What is a sales quota (and how to set one up)?
As you might have guessed, a sales quota is a target amount of sales that a salesperson achieves in a given period, say a month or quarter. Sales managers set sales quotas to establish performance expectations, motivate salespeople to aim higher and achieve the company’s revenue goals.
But here’s the thing: only when you create a realistic sales quota, your salespeople will be able to hit it. A pie in the sky target only demotivates reps – the exact opposite of what you want.
So an important question is:
How to set the quota that influences the sales commission?
“There’s no easy answer other than to test as best you can before you ink in targets and commissions,” notes Aidan Snee, the founder, and CEO of Inside Sales Solutions.
Here are a few factors that you need to consider as you plan a realistic sales quota:
The industry
Some industries tend to be highly competitive, while others aren’t.
Enrico Parodi, the SVP Sales at Sales Xceleration, shares that he looks at the same for setting realistic sales quota: “At high level, I start from the market growth and the positioning the company has in the industry they operate. This is a top down approach.
I validate my conclusions by looking at the accounts, their backlog of orders and at potential prospects/market segments.”
The target territory
In his article for Harvard Business Review, Doug J. Chung tells how territory sales quota can influence a salesperson’s morale.
He says “A rep who was hitting his quotas and making decent money would want a manager to do something about a “lazy” colleague who was earning outsize pay simply because he had a good territory. ”
A subpar territory can limit the opportunities available for a salesperson, thus bringing in lesser revenue, while those with good territories thrive.
To understand territories that are performing well, and those that have fewer opportunities, you can take a look at the territory reports in your CRM software, and set the bar accordingly.
Average sales attained by the sales team
While unrealistic targets can demotivate your team, setting the bar too low does not help them either. Without challenges, they could take the metrics for granted and can slack them off.
Ultimately, testing will help you as Aidan Snee puts it “Once you do have an understanding of what a really good performance would look like, work out what you can afford to give and give enough of it to really motivate your team!” adds Snee.
In other words, consider the average sales each employee makes and set a goal from there. You can use the data and reports from your CRM software to understand the sales by over- and under-performing salespeople and figure out the average from there.
Product/service offering vs competition
Address how well your product beats the competition as it decides how challenging it is to make sales and meet the quota.
Anticipated growth
Factor in your growth forecast for a specified period too, based on the investment, past performance, and other factors. You can always do this manually or use a CRM to help with sales forecasting.
Sales cycle
Longer sales cycles naturally take time to complete, which means setting a high quota is going to be unrealistic. Additionally, you’ll want to pay attention to exactly what work you demand from a salesperson.
Here’s a real-life example of how the sales team sets sales goals over at Referral Rock. Mica Longanecker from their team explains, “our commission is uncapped, so we don’t spend a ton of time thinking about quotas. We set sales targets based on historical data and look to increase this over time.”
Longanecker continues, “we have a fairly short sales cycle (30-60 days) and are more focused on providing a great buying experience instead of putting pressure on our salespeople and prospects to close by a certain date. If salespeople don’t hit their target, then we’ll work on a performance plan but we focus more on attracting the right people and coaching them to be successful.”
