Almost everyone would agree that anything that gets measured gets accomplished. This is especially true of sales. Sales leaders generally set goals, known as sales quotas, that individual sellers and sales teams alike must reach.
Without a set of well-defined goals, you will not be able to consistently up your sales over time.
According to Pipedrive, 67% of companies believe that hitting sales quotas is the best indicator of individual sales performance.
In this article, we will take a deep dive into the subject of sales quotas.
A sales quota is a time-sensitive, financial goal or target that sellers or sales teams must reach within a certain period. Sales quotas are generally set monthly, quarterly, or yearly. Ultimately, the point of a sales quota is to drive sales in a specific period.
Sales quotas are important for the following reasons:
1. Clear, well-defined goals - With this quarter’s sales quota, you now know what your targets are and how long you have to achieve these targets. Having clarity can help you reach your targets faster.
2. Challenge and commitment - Sales quotas generally come with incentives. As a result, you are challenged to reach the stipulated targets in time to earn that incentive.
It is probably clear to you that setting a sales quota is vital if you want to up your sales consistently. However, here are a few benefits of sales quotas we think are worth highlighting:
Now that you know what a sales quota is, it’s time to look at some important sales quota types. Sales quotas are primarily based on revenue, sales activity, etc.
Revenue quotas are the most common type of sales quotas you will come across. With a sales quota like this, sales team members are expected to increase their sales and subscriptions to generate a certain amount of revenue in a specific period. You can set a sales quota monthly, quarterly, or yearly.
This is the most basic and general definition of a revenue quota. However, you can set a revenue quota for your specific sales needs. For example, you can set a sales quota for profits on a certain product or line of products. Set a quota for the profit and overall sales you want to make for each product or service in your catalog.
This sales quota determines how many units of a product or service need to be sold in a specific time frame. Volume quotas are generally set on a yearly basis and are for individual sellers, branch offices, product line and range, etc. Sales volume quotas are useful in monitoring sales reps and forecasting.
An expense quota is a budget that you assign each sales representative. Set the expense quota as a small percentage of the total sales volume target every month, quarter, or year and make sure each sales rep limits their expenditure to the expense quota you’ve allotted. Ultimately, setting an expense quota can help you with your cost control.
Consistent, deliberate sales activity is vital for improved sales and business growth. This is why it is vital to continually track sales activity and keep teams accountable, especially considering how companies worldwide are implementing the remote work culture.
As the name suggests, a sales activity quota refers to a set number of activities that Business Development Representatives (BDR) and Sales Development Representatives (SDR) are required to carry out during a specific period. This period could be a month, quarter, or a year. Sales reps are generally required to carry out a fixed number of the following tasks as part of the activity quota:
A forecast quota is a monthly or quarterly quota you assign a sales team based on historical performance, to help them hit certain targets. Forecast quotas help determine what influences a company’s revenue.
As the name suggests, a combination quota involves more than one metric. It is a combination of multiple quotas. Different companies and managers have different sales quotas. However, in most cases, you will find a combination of sales activity and volume.
An example of this is assigning a sales rep a specific number of calls and closing a percentage of those calls.
Here are a few steps you need to follow to set up a sales quota:
The first thing you should do while setting up a sales quota is establishing a baseline of performance. This baseline could be for sales reps, teams, etc.
When we talk about baselines, we are essentially establishing the minimum revenue you need to generate to keep your business going.
When setting a baseline, be sure to account for business growth, your current quarter, opportunities in different regions, and other factors you deem to be relevant.
Once you establish your baseline, you need to choose an approach to set your sales quota. There are two approaches:
With the top-down approach, you set the goal first and then set the sales quotas accordingly. In other words, you set the goal and sales managers reverse engineer the work needed to accomplish that goal.
Of course, you need to be clear with your objectives before you set the goal and convey the same to the rest of your team to ensure they accomplish it.
While this approach undoubtedly motivates the sales reps, you run the risk of setting unrealistic goals and sales quotas.
As you may have expected, the bottom-up approach is the opposite of the top-down approach. With the bottom-up approach, sales managers evaluate the past performance and capabilities of the sales reps to set appropriate sales quotas.
Sales managers generally look at factors like:
…and so forth.
In other words, the bottom-up approach allows you to set a realistic goal for sales reps. You can adjust the sales quota for the sales reps as they get better.
The bottom-up approach may not look as ambitious as the top-down approach. However, you can still make it challenging for the sales reps to sufficiently motivate them.
Unless this is an activity quota, you will need to set activity goals to match the quota setting approach and baseline. Based on the Key Performance Indicators (KPI) you decide on, you can set activity goals for your sales reps. These aren’t necessary, but give them direction.
Give your sales reps a specific number of calls, emails, etc., to conduct to match the requirements of the sales quota.
While setting a sales quota, make sure that they have the following qualities:
Like we’ve mentioned, your sales quotas need to challenge your sales reps. If you do not sufficiently challenge them, you run the risk of having them take things for granted and not meet the stipulated goals. The sweet spot to setting a challenge is to give them a goal that is difficult but not so difficult that they think it is impossible.
Setting challenging yet realistic goals is vital to having your sales reps perform their best. As mentioned, your sales reps need to be challenged but still think those goals are achievable. If you set unrealistic expectations, they may get demotivated and perform poorly. The best way to go about setting realistic goals is to look at their past performance and their potential and set goals accordingly.
While challenging your sales reps to perform better, it is vital that you keep their goals dynamic. Giving them the same goals and challenges repeatedly will hinder their growth. If you recognize their improvement over a specific period, change your goals for them accordingly so that they stay on their toes.
Now that you know what steps to take and the qualities that make an excellent sales quota, here are a few critical mistakes you should avoid as you set sales quotas:
Changing your sales quota setting methods every year or so will not result in growth. Avoid switching between bottom-up and top-down approach every few months in an attempt to see results.
Ideally, you want to use an approach that aligns with your business and stick to it, only changing it once in three or five years.
Late quotas result in complete confusion. Some companies release their quotas well after the year has started, sometimes in the second quarter.
Releasing a late quota will leave your sales team in a world of confusion because they will not be able to accomplish the goals you’ve set unless they understand your strategy.
Ideally, you need to have your sales quota ready at the start of the new year. A late quota can mean significantly less success during that year.
Over-assignment of tasks is a common problem in companies. Remember how we talked about setting challenging goals that are realistic? Many companies do not do this. Sales managers over assign tasks to their sales teams. As a result, sales reps end up performing poorly over time.
Sales quotas are meant to:
You will be unable to manage your quotas if you aren’t measuring them properly. You will not be able to determine if your quotas are good or bad due to a lack of reliable information.
Ideally, 80% of your sales team should be able to meet their sales quota targets most of the time. If not, you may have to set a new, realistic quota. You can do this by following the steps highlighted earlier in the article. Use this formula to calculate your sales quota:
Baseline Sales Quota = Average Number Of Closed Deals Per Month X Average Contract Value
Of course, be sure to take the following into account while calculating your sales quota:
Also, there are several sales quota calculators on the market that you can use.
To recap, sales quotas are vital to ace the sales game. If you want your sales team to consistently do well during the year, you need to set your sales quota well in advance to help them perform. Your sales quota must be challenging enough to motivate your sales reps to do well, yet not too challenging that they think your sales quota targets are impossible to meet. Check out our blog to get a deeper understanding of the sales world.
Stay up to date with the latest sales happenings in the
B2B sales world