Sales quota has always been a scary term for salespeople. But not anymore. This blog is here to help you set the right sales quota to increase sales and productivity. Read on to know how you can nail your sales quotas.

Between 2012- 2016, Wells Fargo Bank in the USA opened as many as 1.5 million fraudulent savings accounts and issued more than 500,000 credit cards without customers’ authorization.

As a result, the Bank had to pay a fine of 3 Billion $ in settlement and consent orders by regulators. The bank fired approximately 5300 employees as a result of fraudulent sales. 

But, the employees did not take this termination easily. They filed a $2.6 billion lawsuit claiming that Wells Fargo’s sales quotas were unrealistic. They blamed the bank for demoting employees that failed to meet the set goals. Whereas, those who participated in the fraudulent practice were rewarded, generously.

As a result of this incident, Wells Fargo’s management decided to drop all sales goals for credit cards, checking accounts and other retail banking products.

Wells Fargo’s case is the perfect example of how an unrealistic sales quota can be harmful to a company’s credibility in terms of finance and employee retention.

Irrespective of the industry, salespeople lead a strenuous and time-bounding life. They are compelled to perform their best. Failing their goals will make them suffer a detrimental loss. One of the major reasons behind the stressful corporate life is the setting of impractical sales quotas.  

Did you know, Research states that sales quotas are the #2 reason why a majority of reps want to leave a company in the first three months?”  

What Is Sales Quota And What makes it a Scary Term For Salespeople?

sales quota scares salespeople

A sales quota is a financial target that salespeople, representatives, individual sellers or their teams have to achieve within a specific period. Typically, sales quotas are set by sales leaders for one month or a quarter, six months or a year. These quotas are decided and fine-tuned by sales leaders. The result achieved by the salespeople leads to the measurement of their performance.

Setting up a realistic Sales quota is a core skill for a sales leader. If sales leaders don’t master this skill, they set themselves and their teams up for failure and loss. Indeed, the importance of sales quotas is inevitable. They are a crucial part of a company’s sales growth strategy. Sales quotas establish the groundwork of an organization for its future vision and have a major contribution to its growth.

The term sales quota, however, has always been a matter of concern, confusion and complexity. Sales quota gets its reputation from the legacy of inadequate quota setting practises; practices that companies have been following for ages.

There should be an equilibrium in quota setting. If you set the quota too low, the sales will fall flat and if you set them too high and unachievable, the risk of a frustrated sales team will rise.

In this article, we will discuss how we can change the frightening reputation of sales quota and how to use the best sales quota setting practices to build a productive sales team.

 

Why Setting Adequate Sales Quota Is Important?

 

Research has found that “57% of all salespeople fail to meet their quota which impacts the company’s calculation and degrades the morale of the sales team.”

No doubt, improper sales quota setting results in such terrible incidents.

Quotas are responsible for motivating salespeople, to create strategies that are achievable to them. Proper achievement of quotas leads to motivation, satisfaction, and better productivity.

Here’s why setting the right sales quotas is important:

Organisations that set the right Quota :

● Eliminate confusion and establish better clarity.

● Results in the Sales team providing precise sales forecasting.

● Are able to acknowledge bottlenecks & hurdles.

● Motivate salespeople to maintain productivity.

Organisations that set unrealistic and unachievable sales quotas experience high attrition in sales teams. They make reps shift from companies leading to the frequent hiring of new reps. And constantly changing staff is an expensive affair for the company. Instead of creating situations where employees find it harder to stay in a position for more than a short period, it is better to set realistic sales quotas that your employees can fulfil.

 

Is There An Accurate Method Of Setting Sales Quota?

 

Unfortunately, there is no one-size-fits-all strategy that works for quota setting. There’s no magic potion that helps in creating an accurate sales quota that is ideal for both the sales team & the company. In reality, the quota setting process is a blend of art & science. It should be tailored according to the company’s goals that take into account the market reality, organisation’s strength and optimum productivity of the sales team.

