The American marketing author, consultant, and professor emeritus Philip Kotler once said
A sales quota is the goal set for a product line, company division, or sales representative. It is primarily a managerial device for defining and stimulating sales efforts.
Achieving the goals is a sign that the sales team is performing at its peak, consistently driving quality leads and new business for the organization.
But the truth is that 50% of sales reps in every organization miss their sales quotas, and all sales managers spend an inordinate amount of time playing around with the system to find better ways to motivate reps and grow revenues.
Low Output, High Complexities, and Even Higher Turnover Rate — three main evils leading to declining sales in many organizations.
So let's delve more into the topic of sales quota to understand how you can bring in sales effectiveness in a focused way.
What is a Sales Quota?
Sales Quota refers to the target that the sales reps are expected to achieve within a specific timeframe. These targets can be measured in value or units sold of your product/service, or even as specific as the number of leads generated, or through activities like cold calls and product demonstrations.
A salesperson’s quota is often influenced by the company's goal and tied to their compensation plan.
Types of Sales Quota
Revenue-Based Sales Quota
As the name implies, sales reps are expected to earn a certain amount of revenue each month from the leads they generate. The most simple and direct, but also the most challenging of all. To enhance the effectiveness of this approach, businesses often implement revenue growth strategies that encompass targeted marketing, customer relationship management, and continuous training to equip their sales teams with the skills needed to meet and exceed revenue expectations.
Example of Revenue-Based Sales Quota: A sales rep is assigned a revenue-based sales quota of $15,000 that they are expected to achieve in the next 30 days.
Volume-Based Sales Quota
Sales reps working with volume quotas are incentivized with bonuses or better commissions based on the units they sell over the given timeframe.
The goals set for this kind of quota can differ based on the seasonality of the business, product lines, geographical territories, as well as marketing intermediaries.
The sales representative has an on target earnings quota, aiming to achieve sales of 300 units of cars between March and September.
Activity Sales Quota
In some organizations, certain roles may not be directly involved in making the sales, but have the job of providing information to potential customers. For instance, most telecom companies have sales agents whose only job is to inform their current customers about new plans, products, and offers that they can benefit from.
This kind of quota setting is quite common in software companies, where sales reps spend an enormous amount of time prospecting and finding the right customers.
Example of Activity Sales Quota: A sales development rep is assigned an Activity Sales quota of 55 sales calls and 25 demos each week.
What are the attributes of a good sales quota?
Understanding the fundamental principles of the sales quota is one aspect, but implementing them in a practical situation can be a distinct challenge when considering the sales funnel and pipeline.
To make these sales quotas work for your organization, you need in-depth knowledge of products, services, geographical requirements, and of course, the demographics to whom the products will be sold.
Unrealistic quotes not only cost your company money through increased turnover and new hire onboarding but also promotes unethical practices.
Evidence shows that every year hundreds of employees are fired from their job for allegedly creating fake accounts to meet their sales quotas.
So what do we do? We take lessons from the failures of the past, and move forward with a more attainable strategy!
Here are 5 good attributes of a good sales quota:
Selling 1,000 new memberships of a luxury golf club in a bleak economy like the one we are experiencing now would be a fine example of an unrealistic sales quota. You don’t want reps to start panicking looking at their sales quota for the next quarter.
Study the true potential of the market and forecast sales before setting up the quotas. The product or the service in question should be relevant to the target market in the current situation.
All sales quotas should have an objective clearly communicated to everyone involved. Whether you choose a revenue, volume, activity, or a combination of all, make sure that the quota has a defined guideline to meet the targets.
For instance, if it’s about making 50 calls a week, make sure you clearly define the purpose of the call and the outcome that’s expected from each. The outcome can be anything from sales, closing a demo request, or following up for an upgrade.
Since the sales quota period can be for as long as one year, the management may have to make adjustments because of certain changes in the team structure, company policies, or market conditions. A good sales quota is flexible enough to accommodate all such changes without having to compromise the company’s growth plans.
Sales are the most competitive department in any business structure. Everyone wants to have the biggest slice of the pie. A good sales quota should push the reps to surpass expectations.
Getting insights from your reps' historic performance helps create a quota that would keep them on their toes throughout the month. However, make sure that they recognize the challenge and acknowledge the possibility of meeting their targets.
If you keep giving your team the same quota year after year, they’ll soon start looking out for opportunities that inspire them to further their professional growth. A good manager keeps track of the growth and performance of all members of the team and restructures the quotas to keep them feeling both challenged and valued in the organization.
The Importance Of Sales Quota
- Focus on Goal
Setting sales quotas help the sales team and sales reps know the amount of work they have to put in within a certain time period to achieve their targets. Having a focused approach toward work will ensure an efficient and seamless way of getting things done.
- Motivation To Strive
A realistic and attainable sales quota planning will motivate the salesforce to strive hard for their success. Overburdening with unrealistic targets will only slow the salesforce down and demotivate them to think it's beyond their potential.
- Clarity of Work
Sales quota management is an effective way to bring clarity to work. Having a fixed target to achieve, salesforce will have a better idea of dividing their resources and streamlining their efforts to achieve their quota.
- Equal Division of Responsibility
Setting a sales quota also clearly demarcates each person’s responsibilities. It also ensures that there is an equal division of work without being overburdened with more tasks while others enjoy having fewer tasks to deal with.
- Effective Incentive Compensation
Effective sales quota management means effective sales compensation management as well. Setting sales quotas will make the management know of the budget they must keep aside for sales compensation management as well as plan an efficient sales compensation program.
Challenges with Sales Quotas
There is no question about the advantages of incorporating sales quotas in sales management. But just like the two sides of a coin, it is without challenges as well.
Let's understand how it might have a negative impact as well.
- Estimating Team Work
Sales quotas are usually assigned to individuals. But there are situations when there is a group effort that goes into achieving sales as well. In such a scenario how do you estimate sales efforts? How do you give more credit to one and less to the other?
- Working Under Pressure
Setting a sales quota means you are working under pressure. You have a target to achieve, you have a time period within which you have to accomplish your goals and all these efforts influence your incentive calculation and on-target earnings.
- Not Considering the Individual
Sales quota planning might generalize individual potential and talent. In an approach to make things equal and efficient, all salespersons will be given similar sales quotas irrespective of their historic performance. This might put some salespeople under pressure and feel overburdened leading to lower performance than their usual capacity.
- Based on Forecasting and Probability
Sales quotas are based on sales forecasting and the probability that this is how the year the market is going to be. Unforeseeable things can happen that can change the economy for the better or worse. Sales quota management doesn't take this under consideration while setting quotas.
- Based on the Sales Number
A sales quota is based on achieving the target that is assigned to you. It doesn't look at the salesperson from a humane perspective. It doesn’t check how the sales reps deal with the customer while approaching them for the first time, contacting them consistently for a positive response, and the consistent way they approach the sales process.
There are multiple factors that make a good salesperson, and sales quota achievement is just one among them.
As we have seen, a successful quota system uses a combination of sales potential, fair compensation, attainable targets, and growth opportunities — all these when come together stimulate performance and contribute to the company’s bottom line in the long run.
Isn’t that what all sales heads and managers aim for?
Your sales quota should be unique to your organization and serve as a powerful driving force for you, and your team. And do not forget to link the right compensation plans with quota attainment.
However, calculating sales quota only based on the company’s historical data won’t just cut in today’s competitive market. A little technological intervention is required to make informed and accurate decisions whilst keeping the team motivated to grow in their respective roles.