When most sales leaders speak of shrinking, they are referring to cost cutting, reducing staff, travel and entertainment budgets, and other expenditures as a means of improving results. Management guru Tom Peters said: "You can't shrink your way to greatness," but if you're a VP of sales or a business owner, there is a way to shrink, grow and succeed. This involves regularly shrinking your territories as a means of creating focus, leading to revenue and margin growth, increased share of wallet, and retention.
This may seem counterintuitive, especially in environments where adding accounts or size was seen as a way of rewarding reps. Given salespeople's predisposition to "hoarding" this rarely leads to growth. The very same salespeople who will tell sale success is "quality over quantity" will argue the very opposite when it comes to accounts, when it comes to account base it's the more the merrier, the bigger the harem, the happier the territory king. But whether you are a small or large company, the reality is different, and there is a number of accounts beyond which there is diminishing returns for the rep, the company, and most importantly to the customer.
I regularly see reps with 150 to 200 customers, even more. Given that there are only so many hours in a day, and days in a month, it is clear that they are not all going to get covered, especially if the rep also has to prospect for new clients. This leads to some great revenue opportunities being ignored, not to mention the referrals those opportunities lead to.
This screams for focus, and that's what shrinking territories bring. Even reps who meet or exceed quota don't pay much attention to accounts beyond their top 30, leaving accounts 31 and beyond with insufficient or no coverage; even among the top 30, the coverage diminishes the further down the list you go. For example, I worked with a group where the reps had about 100 accounts in their territories. We looked at how the revenue was distributed, and on average, the top 10 accounts represented 72 per cent of revenues in the territories. Not only was there a lack of coverage for accounts 11 on, there was little prospecting for new opportunities.
Reps told me they didn't prospect because they have to spend time with this or that "important" client. Let's say we take it at face value. Who is looking after the other accounts and the intrinsic potential, who is hunting for new logos and revenues, who is killing the competition? The reality often is that the only time they think about account number 56 or 67 or 88 is when you want to take them away.
Companies that shrink territories annually based on some key benchmarks initially experience push back from reps, but with some active management and HR support, most find that reps and territories are performing better, and customers get better coverage. This leads to greater penetration of the core accounts, which usually translates to better margins, and more prospecting. As the account base grows, you shrink again, as long as your benchmarks are current and correct, new reps will pay for themselves. In periods of slow growth, there will be less opportunities to shrink, balancing the headcount issue.
Given the amount of data available to sales organizations, both internal and external, optimizing territories is easier than ever. The time has really come for sales organizations to invest in a data analyst as your next hire. While sales people may not agree, meaningful growth from existing accounts and key prospects is more likely to be the result of data and account based targeting than improved sales skills. Those skills will improve as territories shrink, and where skills don't improve, reps tend to self-eliminate.
The same is true for small businesses, although the scale may differ. Rather than stretching a good rep, consider adding a second earlier, create focus by tightening territories, and setting aggressive but realistic growth based on territory potential, not geography or rep tenure. It is better to have a bit of capacity and have your reps fill that, rather than having your reps at over capacity all the time, leading to less. Instead go for less territory, more results.
Tibor Shanto is a principal at Renbor Sales Solutions Inc. He can be reached at tibor.shanto@sellbetter.ca. His column appears once a month on the Report on Small Business website.