Let us walk through a planned approach towards determining sales quota.
1.Choose the Right Quota Strategy
As a Sales Manager, one of the first things you will have to determine is what type of quota you should set. It is important to choose a quota type that best aligns with your company’s current strategy. For example, if you are following an expansion strategy, Units Sold or New Logos may be the right quota types for now. But, if your current focus is to maximize profits, choose a quota that measures margin contribution. Similarly, you can pick an Activity-based quota, if your sales reps can’t have a significant influence on customer’s purchase decisions.
Many organizations prefer using a combination of different types of quotas. It incentivizes sales reps to perform sales activities like scheduling meetings, making phone calls, and sending follow-up emails For instance, you can set a volume quota in addition to an activity quota. This way, reps are required to make a certain number of calls every week while also closing a certain number of deals.
But do not combine too many different quotas types as it will confuse your sales team and the sales reps will lose focus on what is important.
- Analyzing Past performance
If you feel that last year’s performance of your sales reps can predict the future, then you can rely on the past performance method. It calls for taking baseline numbers from last year and uplifting by a certain percentage as per market conditions, marketing activating, and management guidelines.
Once an estimate is made, you may divide it into sales quotas for every division, team, and individual reps. For mature companies operating in mature markets, the past performance method is a great fit. However, it is not the best method for new companies or new markets as the landscape may still be evolving rapidly.
- Establish a review period
Your review period is the time frame that will measure your team’s sales performance. If you have a short review period (such as monthly), you may be able to quickly correct your course. However, longer review periods (such as annually) can give you more reliable and accurate metrics for your reps’ performance. Most large enterprises go for an annual quota period. For annual quotas to be effective, you should be able to forecast annual goals with a high degree of confidence. If business situations don’t allow that, one must pick a shorter quota period. For example, someone selling a newly launched product line should not be loaded with an annual quota, until there are enough data points to predict the sales for one full year.
- Setting Sales Quotas that are Challenging yet Achievable
When hubris kicks in and you are a tad too ambitious with setting quotas, you risk the following:
- A demotivated sales team
- The wrong perception of their performance
- No proper compensation for their performance
- Sales reps overselling your products and services, leading to disgruntled customers and excessive amounts of pressure on the team who needs to deliver on the made promises.
Of course, sales quotas should push the sales team to do their best. It is important that the team moves forward together. Standing still is moving backward. But if you do not keep the quotas realistic, you will be setting your team up to fail as well.
- Reinforce your expectations
After the quota is crafted, not only should you share what the number is with your team, but also how the quota was determined and when and how it will be measured. You may then explain any bonuses or incentives the sales team might expect to earn for a meeting or exceeding their quota.
The best method to communicate a sales quota and its value is with a face-to-face meeting. This allows salespeople the chance to ask questions and gives you the opportunity to better explain the reasoning behind the sales quota as well as its value to the organization.
- Monitor and Evaluate Sales Effectiveness
Measuring your team’s sales effectiveness comes down to having access to the right data. Data plays a key role in every part of your sales planning, performance, and analysis. The best way to do this is to align your teams around a single source of truth. When your team has access to the same dataset, you can plan more effectively, make aligned decisions, and ultimately create a stronger organization.