What is a Sales Quota?
A sales quota is a sales goal or objective that salespeople are expected to meet regularly, typically on a deadline.
Sales quotas are used in calculating a professional compensation package (i.e. bonuses based on a percentage attainment of their sales quotas).
Quotas can be measured in revenue, sales volume, customer count, profit, or other key metrics.
The purpose of sales quotas is to ensure that sales reps are putting in the effort needed to achieve sales goals. For sales leaders, sales quotas help manage performance and optimize the sales process at team and individual levels.
Sales Goals vs Sales Quota vs Sales Target
Though used interchangeably, sales quotas and sales goals aren’t the same thing.
A sales goal is a long-term target that sales reps work towards as a team. Sales goals are built on sales models at the company level and represent long-term company revenue goals. For example, contributing $X in incremental revenue or increasing profit by Y% in a year.
A sales quota is a specific goal to reach in a certain timeframe. Quotas might be set on a monthly, quarterly, or semi-annual basis, and are usually a core part of a sales professional's compensation package.
Sales targets are similar to sales quotas in that they’re short-term sales goals.
Benefits of Setting Sales Quotas
Sales quotas provide sales team members with an objective metric to measure progress, which helps the team contribute to the revenue goals of the company.
Psychologically, sales quotas give sales reps a sense of purpose and motivation to reach their goals by creating clear targets.
Having sales quotas can help sales teams focus on specific profitable metrics, such as customer relationships and closing deals, instead of non-profitable vanity metrics.
Additionally, sales quotas provide leadership with more visibility into performance and enables them to adjust their strategies as needed.
8 Types of Sales Quotas
Sales quotas typically map from the team level to individual and territory sales quotas:
1. Individual sales quotas
These quotas are set for individuals. They measure performance on a one-on-one basis, and may include metrics such as sales revenue or customers acquisition.
2. Team sales quotas
These sales quotas measure team performance. These sales quotas might include sales revenue, sales volume, or customer count.
3. Territory sales quotas
This is a blending of team and individual sales quotas within a specific region, and is often used by multi-layered B2B organizations. Having territory sales quotas helps sales leaders determine where to apply more resources, where to cut back, and see how well they are expanding into new territories.
4. Revenue sales quotas
These sales quotas are set regarding total sales revenue. This is one of the most common team-level as well as individual-level metrics, as revenue is hard to fake or gamify. It, however, is typically a lagging indicator and can be harder to predict than leads, meetings, or even volume quotas.
5. Volume sales quotas
These sales quotas are set regarding sales volume. This sales quota metric measures the sales rep's ability to close a certain number of deals, regardless of deal size or revenue.
6. Profit-based sales quotes
These sales quotas are set regarding sales profit. This sales quota metric measures the sales rep's deals in terms of their profitability, not just the volume of deals or overall revenue.
These quotas can be helpful for sales leaders trying to dissuade over use of discounting and instead embrace value selling.
7. Combination sales quotas
These composite sales quotas are set regarding sales revenue, sales volume, and sales profit. It can be difficult to set up measurement for composite metrics, but combination sales quotas are often the best of all worlds, representing volume, revenue, as well as profit, and creating a healthy single score to measure reps' performance.
8. Activity-based sales quotas
These sales quotas are set regarding sales activities. This sales quota metric measures the sales team’s ability to engage in sales activities such as lead generation, follow-up, and customer service initiatives.
How to Set Effective Sales Quotas
Setting sales quotas is one of the most important jobs of a sales leader.
It's not only important for fulfilling the promise set by the sales organization to contribute to the company's revenue goals, but it's a motivational and inherently political tool that has many effects including recruiting talent, managing teams, and incentivizing performance.
There is a lot of context to consider when setting up sales quotas, including the sales team’s current performance and track record, as well as the company’s revenue targets and how the sales team will contribute towards those goals.
Additionally, any resource limitations and constraints should be taken into consideration, along with the dynamic nature of the competitive landscape and external factors like the economy or emerging trends.
The last point is especially important, as sales quotas are based on forecasting, and forecasting is notoriously difficult when external factors impact customer demand.
However, if sales leaders take a proactive approach to modeling their sales goals and update assumptions, often, sales quotas can be accurate and useful.
