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MIF as Your Sales Territory Foundation

5 Sep, 2006 By: Tom Callinan imageSource

MIF as Your Sales Territory Foundation

I assumed responsibility for a $50M business that was running at breakeven
and had experienced three years of revenue decline. There were a lot of issues
that needed attention, but I wanted to first focus on the foundation of sales
territories—primarily the customer base or machines in field (MIF). The company
had 60 sales professionals but had a sales rep turnover rate of approximately 65
percent. There were a handful of reps that were extremely successful, achieving
annual revenues between $1M to $2.8M, but unfortunately, most sales reps could
not make a decent living.

One of the items in my initial analysis of a sales team is their MIF to quota
ratio, or what percentage of their quota is made up of MIF. Simply put, this is
how much business should come out of their territory from the base of accounts
we entrusted to their care as a ratio of their overall quota. This analysis
quickly indicated one of the drivers of the high sales turnover; we had a
substantial amount of sales reps with MIF to quota ratios of less than 30
percent. These reps needed to sell 70 percent or more new business to achieve
quota. Some of you may think, "that’s the way it should be." Indulge me,
however, to point out some areas to consider.

First,let me describe how I recommend you calculate out your MIF value. (See
Figure 1) Each segment (I – VI) has an average unit selling price (AUSP) and an
average life in field (ALF). Clearly the AUSP varies by segment but you will
find that the ALF also varies, although by low volume, mid-volume, and
production rather than by strict segments. You can calculate these two numbers
simply. For the AUSP take 10 sales over the last six months for each segment and
get an average. For ALF, take 10 upgrades over the last six months for each
segment and calculate out how long the original machine was in the field. Take
the average time in field of the 10 sales for each segment. In many cases you
will be able to get the AUSP and ALF from the same 10 sales in each segment.

I do not over complicate this calculation so I would simply multiply your
base of a segment by the AUSP divided by the ALF: (Segment x AUSP / ALF). So if
you have 1,100 segment I units in your MIF and you determine that your AUSP is
$1,465, and your ALF is 4.3 years, then the value of your segment I MIF is
$375,000 annually (1100 x 1465/4.3). You can do this for each segment, and then
together and get the annual value of your MIF.

This number is basically the equipment revenue you should realize from your
current base if you did not gain or lose a single customer. Keep in mind that
AUSP will change year to year so update the calculation at least bi-annually.

You will now need to make this same calculation for each of your sales reps
and you should then compare the sales person’s MIF to their quota. The one
addition I make to the MIF calculation at the rep level is to multiply by 0.95,
which provides for a 5 percent loss of customers due to either competition or
changes such as on of your customers being acquired by another company. I
believe this is fair but you can use your own judgment and your own factor. When
it comes to MIF to quota ratio, I belief that any ratio below 60% substantially
increases your sales turnover and any ratio below 50% is in the doomed to fail
territory. If you think about it from the perspective of a close ratio, your
reps should be closing greater than 75 percent of the current customers they
propose, however most of us would be happy with a close ratio of 25 percent in
competitive opportunities. At a 60 percent MIF to quota ratio the rep would need
to work on twice as many competitive opportunities as current customers to
attain quota. (See Figure 2) If all of my reps carried acceptable quotas, were
at or close to their quota, and spent more than half of their time working new
customers, I would be one happy business executive.

On the other hand when you get above 70 percent MIF to quota you start to put
a sales person in the difficult to manage area. Let’s say a rep has a MIF to
quota of 85 percent and they are at 82 percent of quota. Your progressive
discipline policy states that any rep < 75 percent of quota must show month over
month improvement or risk termination. How do you handle the rep who is at 82
percent, clearly above the threshold, but who is losing your customer base?

So you will have many surprises when you do the work of valuing your reps’
MIF and comparing this value to their quota for the first time. You will have
those reps with MIF ratios below 30 percent and you will have those reps that
with MIF ratio above 100 percent. You will not be surprised at this point when
you see that the former are the reps you thought were "failing" and the latter
are the reps you considered your "stars." The other surprise you will have is
that your total MIF calculation you did as your first step is greater than the
amount of MIF you have assigned to your sales team. Yes, you have customers that
are not being covered by a sales rep. Maybe they are SOHO type customers that
have been deliberately orphaned by your sales team or maybe they are solid
customers who fell through the cracks. You now have the data to make that
determination and do something about it.

How do you get to that solid MIF ratio of 60 percent -70 percent? Clearly
there are two approaches: raise the quota or adjust the MIF. If you have a rep
with a MIF ratio above 100 percent of what they are currently writing clearly
they cannot handle the volume of MIF they are attempting to manage. You either
reduce their MIF or you continue to lose your customer base. You may feel
compelled to make an exception because this rep is long-term and is always one
of the top producers (while they are losing your customer base) but I would
remain cautious as you get above the 70 percent MIF ratio. Nevertheless, life is
about small exceptions so use your best judgment.

You should attempt to keep assigned MIF within a defined geography and
vertically focused where possible. I am not suggesting you break relationships
between your reps and customers but that you keep these approaches in mind when
assigning open MIF. Do not rush this process. I do not have to tell you that
whenever you approach your sales team with quota changes you had better have
your facts correct and spelled out. Take the time to do the analysis, to
validate the analysis and to prepare the MIF information for each rep. Finally,
use any "excess" MIF to hire new sales professionals. If

you could tell a strong competitive sales rep that you were going to give him or
her a territory that is already producing $300,000 with a $500,000 quota, your
chance of hiring that rep will increase significantly.

With a sound MIF ratio you will have more reps that achieve success; you will
drive down your sales turnover; you will increase your revenue and market share;
you will reduce your selling expenses. I was in the assignment for three years
and increased equipment revenue by double digits each of those years. Overall
revenue increased 34 percent and operating income increased from breakeven to 11
percent. Getting a solid territory foundation by properly allocating MIF was an
important part of the team’s success.

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