You’ve started your business, established a customer base and hired a skilled sales team — now the work begins in determining how to benchmark your sales staff’s deliverables. For some businesses, establishing a sales quota might be the answer.
Here’s what it is:
A sales quota is a result of data-driven sales planning that lets you track the company’s sales goals. The quota allows you to set and measure performance expectations from business units, sales teams and sales representatives over a given period of time. It also helps you identify representatives that need skills improvement, and sales activities that lead to more successful deals. Use these six steps to develop sales quotas at your company.
1. Set an Approach
Most businesses use one of two sales quota strategies: Top-Down or Bottom-Up — or a combination of the two. In the Top-Down approach, the goal is set based on the sales potential of the market and the territory, competitor data and current trends. Once the company sets a target amount, the sales team members are assigned numbers to meet those goals.
In the Bottom-Up approach, the sales team estimates the next year's revenue based on the previous year’s sales data and past performances or experiences in different geographic areas, by adding a certain growth percentage to it. After establishing that number, the sales team members are giving the quotas.
2. Select a Sales Quota
There are four main types of sales variables that allow you to measure sales performance over a specified time: volume, cost, profit and activity.
Volume quota tracks the number of units sold or subscriptions to generate revenue for that time period. Activity quota requires you to perform a set number of activities within the specified time frame like making phone calls, sending emails, attending meetings or appointments, and leading demos.
Profit quota determines how much profit each salesperson earns for the company. Cost-based sales quota measures a team member’s ability to reduce costs per deal — such as invested time, discounts or travel costs. Sales teams may operate with any sales quota or combination of two or more based on the specifics of their business.
3. Calculate Sales Quota
A deep understanding of buyers in different regions and insights from past performance will enable you to establish realistic quotas. First, estimate your revenue or sales based on current market opportunities or conditions. Divide it into territories or regions, and then bring down to the individual salesperson level. Next, calculate the number of new customers/deals necessary to hit this goal. Finally, divide the number of potential new clients into the 12 months and again by the number of sales representatives on your team to get the individual sales quota.
4. Verify Sales Targets
It’s imperative to set sales quotas that are challenging, yet achievable. Before assigning new individual sales quotas to the team, review their previous quotas and the number of leads it took to get those deals. Now verify that you have set up attainable and realistic quotas and then move to work on tactics to achieve them or revise quotas if needed.
Many sales experts say an effective sales quota is typically one that is achievable by 80 percent of your team and within five percent of your baseline metric. But if the entire team always meets or exceeds its quota, or lags in performance, then it’s time to reevaluate your quota-allocation methodology.
5. Break Sales Quotas into Achievable Activities
Communicate to your sales team how you’ve calculated their quotas and how/when they will be measured, and turn them into manageable daily, weekly or monthly tasks. Ensure that they are focused and motivated to achieve small wins instead of worrying about final numbers. Set different quotas for sales teams handling different market segments, products or accounts (such as international and national) if conversion rates vary.
6. Evaluate, Incentivize Sales Team Regularly
Continuously review sales performance against targets over a short review period, such as weekly or monthly. This provides the sales managers with the opportunity to quickly address and correct performance shortcomings. Set a baseline minimum performance standard to review sales performance against sales quotas.
Provide incentives to the sales team for meeting or exceeding their quotas to motivate them to achieve more. During a drastic shift in market conditions, initial forecasts and quotas may become obsolete. In such situations, raise goals or lower them from one quota period to the next depending on market demands.