The Downsides and Challenges of Setting Sales Quotas
Setting sales quotas can create stress and tension between sales reps and sales leaders. Sales reps may feel pressure to meet their quotas, while sales leaders may be concerned if quotas are not met. Additionally, sales quotas can lead to unhealthy competition among sales teams, which can have a negative impact on morale. It’s important to consider the sales cycle when setting sales quotas.If sales cycles are too long, sales reps may struggle to meet their goals in a timely manner, which can incentivize short-term wins over long term growth and revenue.
Step 1: Choose a top-down or bottom-up approach
Sales quotas can be established top-down or bottom-up.
The top-down approach is more common for large enterprises, especially public companies that have gross revenue targets and expectations.
The bottom-up approach is more common among startups and scale-ups, and it focuses more on your team’s resources and skills. This approach often leans more on analyzing past data, forecasting future performance, and determining external influences that may impact sales performance. This approach is more likely to result in improved morale and performance over the long term.
Step 2: Analyze historical sales performance and forecasted goals
Whether sales leaders take the top-down approach or not, it’s helpful to analyze past and current sales performance in relation to the company’s revenue goals.
This allows sales leaders and executives to look at past growth trends to predict what is reasonable or likely in the future.
Sales leaders should build sales growth models that include past data as well as forecasted projects. These won’t always be perfectly accurate – especially if external events like economic downturns are at play. But they will provide basic assumptions for team goals, which can then be broken down into individual sales goals and quotas.
Step 3: Establish Team Goals
Team sales goals are often based on company revenue targets, but they’re best calibrated with a conversation between the sales team leader and the leaders of other company departments.
This helps set the context for reasonable sales objectives, factoring in trends and anomalies in the market as well as potential tailwinds, like increased headcount and sales process improvements.
What targets would meaningfully help the business reach its objectives? These sales goals should be ambitious, yet achievable. They can be broken out into multiple targets, such as revenue growth, profit growth, customer growth, and lead growth.
Step 4: Set Individual Quotas
After establishing overall sales team goals, it's time to create individual quotas for each member of the team.
This involves breaking down the larger goal into smaller chunks so that each person has their own individualized target.
Factors like experience level and historical performance should play a role when assigning individual quotas so that everyone is given a challenging, yet achievable target. It’s alright to have a collaborative and conversational approach, the same as any performance-based target. Sales reps should find their quotas reasonable yet exciting, a bit of a stretch goal.
Sales quotas create accountability and motivation. They often affect the total compensation of reps, as well as set expectations for career growth.
How to Achieve Sales Quotas
Setting sales quotas and achieving them are two different things. The main things sales leaders need to know about helping their teams hit their sales quotas are the following items:
Establish a sales process
The sales process is the key to achieving sales quotas.
From prospecting to outreach, nurturing to opportunity, and opportunity to contract and close, the sales process should be largely predictable. This helps sales teams hire and onboard new sales reps as well as build predictable growth models to communicate team sales targets to the broader company.
Without a sales process, it’s nearly impossible to set reasonable individual sales quotas, and performance among reps will vary widely.
Tracking sales progress is essential for sales teams to reach their quotas.
Sales leaders should establish a system that allows sales reps to track their progress and ensure they’re on the right path.
Part of this should be built into a dashboard, using a tool like a CRM to track performance against targets.
Part of this should be a qualitative and personal review with sales managers, usually done on at least a weekly level. The frequency and format of these meetings depends on the company, but it’s helpful for accountability and motivation to regularly meet with team members to see how they’re performing against their targets.
Address missed quotas
If sales reps aren't meeting their sales quotas, sales leaders should investigate why and take immediate action to address any issues.
This could involve providing additional training, adjusting sales strategies, or providing better resources. It’s important that sales teams remain agile and adjust as needed to meet their sales quotas.
If sales managers are meeting regularly with their team as well as tracking performance through a dashboard, these conversations shouldn't surprise to sales reps. Rather, they should represent an opportunity to refracture sales quotas or improve performance in pursuit of these goals.
How many sales reps should hit their sales quotas?
The number of sales reps on the team who should hit quota depends on various factors, such as the size of the sales team, the company's goals and maturity, the industry, and the market conditions.
If sales leaders are setting reasonable targets, they can expect most of the sales reps to hit quota, with a smaller percentage exceeding their targets and a smaller percentage falling short.
A commonly used benchmark is the 80/20 rule, where 80% of the sales team hits their quota, and 20% exceed their targets.
The sales team's success is a collective effort, and the focus should be on creating a supportive environment that encourages growth and fosters healthy competition among the team members. Again, sales quotas are just a tool to improve performance, morale, and growth. If they’re not accomplishing that, they’re not a good tool.
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