Sales Quota — just another word for 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 a 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.
“According to Philip Kotler, ‘A sales quota is the goal set for a product line, company division, or a sales representative. It is primarily a managerial device for defining and stimulating sales effort.’
Typically, achieving these goals is a sign that the sales team is performing at its peak, consistently driving quality leads and new business for the organization.
And who doesn’t want that?
But that’s not always the case.
As a fact of the matter, 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 how does it work?
Before we get to the point, let’s first analyze the most common types of Sales Quota used in corporate structures:
Revenue-Based Sales Quota
Example of Revenue Based Sales Quota: Sales Rep Kylie Fernandes has a revenue-based sales quota of $15,000 that she is expected to achieve in the next 30 days.
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.
Volume-Based Sales Quota
Example of Volume-based sales quota: Sales Rep Gwen has a target of selling 300 units of cars from March to September.
Sales rep working with volume quotas are incentivized with bonuses or better commission on the basis of the units they sell over the given timeframe.
The goals set for this kind of quotas can differ on the basis of the seasonality of the business, product lines, geographical territories, as well as marketing intermediaries.
Activity Sales Quota
Example of Activity Sales Quota: Sales Development Rep Andrew has been assigned with an Activity Sales quota of 55 sales calls and 25 demos each week.
In some organizations, certain roles may not be directly involved in making the sales, but has 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 right customers.
What are the attributes of a good sales quota?
Understanding the basics of the sales quota is one thing and applying them in the real-world scenario is an altogether different story. In order 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 costs your company money through increased turnover and new hire onboarding but also promotes unethical practices. Evidence shows that every year over hundreds of employees are fired from their job for allegedly creating fake accounts to meet their sales quotas. Heard about the Wells Fargo scandal? Read all about it here.
So what do we do? We take lessons from the failures of the past, and move forward with a more attainable strategy! Here’s 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 ones 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. Get an insight into your reps’ past work experience and abilities to 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.
No one likes to have the arrabbiata pasta every day for lunch. Do you? The same is the case when it comes to crafting sales quotes. If you keep giving your team the same quota year on year, they’ll soon start looking out for opportunities that inspire them to further their professional growth. A good manager keeps a 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.
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?
However, calculating sales quota only on the basis of 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. 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.