Sales Quotas

 The sales quota is a quantitative objective assigned to a marketing unit

or individual salesmen for use in the management of sales effort.

 Quota is a common yardstick used by sales executives to measure the

performance and compare it with other salesmen in generating sales
volume.

 In general sales quotas are set by the firms for their salesmen but
some companies establish quotas for the middlemen also like
wholesalers, retailers, agents, etc.

 At the top quotas are set for various regions and as they come down
the hierarchy they are broken down into quotas for each sales
territory.

 Quotas involve the time factor i.e. the quantity of sales to be made
with in a stipulated period.

 Quotas are mainly established as directing and control devices for the
salesmen’s activities.

 The usefulness of a sales quota as a control device mainly depends on

how accurately the quotas have been established depending on the
marketing information and how the management is able to implement
the quota system.

 Quotas should be established basing on various market information’s

like (1) Market and sales potentials (2) Sales forecasts (3) Competitive
situation and (4) Cost estimates.

 Apart from these sources of information the effectiveness of a quota

also depends on executive experience and judgment.
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 Sales quotas if carefully set act as very good devices for controlling
and directing salesmen. But if they are set on unsound or arbitrary
basis they act as fundamental troubleshooters in the field sales force.

Relationship between Sales forecast, Sales budget and Sales quotas:

 There is close integration among the above three factors.

 The degree of integration among the factors differs from firm to firm.

 When the degree of integration is very high they act as effective

devices for controlling sales operations of the firm.

 The firms planning operations start with sales forecast and from these
they evolve the sales budget as a control base and from this they adopt
performance standards i.e. sales quotas.

 When the firm has decided a particular profit target i.e. after
estimating the sales and deducting the probable expenses the next step
is to decide what should be the quantity of sales that should be
generated from each territory.

 With this intention the sales executives allocate quotas to each

salesman.

Reasons for establishing quotas:

To evaluate the performance of the salesmen: If quotas are set on

scientific basis they act as a common yardstick to measure the performance
of different salesmen with out arbitration.

 By comparing the quotas with sales performance and by conducting a

deep probe the management can identify its strong and weak points in
different market segments.

Quotas are used as incentives to motivate salesmen:

 If quotas are set scientifically and with a realistic point of view they
motivate and create inspiration among salesmen to do a better job.
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 But on the other hand if they are set unrealistically high they have a
negative effect over the salesmen’s performance.

 The salesmen’s efforts show a declining trend when they have an

easily attainable quota. This is a psychological effect of over
confidence and breed’s laziness among salesmen.

 If quotas are to act as motivators they should be set not only on

market statistics and potential but also on the experience of
executives.

 The reward to salesmen for exceeding his quota will normally be high
and at the same time his next years quota will be increased by 50% of
his previous year’s achievement.

 The criticism between quotas and personnel motivation is most

salesmen are quota achievers rather than rupee maxi misers.

Quotas as Budgetary control measures:

 Only a certain percentage of sales expenses incurred by the salesmen

will be reimbursed by the firm.
 This is to ensure that the quotas are not being achieved at a huge cost
thus minimizing the net profit margin of the firm.

 Quotas are also used to fix the compensation of the salesmen.

Types of Sales Quotas:

Sales volume quotas: This is one of the oldest one and management uses
this for measuring the performance of salesmen and middlemen.

 By arriving at a quota and by communicating it the management tells

each salesman of his target and the time by which it should be
achieved.

 These quotas can be for different products in a product line, for

different territories, customers or middlemen.
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 These act as effective control tools and measures for directing the
various activities of the salesmen.

 Utmost importance is given to quotas because before any profit can be

earned a certain volume of sales should be generated so as to enable
the firm to break even and keep the wheels running.

 The quotas could either be set in physical units or expressed in rupees

or in a combination.

 If the prices of the firm’s products keep changing very often and if it
intends to compare its performance with the previous years the quotas
will be set in physical units.

 If the firm has products with high prices it sets units as quotas for
psychological reasons.e.g. 40 unit’s vs Rs.40, 000.

 Some firms with a narrow product line whose prices do not widely
fluctuate have quotas both in units and rupees.

Budget quotas: These are set for different units in the sales organizations
for controlling expenses.

 Budget quotas are set so as to ensure that the salesmen do not achieve
their quotas at an exorbitant cost, thus making the entire sales
uneconomical.

Expense quotas: are a part of the budget quotas. These quotas are expressed
as a percentage of sales volume rather than in rupees.

 Expense quotas are set so as to increase the profit contribution.

 Incentives are also given to the salesmen if they achieve their sales
volume quota with in the expense quota.

 However, there are certain disadvantages in setting uniform expense

quotas as a percentage of sales volume because the transport facilities
are not equal in all the territories of the firm.
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 The only aim of the firm in establishing budget quotas is to make the
salesmen cost conscious and this will act as one of the yardstick to
measure the performance of salesmen.

Gross Margin or Net Profit quotas: This has the same impact as the
budget quotas.

 The aim of the firm in setting these quotas is to create cost

consciousness among the salesmen.

 By having these quotas the possibility of the salesmen to over

emphasize the sales volume quota is minimized.

 Net profit quotas are established to increase the profitability and this
depends on increasing the sales volume and minimizing the sales
expenses. So the salesmen try to restrict their expenditure while
achieving the sales volume.

 This is useful when the firm has both high and low profit margin
items in the product line.

 Salesmen usually sell low profit margin items because they are easy to
sell in the market.

 So by fixing Net Profit quotas they are compelled to sell high profit
margin items also because it will be impossible for salesmen to
achieve their target if they are not sold.

 But fixing of Gross Profit quotas is difficult because the salesmen do

not fix the prices and they have no control on manufacturing costs.

 Fixing and administering of Net Profit quotas are also difficult

because the salesmen have no power to control the expenses incurred
at the branch office.

Activity Quotas: To set these quotas the management should first have
knowledge about what are the main activities to be performed by the
salesmen and how much time do they need to spend on each of these
activities.
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 Some of the activities for which quotas are set are (1) total calls made
(2) Calls on each class of customers (3) Calls on prospects (4) product
demonstrations and displays organized (5) New accounts tapped (6)
collection of bills, etc.
Combination of Quotas: Various quotas mentioned above are combined
together and points are allocated for each activity to evaluate the
performance of the salesmen.

Methods of establishing sales quotas:

 Quotas may be established from territorial sales potential by pooling

estimates form various territories.

 They may be established from total sales estimates by adopting the

break down procedure from the census data available.

 Quotas set on past sales experience based on averages for previous

years.

 Sales personnel setting their own quotas.

Characteristics of a good quota plan:

 Simplicity: The method used to arrive at the quota should be simple

and easy to administer.

 Accuracy: Guesswork should be eliminated while arriving at quotas.

 Definite Task: The salesmen should definitely know what the quota
to be achieved is and what are the other duties the firm wants him to
perform.

 Incentive: The quota should provide some incentive to the salesmen.

 Fairness: Every salesman should be treated fairly without any bias.

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 Flexibility: The quota should be flexible so that when basic business

conditions change; a change should also be brought about in the
quota.

 Coordination: Quota should be planned so that it will facilitate

coordination between various activities of the firm. Like production,
marketing, finance, promotion, etc.

Reasons for not using sales quotas:

 If it is difficult to obtain accurate sales forecasts and if quotas are to

be based on guesswork executives prefer not to have quotas.

 If the determination of quotas requires using of statistical techniques

executives prefer to avoid them because salesmen might view them
with suspicion.

 Due to over emphasis on sales activity.