How To Set Realistic Sales Quota?

Realistic goals are fairly achievable targets set for your sales team. Realistic goals take into consideration the psychological and physical capabilities of the employees.

Let’s begin with different approaches to setting a realistic sales quota.

1. The Goldilocks Rule

The goldilocks ule

This is a story I read from James Clear’s book, ‘Atomic Habits’.

In 1955, a 10-year-old boy named Steve Martin got a job selling guide books at Disneyland.

Slowly, he realised that his real passion lies in performing comedy shows for the audience. That’s when he decided to be a standup comedian. Since his teenage years, he started performing. He started from a little club around Los Angeles.

In his initial days, he was rarely on stage for more than five minutes. Most of the people in the crowd were too busy drinking or talking with friends to pay attention to this act. One night, he literally delivered his stand-up routine to an empty club. It wasn’t a glamorous job, but gradually it was getting better. His initial performance would only last one or two minutes. By high school, he started performing five-minute acts and, a few years later, ten-minute shows. At the age of nineteen, he was performing weekly for twenty minutes at some clubs.

He spent another decade learning, experimenting, and practising.

Finally, after nearly fifteen years of work, this young man experienced major commercial success. He toured eighty-five cities in ninety days. He had 18,695 people attend one show in the United States, Ohio. Another 45,000 tickets were sold for his three-day show in New York and He reached the top of his genre and became one of the most successful comedians of his time.

When asked, what’s the secret behind his success he said, in his words…

“10 years spent learning, 4 years spent refining, and 4 years as a wild success.”

Scientists have been studying how people like Martin have been able to stick to their habits for so long and what they found out was the Goldilocks rule 

The Goldilocks Rule states that humans experience peak motivation when working on tasks that are right on the edge of their current abilities. Not too hard. Not too easy. Just right. Martin’s career as a comedian is an excellent example of the Goldilocks Rule in practice.

Each year, he expanded his comedy routine—but only by a minute or two. He continuously was adding new material. There were just enough victories to keep him motivated and just enough mistakes to keep him working hard.

Setting realistic sales quotas for your sales team should follow the Goldilocks Rule. Achieving sales quota should not be extremely easy, such that the sales team need not work hard for it or lose interest completely, nor it should be unrealistic that the sales team don’t find it worth pursuing and give up before starting.

2. Tops-Down/Bottoms-Up Approach

the top down approach

In the Tops-Down approach of quota setting, sales leadership focuses on setting up goals concerning business growth and quota gets distributed equally across teams and individuals.

However, there are some pitfalls of this method as it ignores the sales territory potential of individual sales reps and there are chances of upsides and downsides of the sales territory getting ignored.

Also, a sales quota that is solely focused on the growth goal exhausts even the best salesperson. According to statistics, only 30% of salespeople can meet their sales quota when it is solely based on growth goals. There are chances of the sales team instantly getting discouraged when they find out that the quota they are assigned does not reflect the reality of the field.

It takes 21 months on average for a salesperson to start turning in profits. Hence, it is more than necessary to start setting sales quotas based on the reality of the market.

The bottom-up approach of setting up a sales quota is the process of setting goals based on a sales rep’s projected funnel and sales reps’ past performance. However, this approach might ignore the companies growth objectives and solely focus on sellers’ challenges.

A realistic quota setting method is a blend of the top-down and bottom-up approaches. This approach follows consensus-based quota setting where sales leadership and sales team mutually discuss the company’s business objectives, sales reps’ past performances, territory potential, opportunities to grow business and set sales quota which is achievable and follows the Goldilocks rule.

How to Set the right types of Sales Quotas?

Organisations select the type of quotas based on their business objectives.

