When sales people don’t perform at their best, leaders often point fingers to sales compensation or strategy. But problems are often with the sales structure of a company. Though it’s very important to select a complex sales force structure that supports company growth, 9 in 10 sales organizations have a hard time knowing which one sales force organizational structure will suit them best.
There are many sales structures out there, some more prevalent than others. In practice, many organizations form hybrids of the different sales organization structures. Depending on sales force size and market segmentation, organizations sometimes put several types of sales organization structures in place. Each of the typical types of sales force structures has have different benefits and disadvantages:
Geographic Organizational Structure (area of responsibility defined by assigned territory)
This is also known as territorial sales force structure and it means that the organization assigns each sales rep to a certain geographic area.
• Low cost
• Proper territory management leads to low geographic duplication of effort
• Low duplication of effort with customers (unless buyers are organizations that cross territories)
Disadvantages of Geographic Structures:
• Sales reps have a hard time developing product or market specialization (unless the organization commits to specialized sales forces allocated by geography)
• Territory sizing can be a challenge, resulting in uneven revenue/opportunity across geographies
Product Sales Force Structure (area of responsibility defined by product/product groups)
• Sales reps develop product expertise
• Management can guide selling efforts
Disadvantages of Product Structures:
• Higher costs due to duplication of effort within geographies and customer accounts
• Coordination required when more sales reps have the same geography/accounts
Market Based Structure (area of responsibility defined by customer groupings)
This is also known as customer sales force structure and means that sales reps are grouped by customer or industry.
• Sales reps know the needs of their customers and build stronger relationships with them
• Management control can be strategically allocated to different markets
Disadvantages of Market Based Structures:
• Higher costs
• Geographic duplication
Functional Structure (area of responsibility defined by sales process: inside sales, account managers, product specialists, etc.)
• Selling activities are more efficient
Disadvantages of Functional Structures:
• Geographic duplication
• Customer duplication
• Greater need for coordination
Benefits of Choosing the Right Sales Structure for Your Company
According to a Harvard Business Review survey, high-performing sales organizations have well-documented and explicitly structured sales processes. A clearly documented sales structure that is available for your team to refer to helps streamline the chain of command, while increased transparency leads to more efficient decision-making.
To sum up, selecting the right sales force structure and documenting it will provide several organizational benefits:
1. Clarity of responsibilities across selling roles: sales reps know what responsibilities they have for different product lines and markets;
2. Strong coordination and communication across sales roles: mobility for sales forces and increased time for actual selling;
3. Increased sharing of ideas: top sales reps are willing to share know-how;
4. Improved transparency with decision-making: sales managers share information on a regular basis and get faster buy-in when making changes;
5. Reduced channel conflict and lack of engagement: fewer disputes over new opportunities, more engagement towards achieving sales goals.
Knowing the organizational structures advantages and disadvantages lets you decide which unique or hybrid sales management structure is the best for your organization. This helps you improve performance, adapt sales compensation strategy, and drive sales growth. In the end, everything will fit in the bigger picture of your corporate strategy.
Aberdeen Research – Best-in-Class Approaches to SPM
Best-in-class players not only automate incentive compensation, territory and quota management, but also embrace emerging trends and technologies.