Growing a Wholesale Sales Territory
How Much is Enough?
One million dollars. That’s about how much top line revenue you need to support a commissioned or salaried sales person in my industry, in the northeastern United States, at break even. Some companies estimate a little more, other regions of the country generally work out to be less. No matter where you are, about ten percent of wholesale sales can be allocated to salary/commission, benefits and expenses. That amounts to about $100,000 per year. The remaining 20%, of the roughly 30% gross margin, pays for your support staff and all other non-product associated costs. Looking at each territory with an eye toward making each “sales unit” profitable, is the best way to ensure that your overall sales plan doesn’t collapse under its own weight.
So, if you’re expanding sales territories, think about them like they’re each a “startup”, and each territory is a new business unit. Figure out what top line sales revenue number allows you to support a salesperson with commission, benefits and expenses and leaves enough gross profit to cover your G & A expenses, and a profit. Then make sure you establish sales territories with enough potential business (three years out) to support each member of your sales team.
Long Division
“Division”, in horticulture and gardening, is a method of plant propagation, where a mature plant is divided up into two or more parts. The new portion is moved to another location to grow and mature. Both the root and crown of each plant is kept intact and each grows to the size of the original, within a few seasons. This is exactly the method you should employ for growing sales in territories with little or no previous sales history.
I’ve started two sales organizations from scratch – new company, new product portfolio, no sales history. Each time, I was very careful to choose, as my first sales rep in each territory, a team player with a vision and desire to move up. This person had to have the disposition of a manager, someone you could trust to do the right thing for the company now, in order to enjoy future rewards. In essence, they had to have the spirit of an “entrepreneur”.
In starting a new territory, I always put managers on salary and instruct them to open accounts until they reached 50% - 65% of a territory’s future business potential. Once they get to that point, we hire a new sales rep, hand off all the accounts to the new rep and the manager starts the process over in an adjoining territory. After about three years, starting with an entrepreneurial manager, we had a region with three sales reps, a manager who knew the landscape, everyone making money for themselves and for the company.
Beware of the “solopreneur”
Some of the traits that make great salespeople, also makes them poor managers.
Many of the best sales reps are what I call “solopreneurs”, people who focus on building their own “brand” and making as much money for themselves as possible. They are often among your top performers, but don’t be fooled into thinking they’re working for the good of your bottom line. The company is just a tool to get them what they want. Solopreneurs never make good managers. A great manager is selfless and a team player.
When looking for good managers to promote from within, I look for reps who are entrepreneurs. That is, they relish responsibility, want to grow the business and want the company to succeed. They have a vision beyond their own self-interests and are good at team-building. Most importantly, they have a combination of attitude and passion which makes them a good choice to lead.
In my experience, great sales reps (top performers) won’t want to take a pay cut to go into management anyway. More pointedly, as a manager, why would you take your star player “off the field” and put them in the dugout to manage? Pick managers for their selflessness and leadership qualities, not their salesmanship.
Relationships Are More Important Than Geography
Relationships matter more than geography. Pair up your best people with your best customers. Don’t get sucked into believing that a tight geographical territory is more cost effective. Travel, whether by air or ground, telecommuting and phone calls are way less expensive than having the wrong salesperson paired up with the wrong customer.
That said, there is no need to make uninformed or random territory assignments. Geography should form the basis of your decision-making. Your first cut at setting up sales territories should be based on sound market assessments and geography. If you’ve done a good job hiring your sales people, geography should suffice, with ninety-nine percent of the customers in that territory being well serviced by your chosen sales rep. I’ve found that there will always be a few customers who do not “click” with even the most dynamic sales person. For these customers, either the regional manager should handle the account or another sales rep can be assigned.
The Customer Is (Still) Always Right
Don’t ever tell a customer he or she can’t have the salesrep they want because of geography, team assignments or policy (a proxy argument). Reassigning a sales rep to the account simply on the word of the customer may sound like a bad idea to you for many reasons - the rep may be far from the territory, it might upset the balance of your teams, it might just appear to you, given your knowledge of the two personalities, to be a bad fit.
Rather than stand on your company policies, feel free to use your sales skills to try and “sell” the customer on the rep you know is best to handle the account. You may be successful, you may not, but in the end, the customer is always right. I have often had the experience of trying to talk the customer out of a bad “rep” decision, knowing full well that the sales rep the customer prefers, will likely fail over time. Eventually, either the customer herself asked for the change, the buyer changed or the rep gave up the account. In rare instances, things worked out as the customer expected and I was proven wrong.
Different Markets = Different Marketing
Every region is different. Don’t be fooled into setting up a “one size fits all” sales and marketing strategy. Different regions of the country, different states, even different regions within a state, can all exhibit different tastes in product mix and price tolerance. It’s not possible to have the expectation that 100% of your portfolio will sell everywhere you cover. You have to populate your book with products which will appeal to a wide range of markets and then learn to be happy when you sell some products in each market.
It follows, then, that you may have to program and feature different products in different markets in order to satisfy everyone on the team, as well as suppliers, whose products do not generally meet every market criteria.
Listen to your customers and find out what they want and need. Ask them what sells in their region. Ask your reps and managers which kinds of products are “killing it” from your competitor’s product lines. Do this by region. You may find that some of your regional territories want or need products you don’t have or have in too little a quantity.
Case Study
Take New York state as an example. New York is actually two separate markets. The New York City metropolitan area is unique among markets. It is densely populated, fabulously wealthy and full of restaurants. Moreover, the easy availability of mass transit, combined with all of that money and restaurants means people can feel free to dine and consume alcohol without concern for how they will get home. The average consumption of wine in NYC restaurants, therefore, is considerably higher than anywhere else in the country.
The suburban New York city region is a mix of upscale neighborhoods and working class bedroom communities with diverse tastes. While a business executive may think nothing of dropping several hundred dollars at a business lunch or dinner at a restaurant, while in New York City, that same person doesn’t exhibit the same behavior when in his or her hometown with their family. It is more likely that they will purchase wine at retail and do the entertaining at home.
When I look at market data (fine wine), the mix of on to off premise sales (in dollars) in the NY Metro area is about 60% restaurants and 40% retail. The customer ratio is even higher - 70% of the customers are restaurants and 30% are retailers. This is exactly the opposite of the rest of the state, where most wine sales occur in retail stores.
This makes building a portfolio, even within one state, a challenge of careful consideration. Pricing wines to move by the glass in space challenged New York City restaurants might mean you can’t offer more than a three case discount, because no amount of discounting will lure restaurants into purchasing more than three cases at a time. On the other hand, large suburban warehouse stores can likely absorb ten and twenty-five case pricing and in fact, see it as an advantage.
Similarly, the kind of wines likely to succeed in the infinitely varied restaurants in New York City are not necessarily the same as those likely to succeed in suburban restaurants and retail stores. Without a doubt, there’s overlap. But the diversity of region, style, price and quality will vary greatly between urban and suburban markets everywhere.