The Plan Architect's Rule:
You can have the best commission plan in the world, but if the territory is bad, the rep will fail. Territory design is compensation design.
Most companies design territories based on geography:
- Rep A gets the East Coast.
- Rep B gets the West Coast.
This is simple, but it is rarely fair.
If the "East Coast" has 500 qualified accounts and the "West Coast" has 50, you have effectively given Rep A a winning lottery ticket and Rep B a pay cut.
When top performers feel their "patch is dry," they don't just complain—they quit.
Fairness in territory design isn't about equal square miles; it's about Equal Opportunity. Here is how to balance your territories to maximize revenue and retention.
1. Map "TAM," Not Just Geography
Stop counting states and start counting Total Addressable Market (TAM).
Before you assign a territory, you need to score it based on:
- Number of Qualified Accounts: How many companies fit your ICP?
- Historical Revenue: How much have we sold there before?
- "White Space": How much unsold potential exists?
Your goal is to ensure every rep has a "path to quota." If Rep A needs to close $1M, and their territory only has $2M of total potential, they will likely fail. A healthy ratio is usually 3x-5x Pipeline Coverage relative to quota.
2. The "Bluebird" Problem
Sometimes, a territory has one massive account (a "Bluebird") that makes the rep's year.
Scenario: Rep A manages "New York." A Fortune 500 bank headquartered in NYC signs a $2M deal. Rep A hits 300% of quota.
The Problem: Rep A didn't necessarily "hunt" better; they just sat in the lucky seat. Meanwhile, Rep B in Ohio is grinding for every dollar.
The Fix: Named Accounts.
Pull the massive "Whales" out of the geographic territory and assign them as "Named Accounts" to your Enterprise reps. This leaves the geographic territory more balanced for the mid-market team.
3. The Annual "Re-Balancing" Act
Territories are not static. A patch that was "rich" last year might be "tapped out" this year.
You must run a Territory Analysis every year before rolling out new quotas.
- Did Rep A hit 150% because they are a superstar, or because their patch was too easy?
- Did Rep B miss because they are underperforming, or because their patch was empty?
If you don't adjust, you will overpay the lucky reps and fire the unlucky ones.
4. How to Handle "House Accounts"
"House Accounts" (accounts owned by the company, not a rep) are morale killers. Reps see them as "management stealing deals."
The Fix: Assign every account to a rep or a team. If an account is truly "House" (e.g., a self-service web sign-up), be crystal clear about why it is excluded from commission. Ambiguity here breeds resentment.
Frequently Asked Questions (FAQ)
How often should we change territories?
Annually. Mid-year territory changes are disruptive and damage trust. If you must change territories mid-year (e.g., a new hire joins), consider a "split" where the existing rep keeps their active pipeline deals for 60-90 days.
Should quotas be different for different territories?
Yes. If you can't balance the opportunity (TAM), you must balance the quota. A rep in a "developing" territory should have a lower quota than a rep in a "mature" territory with high inbound volume.
What is a "Holdover" policy?
When you move a rep to a new territory, a "Holdover" policy allows them to keep working (and earning on) specific deals from their old patch for a set time (e.g., 90 days). This prevents them from losing commission on deals they already did the work for.
Related Reading
Model the "Path to Quota"
Before you assign a quota to a territory, do the math. Does the territory have enough "White Space" to support the target?
Use our free Plan Design Wizard to model different quota structures and ensure your expectations align with reality.
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