Pharmaceutical sales reps tend to cover a large geographic area, and because sales in this industry are highly relationship-driven, they primarily work in the field. Unlike many industries that have shifted toward digital sales, pharmaceutical sales still require a personalized approach, with reps spending much of their time visiting doctors’ offices and building direct relationships with healthcare providers.
Given this hands-on approach to prospecting and account management, having territories that are clearly defined is essential, especially when incentive pay is tied to them. They help ensure that each sales rep has a fair opportunity to generate leads while also making sure that all potential customers within a given market receive the attention and support they need.
In this article, we’ll break down what territory-based commissions are, common challenges with territory-based commission structures, and how to balance your territories effectively to ensure fair sales opportunities for all of your reps.
What are Territory-Based Commission Structures?
A territory-based commission structure is when all sales reps tied to a specific geographic or account-based territory are given commissions based on the performance within that territory. The key performance indicators (KPIs) that determine performance usually factor in total revenue generated, the number of prescriptions, or attainment of other specific sales targets.
Unlike flat commission plans, territory-based structures account for the size, potential, and challenges of each territory and are customized to fit each unique market.
Common Challenges with Territory-Based Commission Plans
Regional vs. Product Based Territories:
Sales territories are often envisioned as geographic regions on a map, with reps assigned to specific cities or states. However, it is also common for territories to be structured around specific product lines, especially in pharmaceutical sales where different drugs may target entirely different patient populations or healthcare providers.
In some cases, both regional and product-based territories may be utilized, which can cause a lot of overlap for sales reps and their earnings. While this hybrid approach helps ensure ample sales coverage, it can cause significant overlap and make it more challenging to accurately track commissions.
Territory Splits:
When multiple reps contribute to the same account or when sales reps split their time across territories, it can be difficult to attribute the appropriate commission rates and track revenue to the correct territory. Different territories may have both different commission rates and different quota attainment goals, so managing reps in overlapping territories can become quite complicated to manage without the proper tools.
Quotas & Commission Tiers:
Commission tiers are used to reward sales reps for hitting key performance metrics within their assigned regions. Each tier corresponds to a specific quota or sales milestone, with each tier threshold a sales rep reaches, the commission rate increases. For example, a rep might earn 2% on sales up to 100% of their territory quota, 3% for sales between 101–120%, and 4% for anything above 120%.
Commission tiers can be difficult to track on their own and then factor in different quotas and tier structures for each territory, and the process becomes even more tedious and error-prone.
Bonus/SPIF Payouts:
A key component of territory-based commission structures is the use of bonuses or SPIFs (Sales Performance Incentive Funds) to reward reps for achieving collective goals within their assigned territory. Unlike individual commissions, which are tied to a rep’s personal sales performance, these payouts incentivize teamwork and encourage reps to focus on overall territory success.
On top of existing individual quotas and accelerators, keeping track of all earnings tied to a specific bonus pool is just one more thing to manage, especially when these payouts occur as frequently as once a month or even once a quarter.
How to Balance Pharma Sales Territories
The biggest challenge in creating sales territories is that not all territories provide the same level of opportunity. No matter how successful an individual sales rep is, sales reps in certain territories may still be disadvantaged in some ways because of unequal opportunities. This is especially true in the pharmaceutical industry, where you can’t just create new hospitals or will new doctors into being. You are working solely with the healthcare systems that are currently in place.
This means that not all territories will have the same number of physicians and patients, which immediately puts any rep serving rural communities with the short end of the stick due to sprawling land coverage and limited healthcare facilities. Additionally, specialized equipment or drugs will be a much tougher sell in areas that primarily support general care and lack healthcare providers in specialized fields.
To effectively balance territories, you need to consider the opportunities available and how you will lift up reps in underperforming regions to level the playing field.
Here’s some things to consider when mapping out your territories:
1. Do Your Research: Assess Territory Potential
To evaluate territory potential, you need to take a deep dive into the nitty-gritty behind historical sales data, prescription volume trends, patient population demographics, and the concentration and specialty of healthcare providers within the region. Sales performance can also depend on how easy it is for reps to work with major hospitals or high-prescribing doctors, and how accessible insurance companies make the drugs for patients. If the drug is not covered through insurance, it may be a harder sell to physicians who are trying to keep costs low for their patients.
No amount of research is too excessive when it comes to doing recon on territory potential, because in the end, while this will serve your sales reps, more than anything, this research is the guiding principle behind how your organization plans to target a specific region and how you plan on building an effective sales territory to maximize revenue and sales.
Other key variables may include:
- Competitive presence
- Regional healthcare policies
- Geographic accessibility
The research behind territory planning is extremely necessary and should be extensive. Again, this benefits not just your sales reps, but your overall sales strategy for your entire organization.
2. Customize Your Commission Tiers
As we stated above, you can’t just create new opportunities within a territory. However, you can create more equitable earning conditions by customizing commission tiers based on the opportunities available in each region.
For example, in lower-performing regions, quota attainment goals can be adjusted to better reflect the realistic sales potential of that territory. This allows reps to still unlock commission tiers and accelerators, even if they aren’t generating the same total revenue as those in higher-performing areas.
This might look like:
- High-performing region: $100,000 quota for a 2% commission tier
- Low-performing region: $50,000 quota for a 2% commission tier
Having realistic goals is what helps motivate your sales team, and if goals that may make sense in one region are wildly unrealistic for another, they can be demotivating for reps in that area. Adjusting commission quotas and tiers by region creates a more equitable earning system for reps across the board.
3. Proper Distribution of Resources
Ensuring proper distribution of resources is essential for creating an equal playing field across sales territories. Sales reps can only perform as well as the tools, support, and access they are given, so disparities in marketing materials, promotional budgets, or field support can make some territories more challenging than others – especially if they already have a disadvantage from the get-go.
By allocating resources based on the potential and needs of each territory, companies can help reps compete on a more level field.
For example, a territory with fewer high-prescribing physicians might receive additional digital marketing support or targeted outreach tools to help drive sales, while a high-potential territory may need less intensive support. Properly distributing resources not only fosters fairness but also maximizes the overall performance of the sales team, ensuring that each rep has a realistic chance to hit their quotas and earn commissions.
Track & Manage Territory-Based Commissions with Core
Managing territory-based commission structures in pharmaceutical sales is inherently complex, and every variable from territory assignments and quota attainment to splits and bonus payouts must be carefully tracked.
Whether you’re tracking individual performance against territory-specific quotas or managing bonus and SPIF payouts across an entire region, Core’s commission automation platform provides the tools needed to handle these calculations accurately, while providing reporting tools that allow you to hone in on each territory’s successes.
Schedule a demo to see how Core can simplify your commission processes and help your territories consistently hit their goals.