10 sales quota setting procedure; A sales quota is the financial goal a sales rep or team must reach by the end of a specific time period. The specific time period of a sales quota is usually one month or a period of three months.
Sales quotas are set by the sales manager or sales director. The quotas are set to generally result in increased performance and to attain sales and revenue goals for a particular year or time period.
A sales quota is often directly tied to a compensation plan such as commission and bonuses. This means the sales reps are given compensations such as commissions and bonuses when they reach or meet their sales quotas.
When setting sales quotas, there are certain practices and procedures that should be followed. Knowing and following these sales quota best procedures can help you increase sales performance and ultimately increase revenue for your organization.
Below are 10 sales quota setting procedures that you can use to increase sales performance and revenue.
Involve the Right Team
When setting up a sales quota, ensure that you involve the right team. Your sales reps are the ones in the driver’s seat. Without the right sales team, you may not see good results, and your sales quotas will not be attained.
Ensure that your sales reps have good knowledge of market opportunities. Make sure they know the right people and companies to go to. They should have good knowledge of market opportunities and places where your products or services are needed.
With the right team, you can rest assured that your sales quotas will be achieved. The right sales team will be able to make more sales by actively participating; they will know where opportunities are and how to convert those opportunities into closed deals.
See beyond a Single Number
To develop a sales quota, you need to see beyond a single number. What does this mean? It means you need to think carefully and know about the market before setting a number for your sales team. A sales quota shouldn’t be like a form of punishment for your sales team. It should be something that is attainable. You should thoroughly research the market and know what is attainable.
Don’t just dole out an outrageous number that is unattainable going by the market. You should carefully think about it and know if your sales team can achieve the quota given to them.
You should think from a sales manager’s perspective and also from a sales rep perspective. You should first put in efforts and work into researching the market with respect to the product or service you provide before coming up with a number.
Get a view from the bottom-up
Setting up a sales quota shouldn’t be just for the sales manager and the sales leadership alone. As a sales manager, it is important that you get a view from your sales reps. This is because they are the people that will go out there to do the job of achieving the sales quota.
When you combine a bottom-up view with the top-down expectations, you can consider granular information from the field on opportunities and reconcile it with top executive expectations. You will then know how those opportunities look across markets and overall forecasts or trends for market growth.
You should get each individual’s view from your sales reps and know their thoughts. Give them a chance to make their suggestions. There suggestions and advice will help to ensure the success of the sales quotas. Be open to suggestions from your sales team and compare their suggestions with your expectations.
Balance Market Opportunity with Sales Capacity
To achieve your sales quota, you must balance market opportunity with sales capacity. Market opportunity is the primary driver of the sales quota. If there are no market opportunities or if opportunities are limited, your sales quota will most likely not be achieved.
Also, your sales capacity also determines if your sales quota will be achieved. More specifically, market opportunities can give you a good indication of what portion of the total sales quota should be allocated to each sales rep.
By balancing market opportunities to sales capacity, you will get a relative sense of the sales potential across all markets. The sales capacity is the practical physical ability, or capacity, of your sales force to close a certain amount of sales in a specific period of time. This sales capacity considers the number of hours each sales rep works in a year. It also considers the percentage of that time that each sales rep spends actually selling versus handling other operations and administrative activities. It also considers the productivity of the selling hours and the time it takes to manage or close an account or sales.
By understanding and balancing the two sides of market opportunity and sales capacity, you can get a multidimensional view on how to allocate the sales quota to your sales reps.
Make your approach scalable
Make your approach scalable by accounting for every possibility all the way. Create rooms for errors and corrections. Your approach should be adjustable in relative to market opportunities and trends.
By using predictive market data, create precise steps for the entire team to work through and ensure that these steps are adjustable. These adjustable steps will ensure that your sales reps are able to go back and correct their errors where needed.
Apply appropriate approach for each type of segment or market
You should understand that one sales quota setting approach does not fit all situations. If you use a wrong approach for a particular market or situation, you will get bad results.
While a more analytically-driven, standardized sales quota may work well for small accounts with a transactional sales process, a more bottom-up market opportunity approach will be better for a midsize account segment. Know what works well for your type of business and know the best approach to use.
Consider the salespeople
Setting sales quotas is about your sales reps, the process, their input, and the numbers. If sales managers and sales reps are in the dark or if there opinions and input is not reflected, the sales quota may just be a number. If sales managers and sales reps understand the process and their input and opinions are reflected, the sales quota is likely to be achieved.
As a sales manager, you should totally understand the process and know the market. You should have knowledge of what works and know how to apply them for your sales quota to be achieved.
Don’t over allocate sales quota
Over-allocation refers to the approach of taking the sales goal for the business overall and adding a little extra to that goal. Sales quota over-allocation is the sum of all unique, non-overlapping front-line sales quotas compared to the company’s goal. For example, if a company has a $1 billion corporate goal with a sum of all front-line quotas of $1.05 billion, the company has over-allocated its goal by 5 percent.
Most organizations over-allocate quotas by about 3 percent to 5 percent. The little extra allocation acts as an insurance policy. If the manager has a sales position that is not covered for a period of time, and with no one to effectively cover that territory, the over-allocation of the sales quota makes up for some of the losses. If a rep falls dramatically short or is not able to meet his sales quota, the over-allocation also helps to make up for some of the performance shortfalls.
When over-allocation is within limits, it can keep the organization on track with its sales quota. However, when the sales quota is over-allocated too much and at too many levels, it can lead to distortion on the front line. Ensure that you keep your sales quota allocation within limits so that sales executives and reps can all participate towards achieving the sales quota.
Move Beyond History
Most organizations set sales quotas by looking back into history. Though historic sales performance may be a primary guide, sales quota is usually determined by taking a summary of the most recent year’s performance and applying a fairly standard growth rate on top of that performance.
Looking into history to provide a sales quota is the reason why most performance penalties that simply add a bigger expectation on a rep who had a great sales year. For example, a rep with great revenue performance in year one, resulting in an inflated sales quota in year two, often has low attainment of that inflated sales quota in year two. It is good to challenge your sales reps to acknowledge history but it is more important to lean toward forward-looking indicators of market opportunities.
Don’t Get Lost in the Legacy
What we mean by this is do not always do things the same way it has been done in years past. Change your process and style. Create your own ways and what works best for you. Make research base on new opportunities and markets and develop ways to achieve your goals. Do not get lost in the legacy of what has always been done in the past but be a champion of change and innovation.
