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Boosting Revenue with Precision: Setting Sales Quotas
April 27, 2023
Companies are always looking to improve their operational efficiency.
But how does one ensure such a huge task with ease and focus?
It is without a doubt that, for the growth and success of an organization, it is crucial to have a focused and precise approach toward business operations.
Developing business objectives, strategizing growth plans, and assigning specific targets to employees is part of improving the everyday functions of the organization.
That is where sales quotas serve as one of the most effective ways organizations implement these strategies and provide a sense of direction and motivation to employees.
Thereby ensuring operational efficiency!
And here is everything you need to know about sales quotas to bring about the best out of your sales team.
What is a Sales Quota?
A sales quota is the target an organization assigns its sales representatives to achieve within a fixed time frame. It serves as a motivator for sales representatives to give the desired performance and be entitled to incentives.
Depending on the organization's expectations for performance improvement, sales quotas are assigned to either individual salespeople or a team.
The purpose of assigning such goals to sales reps is to optimize the sales of the company. In addition, it also helps in evaluating the productivity of the salesforce, keeping them motivated and maintaining uniform growth in all territories where the organization has a presence.
There are various ways in which companies can assign sales quotas to their employees.
The 6 Types of Sales Quotas
Sales or Revenue Quota
In a revenue quota, sales reps are given the task of generating sales worth a particular amount for the organization. For example, a company assigning a salesperson to make a sales of 5000 dollar revenue in 6 months.
Volume Quota
Volume quota requires sales representatives to sell a volume or number of products in a time period. A car company assigning its salesperson to sell 6 cars in the next quarter is an example of volume quota.
Activity Quota
Under activity quota, a company measures the number of activities a sales representative fulfilled to generate qualified leads and new customers. It includes the number of calls they made, the number of clients they met, the number of sales made, creating new mail campaigns, opening new accounts, etc.
Profit Quota
When a sales team is assigned a target of making a particular profit for the company that is called profit quota. It is calculated by subtracting the actual cost of the product/service from the revenue it produced. Regardless of the number of items sold, the profit quota focuses on the profit the sales brought to the company.
Forecast Quota
Based on a sales team's historical performance, the company forecasted that it would surpass its previous quota objective by a certain percentage. For example, a sales team made $10000 in revenue in the previous quarter. So the company assigns a 10% increase in their target and produces a net revenue of 11000 for the next quarter.
Combination Quota
A combination quota merges various quotas to bring a holistic improvement in sales and performance. For example, a car company can assign a sales rep to make one sale per month and 50 calls per week. Here the company combines volume quota with activity quota.
Various factors come into play when choosing the right sales quota. It includes the structure of the company, its work culture, budget, the growth they strive to achieve, the workforce they have, and the industry competition.
But developing the right sales quota also depends on creating realistic and attainable targets that motivate the sales reps to be competitive.
Now here are a few steps you can follow to set a suitable sales quota for your sales team.
How to Calculate a Sales Quota?
The objective of sales quotas is to create a roadmap for the sales team toward realistic and attainable targets.
Here is how you can develop a good sales quota.
Step 1: Establish Your Baseline
A baseline is a minimum performance that the company expects from the sales team. Providing an achievable baseline motivates them to focus their actions and efforts toward achieving the goals and ensuring consistent growth. The baseline that each sales team gets assigned is dependent on the historic performance they showed in their territory as well as the growth the company expects in that region.
Step 2: Start From the Bottom Up
While calculating and assigning quotas for the sales team, ideally, the company takes a bottom-up approach. In this way, they can set targets based on the sale steam’s historic performance, productivity, potential, and capacity. It also ensures that the sales quotas are realistic and achievable to accomplish, which results in a successful outcome.
Step 3: Set Activity Goals
Even though you might not be following an Activity quota, it is a good practice to assign a few tasks to sales reps. These include calls, emails, and other routine sales work. Having a predetermined set of everyday tasks helps sales reps to get into the groove and follow a routine that brings out the best in them.
So knowing the various types of sales quotas and the ways to calculate them, puts you in a better position in understanding the importance of sales quotas.
How to Set a Sales Quota?
Setting quotas for your sales staff is fundamentally about providing them with a sense of direction that enables them to focus their strategies and efforts to produce successful results.
So, companies must understand their goals and priorities to set a sales quota that best suits their sales team and organizational structure.
And here is how you can get it done.
Determine Your Goals
Having focus on what the company is striving to achieve and the growth rate they wish to reach while maintaining a healthy and motivating work environment for the employees help determine its goals with clarity. Understanding your priorities and goals in business operations will help organizations develop sales quotas that ensure employee motivation and company growth, a critical aspect in BDR sales where setting achievable targets drives proactive lead generation and revenue generation efforts.
Choosing the Right Quota-Setting Method
Organizations must be clear about how they would like to approach their quota setting, be it by envisioning the company's goals or by understanding the potential of the sales reps.
Top-Down Approach
The top-down approach is when the higher-ups in the management determine their growth plan for a period and allocate respective responsibilities to the rest of the employees.
Bottom-Up Approach
The bottom-up approach determines sales quotas by understanding the historic performance and capacity of the sales team. These goals are then passed to the executive level to draw up a larger goal.
While a top-down approach envisions targets without understanding the potential and capacity of the sales reps, a bottom-up approach can slow down or restrict the larger goals the executive level wishes to chart out.
A good sales quota approach strives to achieve the goals of the management in accordance with the performance and potential of their sales team.
Setting Activity Goals
As mentioned above, setting activities for sales reps always contributes to their increased productivity, keeping them focused on their everyday tasks and understanding the nature and demands of the job. It also motivates them to strive with focus to achieve their targets and goals, aligning with the principles of sales as a service by emphasizing a proactive and customer-centric approach that extends beyond mere transactions to build enduring relationships.
Things to Consider When Setting Quotas
Reading through all that information might now have given you an idea about how to go about setting sales quotas. But let's make a revision.
- Sales quotas must be assigned on the basis of the goals the company strives to achieve within a particular time frame.
- It must be realistic, and achievable and provide a sense of direction and clarity as to how to achieve their goal.
- Companies must ensure that targets are made with proper data forecasts and without compromising on their work culture.
- They must assign goals by understanding the historic performance and potential of the sales team.
- In the end, setting sales quotes must find a balance between the company objectives and employee potential.
Conclusion
Depending on the industry like manufacturing, retail, and life sciences, the type of sales quota that organizations set for their sales team differs. But at the end of the day, it must be a determinant that motivates the sales team to work hard towards achieving their goals and checks the productivity of each salesperson.
Calculation of sales quotas can be automated to bring about a data-driven approach toward determining productivity and incentives which makes the whole process transparent and clear.
Kennect provides data-driven digitalized solutions for sales performance management and incentive compensation management removing the burden of the overall sales quota management and bringing in ease. Book a Demo for information.
Sheetal S Kumar
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