Communicating to the team is essential to ease any anxiety when it comes to releasing new territories. Plan ahead of time by using the following steps:
Work through the data quality issues (what’s your master data management strategy?)
Gather feedback from the field. Avoid being an armchair quarterback. Don’t be tone deaf!
Incorporate feedback into your pre-communication plan
What are your territory design principles? (see above)
Design territory options
Receive feedback from sales leadership
Finalize territory options
Set expectations as early as you can. For the good of the business you may have to make changes. This is difficult where longstanding relationships are suggested to shift. There are some things you can do around setting expectations such as “over carving”. For example, if there are ten reps, you cut fifteen territories. Until those territories are hired a few sales reps get to own or split the “over carved” regions.
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