There are different types of sales quotas that can be used for different situations or a blend of all could be used in some cases. We are going to talk about the quota types and how well they can contribute to setting realistic sales quotas:

1. Individualised Quotas

Sales leaders, need to understand that all sales reps will not perform on the same level. Each rep has different territories, experiences, skills, and expertise that decides his/her performance. That’s why it is important to focus on customised quotas as they are more result-based.

Instead of giving a common sales quota for everybody, sales leaders should diversify their resources and assign an individualised sales quota where each sales rep is performing to achieve goals that align with their capabilities, market reality and business potential.

For instance, the high performing sales reps managing Large deal accounts with high potential must be challenged to avoid boredom and unproductivity. New sales reps managing a newer set of accounts should be given sales quotas specific to their territory potential which does not demotivate them.

2. Activity Quotas

Activity quotas harness the power of small wins where sales reps are asked to hit small yet high achieving goals that in turn help them to achieve their sales quota.

These often include both selling and non-selling activities and may or may not be tied to actual sales results.

If the sales cycle is long or the sales team is inexperienced, it can make sense to focus on activities or milestones which keeps the sales team motivated and also measure their progress.

In the Activity quota, it is important to clearly define the required actions or behaviours and specify both a time period and expected frequency for them. Sales reps may be required to do simple things at first (e.g. fix meetings with x no of clients, Fix and conduct a presentation for x no of clients) with more tasks added over time.

Activity goals provide the highest ROI when a list of activities helps salespeople to progress their sales opportunities or close the deal.

3. Integrate sales quota setting with other planning processes

While quota setting, especially if you are an organisation with a large sales team, engage your sales operations team to ensure there is an appropriate alignment between territory assignments, compensation and incentive programs.

When a quota setting is done in silos, it creates an imbalance of achievements.

It is better to address all your assumptions by including the sales team, operations team and marketing team and answering the following questions

  1. What activities do the sellers use to sell?
  2. How much time do these selling activities take?
  3. What are sellers’ typical conversion rates and other measures of productivity?
  4. What is the 3 to5-year performance of a specific territory?

Get granular in this analysis to figure out the activities required to achieve sales quota, you need to answer questions like these:

  1. What per cent of leads convert to opportunities?
  2. How many Large Deal Accounts i.e LDAs are assigned to a seller?
  3. How many competitive LDA’s do we win in a year? 
  4. What is the sales pipeline generated by marketing?
  5. How many Large deals should sales reps have to achieve this quota?   

Having a collaborative approach for quota setting increases the accuracy of the sales quota. This information gives you insights into whether you have enabled and provided appropriate resources to your sales team’s members to deliver on the assigned quotas.

Quota setting should be aligned to the success of each team member of the organisation. Sales leadership should be aware if the set quota is creating a conflict of interest among team members and if it should be addressed on high priority.

4. Be open to revisiting sales quotas on a limited basis

Business environments are subject to change. Also, Quota setting is not a foolproof method. I, personally, have been part of organisations where sales leaders, who had mistakenly given me irrational sales quota, realised their mistakes and corrected sales quota in the mid of the year which demonstrated empathy and concern from their side

Sales Quota That Spreads Productivity & Positivity

Increase productivity

The thumb rule for an adequate sales quota is the one that is completed by 80% of your salespeople. There is no perfect science of quota setting method, you need to try, test, learn and succeed to finally find an optimal sales quota for your organisation. 

Many Organisations have a combination of multiple factors while quota setting, I have seen this practice confusing the sales team on the calculation of their commission because of this.

In my experience, I have seen that the simpler the Quota to track and measure, the more salespeople are motivated to achieve it.

In a nutshell, set sales quotas that your sales team feel comfortable with and put their best foot forward for. Quotas shouldn’t be taken with a grain of salt, they set the groundwork for the success of the company; they need to be achievable and bring productivity gains to the company and inspire the sales team to work, stay and progress in their selling journey.

If you liked this article, share it with others who might be interested. If you have any questions, feel free to ask them in the comments, I am always happy to help.

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