For many sales organizations, sales quota setting is often a moving target. Ideally, sales quotas should clarify expectations for your sales team, enhance the efficiency of your overall sales operations, and help the entire team work together more effectively.
Unfortunately, for various reasons, sales quota setting tends to be an unpredictable, opaque, and time-consuming process. According to a survey, 50 percent of sales organizations go through 5 to 10 iterations before finalizing their sales quotas, and 28 percent of organizations create more than 10 iterations.
Without a reliable quota setting process, you’re sending your sales people into action without a solid plan. In fact, survey also found that 54 percent of companies don’t deliver their quotas until two weeks to a month after the start of the fiscal year.
Sales Quota
In sales, a quota is the financial goal individual or team sellers must reach by the end of a specific time period, usually one month or one quarter. Quotas are set by sales leadership and attainment of quota generally results in a performance bonus.
Sales Quota — Characteristics
1. It is the sales goals set for a product as well as of a salesman.
2. There is a time-dimension of a sales quota.
3. Sales quotas are assigned to salesmen, middlemen, or a branch.
4. It requires a desired level of performance.
5. It is a managerial tool of direction and control of sales activities.
6. Sales quotas are determined on the basis of sales forecasting, sales potential, estimates of costs, and other market studies.
7. The success of sales quotas system will depends on accuracy of data and information used for forecasting.
How to calculate a realistic sales quota
A commonly referred to rule of thumb is that 80% of your sales team should be able to meet their quota most of the time. If that’s not the case, consider that your sales quota might not be realistic and recalculate based on more attainable goals. Here’s how to set a realistic sales quota for your salespeople.
Establish Your Baseline
A baseline is your sales organization’s minimum standard of performance. It’s important to establish a realistic baseline to understand how much business reps need to close to meet the basic needs of your business.
To establish a baseline, look at the revenue your sales team closed over the last 12 months. Divide that number by 12 to understand how much your team must bring in every month.
From there, adjust that number to account for territories, reps, and seasonal fluctuations. If your east coast territory has less market opportunity than your west coast territory, sales managers should adjust each team’s baseline quota accordingly. Your baseline quota will also likely be different per quarter.
Finally, account for forecasted growth. While you never want to set unrealistic sales quotas, it’s important to ensure they’re growing with your business. If your executive team forecasts 15% growth in Q3, adjust quotas accordingly.
Start from the Bottom Up
Top-down quota setting is when sales leaders set quotas based on growth goals over their salespeople’s abilities.
The danger with a top-down approach to quotas is it gives less weight to a sales team’s historic data and proven abilities. It’s almost entirely driven by where the company board or executive team would like to be and less by realistic and healthy expectations of the sales team.
A top-down approach starts with a quota and works its way down to what’s necessary to achieve that number.
Ideally, sales teams take a bottom-up approach to setting quotas. Sales managers start by looking at historic data showing what their reps are capable of generating and calculates a quota based on those results.
Set Activity Goals
Once you’ve calculated a baseline quota and adjusted it for seasonality, rep ability, and growth goals, set activity goals.
While you may or may not tie activities to a formal quota of their own, it’s helpful for reps to have a roadmap showing them approximately how many calls, emails, and demos they need to conduct in order to meet their quota.
Platforms like Hupport allow sales managers to track sales activities and performance, so you can easily see which reps are your top performers and the type and number of activities they’re taking to close business.
Methods of Setting Sales Quota
Organizations follow various methods for setting sales quota. Though the explanations above gives us an understanding of fixing the quota and types of quota, students of sales management need to be understand the practices followed in organizations for fixing sales quota.
Fixing sales quota in organizations is a challenging task today due to the sheer size of sales organizations, complex sales force structure, and varied competitive conditions in different territories.
Quotas Based on Sales Forecasts and Potentials:
Large organizations set quota on the basis of sales forecasts and the sales potential of the market and the territory.
Organizations forecast the total sales or volume for the entire market, which is then divided into territories, and then brought down to the individual salesperson level. The forecasts can be generated at the corporate level, at the total product line level, and at the individual products level.
Quotas Based on Forecast:
It is not always possible to obtain the forecasted figures for individual sales territories as companies lack information, data, money, and people to determine the sales potential for individual sales territories.
Small companies set quota in relation to their sales forecast or total market estimate. They establish quota on the basis of the past performance in geographic areas without regard to the sales potential.
