Sales quotas align field sales force and corporate strategy, linking sales performance and pay. Quotas also promote dialogue between managers and sellers and improve sales result accountability. Finally, quotas will also differentiate between high and low performers, allowing the organization to take appropriate action for an individual contributor’s performance.
How can the sales organization ensure they set quotas correctly, especially during the launch of new products and services?
Why Companies Get Sales Quotas Wrong
- A top-down approach with little collaboration with frontline sellers
- Taking a historical approach, adding a percentage to the previous year’s quotas
- Conducting the quota process late in the year or releasing quota expectations too late
- Heavy over-allocations that are driven by corporate expectations
- Vague or mysterious sales crediting
- Poor insight into market potential
These are just a few tactics that will make it difficult to set the right quotas and motivate and get buy-in from sellers. Poor quota setting results in increased rep turnover and low morale. In addition, the organization can also experience increased cost of sales and productivity losses. However, with proper quota setting, companies can experience improved territory penetration while maximizing sales growth while establishing an appropriate risk and return environment.
One suggested desired distribution for new products and services targets:
90 – 95%
of salespeople reach threshold level
80 – 85%
of salespeople perform between threshold and excellence level
60 – 70%
achieve or exceed target or “at plan goals”
5 – 10%
of salespeople reach excellence level
Quota Setting Considerations
Strategic importance
- High importance: Aggressive quota increases and high TI carve-out backed by sales force enablement
- Low importance: Modest quota increase
Product or service similarity
- New and different products: Aggressive quota increases and mid-range TI carve-out backed by product specialists
- Same or similar products: Modest quota increase
Target buyer
- New or different buyer: Aggressive quota increases with mid-range TI carve out supported by updated sales process design and training in new selling skills.
- Same or buyer: Modest quota increase
Buying process
- New, different, or complex process: Modest quota increase should be backed by product specialists.
- Same process: Modest quota increase
Seller’s Bag Capacity
- Many existing products: Aggressive quota increase to capture attention.
- Few existing products: Modest quota increase
The Do’s and Don’ts of Quota Setting For New Products and Services
DO keep quota setting and allocation methodologies simple
Statistically complex models typically result in marginally better quotas vs. sound management judgment.
DO use a combination of “top-down” and “bottom-up” quota setting inputs.
This approach incorporates current sales opportunities and history, increasing seller buy-in while achieving business plan expectations.
DO fully allocate the business plan.
Identify gaps between “top-down” numbers and “bottom-up” forecasts to meet business objectives.
DO establish a clear statement of quota policies.
Managers should ensure reps understand quotas to ameliorate sales performance deterioration, avoid the increased cost of sales, and clearly communicate achievable targets.
DO explain sales quota setting and allocation process.
Reps must understand quota process logic to accept achievable, effective, fair, and equitable targets.
DO establish an audit process to track quota setting and allocation effectiveness.
Audit quotas regularly for improvement and identify ways sales management can positively impact the process.
DO reassess quota setting and allocation before the start of each year.
Timely assessment is critical. Changing sales dynamics and early communication are vital to setting and implementing effective quotas.
Be sure to avoid the DON’Ts of quota setting:
DON’T assign sales quotas based on sales history alone.
Historical percentages can cause high performers to earn low incentive pay if they have already maximized the opportunity in their territory. In addition, historical sales are only appropriate when products and markets have maintained a consistent, slow-growth trend.
DON’T tie incentive payout volatility to small fluctuations in quota performance.
The pay process must drive individuals to achieve their sales quotas. Focusing on small changes can disincentivize reps.
DON’T assume that the quota process will manage itself.
The sales organization should use performance monitoring and behavior modification throughout the year to ensure that the company achieves desired results. Managers should review quota effectiveness, changing dynamics, and market information throughout the year and make appropriate adjustments.
Still Confused About Quota Setting for New Products and Services?
The sales organization can encounter conflicting priorities when it comes to quota setting. Balancing strategic goals with business realities can create a confusing picture. Alexander Group works with leading companies to establish clear quotas and incentives that motivate your sales force to drive results.
About Alexander Group
Alexander Group understands your revenue growth challenges. Since 1985, we’ve served more than 3,000 companies across the globe. This experience gives us not only a highly sophisticated set of best practices to grow revenue—we also have a rich repository of unique industry data that informs all our recommendations. Aligning product, marketing, operations and finance efforts behind a successful sales organization takes insight and hard work. We help the world’s leading organizations build the right revenue vision, transform their organizations and deliver results.