Developing a Sales Quota?
By Bob De Contreras
you set goals for yourself? What happens when you establish a goal and believe
in it? You work hard to achieve it. What happens when you achieve it? You feel
good about yourself and your success drives you to achieve more.
A sales quota
is a goal; it is a target you expect your sales staff to meet. It must be a
target your sales team believes they can achieve. Each sales person must
understand the importance of their target and how it fits in as part of your
total business plan. When you wrote your business plan, you established specific
sales targets. The sales quotas you assign to your sales staff are the building
blocks used to meet the goals stated in your business plan.
quota is part of an incentive compensation system. As milestones within the
quota are met, the sales representative is paid a commission or bonus. So, the
more the sales person sells or the closer the salesperson gets to achieving the
sales quota assigned the more money they are paid in commissions or bonuses.
of a quota system in your business can be simple or complex. Planning is
required and some business judgment has to be applied. The following are some
simple rules you could follow:
revenue goals and the business plan should be the basis of and tied to the
2. An achievable quota is required before it can be
deemed an effective quota. The sales people must view the quota as achievable.
Quotas that are impossible to meet are ignored. Unrealistic quotas will make you
3. Industry typical sales quota attainment should be
considered in setting the quota assignment.
4. A simple, clear and easy to understand quota and
compensation system is required to ensure sales person focus on the right goals.
5. Define the sale, the event for which quota is paid, in
the context of determining how the quota attainment commission is going to be
4. Don't penalize successful sales people by pushing
their quota out of reach. They may retaliate by selling less.
5. Don't threaten by using a quota system as a weapon
against poor performers. It will not solve the problem.
The following are some considerations for
building the best quota system for your company.
1. Establish parameters for developing
Historical trends: How much of
each product and each service have been sold in total and in your various
sales territories over time?
Last year's revenue: What was
the total revenue from all products, services and sales territories?
Industry standards: How much did
all vendors (selling the same types of products and services) sell?
Territory analysis: How much do the
sales people think they can sell in their individual sales territories based
on their existing pipeline and recent successes?
Simplicity: Keep it simple. The
easier it is to understand the better it will be to guide the actions of the
Particularly in high tech industries such as computer hardware/software,
telecommunications, biotech and others will also impact revenue performance
trends and should therefore, be considered.
Add a growth expectation
Realistic: What is doable for
your products in the current state of your market? Some industries can
realistically expect sales growth of 5% while others may see 100%.
The goals you set should require each member of your team to work hard to
meet the assigned goals.
Adapt the quotas to each sales rep
If you have different types of salespeople within your team, you may need to
adjust quotas based on the type of job. The potential for sales of
telemarketing people may be different from that of outside sales people. The
potential for product sales vs. services sales may be different.
Some members of your team just have better sales skills than others. Having
better sales skills is more likely to result in higher sales results and
therefore higher quota assignment.
Each territory may be different in its needs and appetite for acquiring each
of your products or services.
In some territories, the competition may be strong and thereby reduce the
potential for sales. In other territories, competition may be weak or
Adapt quotas to market conditions and company revenue plan
Roll-up: The quota of all sales
people added together should be at least equal to the company revenue plan.
Since some sales people will not make their quota the total quota assigned
should be more than the company revenue plan.
As market conditions change (up or down) the quotas may need to be
adjusted. This is so sales people don’t significantly over achieve quota or
become demoralized because of under achievement.
Sales resources: Completing the
research listed above, you may discover that you need more sales people in
order to achieve your company revenue goals.
What’s included: Determine what
is included in the quota – products, services, maintenance, long term sales,
follow-on sales, out of territory sales, etc.
Guide behavior: The quota and
compensation plan should guide and motivate the sales people to achieve the
specific goals of the company business plan.
When paid: Decide when sales
quota attainment triggers payment of commissions – monthly, quarterly,
Quota sharing: Decide if it’s
possible for more than one sales person to be paid if two or more sales
people work on the same sale.
Ramp up: When assigning new
sales people a quota or when introducing new products/services the quota
should ramp up – start lower and increase to a higher number as traction is
Get buy-in from your sales team
If quotas are imposed on your salespeople without an explanation of how they
were developed and defined, the result could be resistance.
