How to Set Effective Quotas

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

Effective sales quotas are inherently difficult to design and implement, especially for new products and services. Common problems include:

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

By establishing proper targets, the sales organization can segment the bottom 5-10% of sales rep to enter a performance improvement program to improve the return on their investment.

Quota Setting Considerations

The sales organization will benefit from deciding which factors will balance strategic goals, reach appropriate buyers, and motivate sellers. Each of these inputs has different tactics depending on whether they are of high or low importance.

Strategic importance

Sometimes, the organization’s success depends on the new product’s success. In that case, the organization should set aggressive goals and enable the sales force to succeed by combining pay with increasing or high Target Incentives (TI).

Product or service similarity

Is the product a line extension, adjacent, or complimentary offering? Reps can use their current skill set to sell similar and existing products. However, new or complex products require additional training and enablement supported by product specialists.

Target buyer

For existing buyers, adoption is typically easier and requires modest quota increases. Resistance can occur for new target buyers, challenging reps to get out of their comfort zone. Many reps need behavior changes, although top performers frequently adapt to new challenges.

Buying process

Similar buying processes require only modest quota increases. If the process is longer or more complex, simply adding a quota will not work. Consider a gradual rollout to core reps and adding new overlay roles for product support. Once quotas are achieved, consider adding a multiplier or higher acceleration rate.

Seller’s Bag Capacity

New products can get overlooked if the rep has an extensive suite of products, requiring aggressive goals to motivate sales. If the rep has only a few products, the new product will likely be a significant portion of the rep’s overall quota, requiring a modest increase.

The Do’s and Don’ts of Quota Setting For New Products and Services

Balancing these priorities is critical to capture existing market share or to establish a presence in new markets. To effectively deploy new quotas, consider these guidelines:

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.
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