Second, this strategy aims to implement realistic sales increases across the territories, which would hopefully prevent compensation levels from being adversely impacted. The plan

When allocating budgeted sales increases across the various territories, we will start with a basic principal - it is not acceptable for any division to head backwards. For example, we may have a new salesperson in territory 9963, but it sends a damaging message if we tell that person that we do not expect him or her to produce at the level of the previous salesperson. Similarly, in territory 9961 we may lose a large account, but we need to send the message to the salesperson that we expect those sales to be replaced.

We also need to be reasonable. We can not expect as much growth from territories 9961 and 9963 as we do from our other territories. Therefore, we will budget increases of just 7% for territories 9961 and 9963 in 2002. The sales staff may grouse, but this increase will be much less than what the other territories will receive, so there will be limited room to complain. Therefore, territory 9961 will have to increase sales by roughly $178,000, while territory 9963 will have to find an additional $184,000 in sales.

Territory 9967 has grown sales 32.5% over the past two years (including 2001 projections). This is a rate of about 16.25% a year. By passing a 22% increase to this territory, we are expecting it to produce an additional $660,440. It is not unreasonable to suggest to this territory's salesperson that we are mindful of the territory's growth history and would simply like to see acceleration in 2002.

Territory 9962 presents an interesting challenge. This salesperson has not met his budget in 1999 or 2000 and is expected to miss the budget again in 2001. In fairness, the salesperson often comes close. He only missed his budget by...

In short, we can not expect this territory to exceed its budget, but we can expect it to come close to meeting it. Budgets for this territory have increased by an average of roughly 10% a year. We need to pass a slightly larger increase on to the salesperson in this territory, while acknowledging that it can not be much more than 10% over projected 2001 sales. If we allocate an increase of 12% over the 2001 projected, we budget an increase of $194,760.
We will expect a great deal from territory 9964 in 2002. Assuming 2001 projections to be accurate, this territory has exceeded its budget three years in a row. Furthermore, the territory has grown 46% from 1999 to 2001-23% a year. This is a territory that can handle a 25% increase over 2001 projected figures, which would add $430,000 to the territory sales quota.

Finally, we will add a 5% increase - or $8,000 - to the House budget. We don't expect much from the House territory, but this is a good opportunity to send the message that we expect all territories to move forward. Plus, the House territory does have a history of exceeding its budget.

In the end, as shown by the table below, we end up with a 2002 budget of $13,332,100, which slightly exceeds the figure we needed to hit -- $13,315,000.

Territory

2001 (projected, in thousands)

2002 budget (thousands)

Dollar increase (thousands)

Increase

House

14% (avg.)

Conclusion

By taking market and environmental forces - and past history - into consideration, we have found a reasonable way to allocate a 14% increase across our territories. We have sent a strong message that each territory is expected to move forward, while making intelligent…