In one of your sales meetings, outline the process you'll be using to set
quotas. Describe each of the steps you will be taking and the likely
completion date. Most importantly, explain how your team will be involved in
Involve sales people:
Have your sales people help gather information for the quota-setting
process. Let your sales people gather the information about their individual
territories that you will use as one of the parameters for setting your
Meet with each person to determine an individual quota. In the meeting,
discuss any factors that might influence the setting of that person's quota.
Make it a joint decision, if possible, to gain buy-in and commitment from
the sales person.
reviewing this list of considerations you my think quota planning is a complex
process? It is and you should consider getting help if you are not experienced
in the process. Contact Paladin and Associates if you would like to discuss how
we can help.
Developing a Sales Quota Case Study
By: Bob De Contreras
As we discussed in the lead article in this newsletter –
developing a quota system is a complex effort. There is a lot to consider if
you are going to get it right and have the plan guide the correct behavior in
your sales people.
With this in mind let us share with you the discussions we
had with a client and their actions to implement a quota system.
This company is a service provider in the health care
industry. They have significant competition, but have found success in their
national sales efforts. This company is five years old and just starting its
first growth phase with revenues of 2 million dollars. They contacted us
because their growth had stalled and they wanted our help to get them growing
As is the case in many situations we see, there were
several things that they were doing and not doing that contributed to the
stalled growth. In our view, the biggest was that they did not have any
documented company goals nor a sales quota. Our early discussions were based
on, “…how can you expect to grow if you don’t set any growth goals … how can you
expect to increase sales if you don’t have a growth quota?”
We were surprised to hear their response, “…we don’t know
how to set a quota or what it should be.” So, we scheduled a planning meeting
to discuss quota setting, quota planning, and sales compensation with the three
key executives of the company. We discussed most of the considerations listed
in the main article of this newsletter. With that competed we let the three
executives start the planning for their quota system.
They first wrote down their revenue attainment from last
year. Then they decided what they thought they could do next year. We then
challenged them to raise the bar and set a goal higher than what they thought
they could do. They set a “stretch” goal that they would have to work hard to
meet, but that they thought was attainable.
Next the three executives decided that they wanted the
quota to be assigned for growing existing accounts and signing new accounts.
They wanted a balanced performance in these two objectives.
This decision led to the necessity for them to decide
which existing accounts would be assigned to each sales person. This was
required to balance the existing accounts across the sales people so the company
could assign an equal quota to each sales person.
The three executives then decided that they would have a
new position of inside sales or telemarketing. After some discussion they came
to the conclusion that the inside and outside sales positions should have the
same quota because the two positions were equally difficult. This brought the
staffing level to three outside sales people and one inside sales person.
The company had done some research, including talking to
their competition and had a good handle on typical sales quotas in the
industry. The problem was that the range between the numbers was wide. But,
the data showed that the industry average sales quotas per sales person were
lower than cross industry numbers we had seen.
We then came back to the company revenue objectives and
discussed how the sum of the individual sales person quotas should be more than
the company wide objective. So, we worked it backwards and added 10% to the
total company quota which gave a total company wide quota of 2.6 million
dollars. Dividing this by four (the number of sales people) gave an individual
sales quota of $650,000. The range of the industry quotas was $500,000 to
$800,000. So, we were all comfortable that the $650,000 quota per sales person
was a good number.
The last piece we needed to decide was the quota split
between growing existing clients and signing new ones. It just worked out
(because of good assignment of the existing accounts to the sales people and
good growth potential in the existing accounts) that the quota for both existing
account growth and new clients was $325,000 each. So, they had a balanced quota
splitting the overall quota of $650,000 between the two.
With our guidance they also agreed to document the quota
plan and include the caveat that market conditions change and that the company
would review quota assignments in September and make one time adjustments based
on market and other unforeseen situations.
We hope you agree that this was fairly straight forward
when you have the right help. If you need help with you quota planning call
Paladin and Associates to discuss what we can do for you.
Brought to you by:
Bob De Contreras
RTBA | Cary | Greensboro | Raleigh | Research Triangle Park | North Caroliina
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