How do you ensure that your team and entire organization are achieving their sales objectives? A commonly-used method for tracking process, establishing benchmarks and motivating employees is a sales quota. Often, employee bonuses and other incentives are tied to salespeople meeting these quotas, which serves to motivate them even further.
Sales quotas have a lot of advantages for your team and goals, but setting ones that are unattainable or overly ambitious can result in consequences for you and your entire organization. So, how do you establish quotas that are achievable but still support your strategy and help you get results? Here’s our advice.
A sales quota is a goal for salespeople and representatives to reach a certain number of sales or amount of sales, usually established by their organizational leaders and managers to be achieved within a given timeframe. They are different from overall sales goals, which are usually part of an overall strategy for the entire team; quotas, in contrast, are based on individuals’ activities and contributions. Often, meeting (or not meeting) sales quotas affects salespeople’s bonuses and other aspects of their pay and salary — this helps motivate employees to achieve them.
As discussed, sales quotas can serve to motivate team members to achieve certain sales figures. They also play a role in estimating and monitoring the team’s work and productivity. Managers can identify holes in their overall strategies and plans, recognize the achievements of key players, set appropriate objectives, learn which strategies work best and more.
There are several different types of sales quotas. The most common versions are described below.
Revenue- or profit-based sales quotas refer to representatives reaching a certain monetary benchmark. For instance, your manager might set individual sales representatives’ monthly quotas at $25,000, meaning they will need to sell $25,000 worth of the product or service. This incentivizes the team members to sell products that are more expensive. This type of sales quota is one of the most common.
With this type of sales quota, representatives must perform a certain number or quantity of sales-related activities, including ones that aren’t necessarily directly tied to sales. For example, the rep might be expected to meet with a certain number of prospective customers or clients or make a given number of sales calls within a time period. They also might be asked to send a number of emails or written pitches.
Some activity quotas do tie directly to sales. The rep might need to make a certain number of deals by the end of the month or quarter.
Volume-based quotas depend on a given number of units sold within a period of time. Unlike with revenue-based quotas, the products are generally priced the same or similarly, so reps only need to sell a certain quantity of products, rather than earn the organization a certain amount of profit. Smaller organizations may opt to use this type of quota because they’re relatively easy to implement. For example, a rep who works for a wine business might be tasked with selling a certain number of bottles within the quarter.
As implied by the name, combination quotas refer to using a combination of two or more of the quotas described above. A rep might be expected to sell a certain number of units of the product and generate a specific amount of revenue or have a revenue-based quota along with being required to perform a specific number of activities, such as making sales calls. Combination-based quotas mean that the representative has more benchmarks to achieving success. Still, it’s important to clearly established goals and set priorities to avoid any confusion.
Good sales quotas require a number of components, including:
Managers should pay attention to previous sales, trends in your industry and the overall market, the team and organizational strategy, the amount or size of typical sales, the size of the team and other factors that influence the sales process. Use this information to set realistic, achievable quotas.
There are many methods of setting sales quotas. You might use the top-down approach, which means having an ultimate sales goal for a given period in mind and then setting individual sales representative goals to help meet it. This should support the organization’s overall strategy and efforts. This approach prioritizes the general team strategy over the demonstrated abilities of your team.
On the other hand, some organizations use a bottom-up approach. This means you should establish different quotas for sales reps with different levels and years of experience. After all, a more senior rep with 10 years of experience will likely be able to meet loftier goals than an entry-level rep with less than a year of experience. Taking this information into account along with previous sales, you’ll establish quotas. This approach often leads to setting realistic quotas because you’re taking into account the demonstrable abilities of your team members when formulating them.
Make sure to use an established system for keeping track of your sales team’s activities, such as a simple spreadsheet or CRM. There are also calculators, such as one from Yesware, available for setting appropriate quotas for given levels of experience based on past sales, amount of experience, number of representatives, market trends, the type of sales quota you’re aiming to achieve and other factors.
Remember that it’s essential to make your sales quotas realistic. We’ll discuss the disadvantages of setting quotas that are too lofty below. That doesn’t mean they shouldn’t be ambitious; you want your reps incentivized to achieve their best work.
Setting unrealistic sales quotas can do more harm than good to your business and your team. And if more than a small percentage of your sales representatives are failing to achieve sales quotas, it’s probably a sign that the quotas are too ambitious. There are numerous disadvantages to establishing unattainable quotas, including:
Setting sales quotas that are too high can have a severe consequence on team and individual morale. When your employees are tasked with the impossible, their failure to achieve their goals can make them feel dejected, burned out, stressed and incapable of performing their jobs effectively. Low morale can have other disadvantages: sales representatives can become disengaged with their work, and this could lead to high turnover at your organization, along with low employee satisfaction.
If you have sales representatives who consistently perform well, you should reward them, not punish them by raising your quotas to unrealistic and unachievable standards. Doing the latter will make them feel like you expect the impossible and resent you. They may wonder if there will ever be an end to raising the bar and pushing them beyond their limits. A high performer may have exhausted a given territory, and overly-ambitious quotas may not be attainable, even in the hands of a talented sales representative. It’s not fair to make them do the impossible — you’re just setting them up for failure.
With the reduced morale and general discontentment due to overly high standards, the atmosphere of your organization can quickly turn toxic. You’ll create unhealthy competition among sales representatives, who may employ an “everyone for themselves” attitude. Some employees may even turn to unethical behaviors, such as hyperbolizing or outright lying, in order to achieve these unrealistic quotas.
When implemented well, sales quotas can serve as a tool to motivate and encourage sales representatives to help you achieve ambitious goals for your organization. However, it’s important to keep them realistic. If you make your quotas too high — outside of what’s attainable — you could find yourself in hot water, with unhappy employees who will be quick to leave your organization. Instead, challenge your employees while still keeping your goals within the realm of possibility.
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