What Is Sales Quota?
Guide & Types of Sales Quota; Is it possible to reach the destination without having a clear goal in mind? Absolutely not! The same applies to every field. Especially, clearly-defined goals are very much significant in sales.
When it comes to achieving a big goal, it is necessary to divide it into small chunks. These divisions act as benchmarks to catalyst the further journey.
Besides, they also help to understand the progress and pinpoint the mistakes.
So, what acts as a benchmark for a sales company or a sales department?
The answer is “sales quotas.”
Sales quotas provide the needed motivation to the sales force. It encourages them to perform better next time.
In short, sales quotas help to ensure the growth of a sales team and the company overall. Before diving into other aspects of sales quotas, let us know more about sales quotas.
A sales quota is a clear sales target. It defines the sales goal for a sales rep. That means he/she needs to touch that particular benchmark. Of course, it is the minimum level.
If you are a sales executive and you surpass your goal, you will get more accolades.
Another worth-noting aspect of a sales quota is the time limit.
A goal must be time-bound, is not it?
In the case of sales quotas, different types of time boundaries can be set. Some of them are needed to be reached by a month. On the contrary, quarterly as well as yearly-based boundaries are there as well.
What should be the nature of a sales quota?
Definitely, some challenges must be there. But, unrealistic goals will yield nothing. So, it needs to be attainable by the respective sales force.
First, it is critical to calculate the number of executives and measure their capability. Their past achievements can clearly show their worth.
These two aspects help to determine attainable & realistic sales quota.
Many factors are responsible to determine the success of a sales target.
However, the accuracy of sales forecasting has a huge contribution. And it depends on how accurate were the data and information pieces in this regard.
How sales quotas are measured?
It depends on the respective company policy. In most cases, a company decides it based on the total products sold or the total amount received or total profit.
Sometimes, sales quotas are also determined by the count of new clients. Some businesses also measure it via sales activities, such as product demos.
What is next?
A company can set a sales quota for a specific geographical region.
Moreover, a particular sales rep from the team can also be chosen to reach the target.
What is the significance of a sales quota for a company?
First of all, sales quotas are essential to raising sales fast. If there is no goal, getting success is almost impossible.
Moreover, a sales target helps to forecast sales. That is how a business can design future strategies.
Anything else?
How is the performance of a sales rep? Sales quota also shows the same.
Besides, a specific target encourages reps to reach their goal. So, they find out strategies and dedicate themselves to the required activities.
That means sales quotas help to boost productivity in the team. Thus, the company can expect a high success rate in the campaign. All in all, it supports to improve sales processes.
Now, it is significant to check out how sales quotas are beneficial for a company:
Sales quotas are an integral part of sales compensation plans. It helps to choose the deserving reps from the rest.
A clearly-defined sales goal supports to figure out weaknesses in a sales campaign. Also, it becomes clear what is holding back the desired success in campaigns. As a result, the company can change its future sales strategies or decisions.
A sales quota shows the quality of the performance of sales reps. That is how a company can find out the star performer from the rest. The company can apply his/her tactics in future campaigns to achieve success.
A company can track and manage selling expenditures with the help of sales quotas.
The performances of sales reps in a sales quota will help to set the next sales goals.
Types Of Quotas
So, you have already understood sales quotas are essential for a business. However, when it comes to the type of sales quotas, no general rule is there.
That means company-wise the type varies. Many factors like business goals, strategies, sales reps capability, etc influence it.
Let us have a look at some common types of sales quotas:
Direct Quota
As the name suggests, the direct quota is straightforward. Sales reps, who can reach the target by their efforts, will be assigned.
Naturally, experienced executives will get that responsibility. It is because they have the capability to fulfill the sales quota.
In short, direct quotas are meant for sales executives, who have a great track record.
Overlay Quota
The term “overlay” is self-explanatory. Overlay quotas positions above the direct quotas.
An overlay quota is the addition of all direct quotas below it.
An example will clarify the concept:
A sales manager is assigned with an overlay quota.
How?
He/she needs to manage all direct quotas (assigned to individual sales reps) under the authority.
On the other hand, a sales VP manages an overlay quota. He/she is responsible to supervise the quota assigned to the sales manager.
Let us check out some other types of sales quotas:
Activity Quotas
A sales manager can assign sales quotas based on the sales reps’ activities.
Suppose A is a sales rep. Whether A will get the opportunity will be determined by how many new clients A got for the business.
Quite simple, is not it?
However, a sales manager also takes other sales activities into consideration.
Especially those activities, which are directly connected with sales, need emphasis.
For instance, a sales executive may need to call a specific number of prospects per week.
Else, he/she may need to schedule a particular number of meetings every month.
A sales executive may also be expected to close a specific number of sales quarterly.
You guessed it right!
The quality of performance will determine who will bag the sales quota.
Revenue Quotas
What is the most common kind of sales quota? The answer is revenue quota.
Here, a sales manager checks whether a rep has successfully sold a certain number of units.
It is also checked if a sales executive has brought an expected number of subscriptions.
A sales rep gets the sales quota if he/she generates specific revenue for the company.
The duration of the revenue quota is often fixed for a specific month.
It is also set for a particular quarter.
What if a business exhibits a longer sales cycle? In that case, revenue quotas are often set for a year.
Revenue quotas imply net revenue oftentimes. It especially holds true when price structures are flexible.
Sometimes, upselling is expected for some products. So, a company prefers net revenue for revenue quotas in that case.
If a company holds various kinds of profit margins, profit quotas might be an ideal solution.
Profit quotas are different from revenue quotas.
In profit quotas, a company incentivizes reps for their efforts in selling high profit-generating products.
Volume Quotas
Volume quota is another common type of sales quota. Here, the goal is to collect registration from a specific count of new users.
A company can set a volume quota for its sales reps for more than a year of duration.
Businesses can also divide volume quotas based on regions, the sales executive, or product.
Combination Quotas
Combined quotas set a combination of sales volume as well as executive activity.
Many companies combine different types of sales quotas and make a customized one.
Let us take an example:
A sales rep may be assigned with the task of confirming 15 appointments with new leads. Moreover, he/she can also be told to close a certain number of deals with 2 new prospects.
It is obvious that mixing so many kinds of sales quotas may pose problems. It can distract sales reps.
However, prioritizing tasks can streamline a combination-type sales quota.
Besides, sales managers can also set benchmarks to get the task completed well.
