Sales quota:

WHAT IS A QUOTA?
A quota refers to an expected performance objective. Quotas are tactical in nature and thus
derived from the sales forces strategic objectives.
WHY ARE QUOTAS IMPORTANT?

Quotas provide performance targets.

Quotas provide standards.

Quotas provide control.

Quotas provide change of direction.

Quotas are motivational.

Sales quota :Individual sales target figure assigned to each sales unitsuch
a sales person, dealer, distributor, region, or territory, as a required minimum for a
specified period (month,quarter, year). Sales quotas may be expressed either indollar figures
(monetary terms) or in number of goods orservices sold (volume terms).
Sales quotas are a way of life for the sales force. All activities of the sales force revolve
around the fulfillment of sales quotas. Sales quotas are targets assigned to sales personnel.
They signify the performance expected from them by the organization. Sales quotas help in
directing, evaluating and controlling the sales force. They form an indispensable tool for sales
managers to carry out sales management activities. Sales quotas are prepared on the basis of
sales forecasts and budgets. Sales quotas serve various purposes in organizations.

How to Set Sales Quotas

Setting accurate quotas will help you achieve sales goals.
A sales quota is the target or minimum sales volume expected from a sales employee, sales
team and/or department, during a defined period. Sales quotas are frequently set in monthly,
quarterly and annual allotments and commonly expressed in sales dollars or sales units.
When quotas are set effectively, the consistent attainment of quotas will directly and
positively impact a company's ability to achieve its overall sales budget or plan. Most sales
commission payouts are linked to the attainment of quotas. It is common for sales quotas to
increase year over year.

Instructions:

How To Set Sales Quotas

o
o

o
o

1 Review future, company and department performance goals and budgets.

Understand what the sales department must deliver monthly, quarterly and annually in order
to achieve its goals.
2 Analyze sales trends for the past two years including dollars, units and
product/service information. Understand the causes for sales growth, sales declines and
seasonal fluctuations. Examine quota attainment at the representative, team and department
level. Consider changes to sales resources and staffing levels.
3Compare the prior year's performance trends with the future, company and
department goals. Determine what growth or decline is expected. Quantify the overall gap
between last year's performance and the future, expected performance. Determine the revenue
expected from existing customers versus new business.
4 Complete an opportunity analysis. Identify where the best sales opportunities are
within your existing customer base and with prospects. Look externally at geographic and
industry trends that may impact future sales performance. Familiarize yourself with internal
changes that could help or harm sales such as new product introductions or changes.
5 Review the sales expense budget. Determine if your full time equivalents
(FTEs) will grow, decline or remain flat. Understand the budget for sales commission
expense and cost of sales.
6 Determine if you will "over assign" quota dollars. This is the process of adding a
buffer between the sum of your sales quotas and the sales budget. For example, if your sales
budget is $10 million, you could set sales quotas to sum $11 million, to add a $1 million
buffer. Some sales leaders consider the over assignment, as insurance to improve their
chances of achieving sales goals.
7 Determine how you will spread the sales growth or decline including the "over
assignment," if applicable, across your sales team. Some sales leaders hold all sales
representatives to the same level of quota growth, regardless of territory, skill set or
geography. Other leaders tailor the sales quota amounts to individual employee or territory
needs.
8 Build a quota model that will allow you to create "what if" scenarios for
different quota amounts. Some of the data inputs and outputs will include number of FTEs,
sales dollars, expected quota attainment, commission dollars and cost of sales. (Quota models
are often built using Microsoft Excel or Access.) It may be helpful to include finance and
human resources experts in the quota modeling process.
9 Set reasonable quotas that will lead to the achievement of the overall sales
revenue budget while also meeting your sales expense goals.

Objective of Fixing Sales Quota:

Sales force management is part of any sales force automation softwarewith agency
management software. We talked Sales Forecasts, Sales Budgets and Fixing Sales Quotas
in our last post. Today we are going to talk about Objectives of Fixing Sales Quotas.
The basic objective is that a sales management has in mind in using quotas is to control the
sales efforts. A skilled management uses quotas to motivate personnel to achieve desired

performance levels, apart from these there are some other objectives also which are as
follows:

To provide quantitative standards

To obtain tighter sales and expense control.

To motivate desired performance.

To use in connection with sales contents.

Types of sales quotas:

Sales volume quotas.

Breakdown total sales volume.

Profit quotas.

Expense quotas.

Activity quotas.

Quota combinations.

Types of Quotas
Sales quotas

Based on dollars or units

Most common

easy to develop

easy to implement

Typically a breakdown of the sales forecast

May put pressure to sell low profit high volume items.

Good for fast growing markets without too much price competition
Expense quotas

Mature products and services

Must cut marketing cost to maintain profitability

Can lead salesperson to cut expenses to the point of losing business

Profit quotas

Incentive to sell profitable products or profitable customers

It implies that the sales force are order takers

Afraid of the impact on manufacturing

Most quotas have no relationship to profits

Few attempts have been made to link quotas to product,

customer or margins

Tendency to think that all customers are alike

No segmentation

No Targeting

Sales people cannot negotiate

Salespeople don't know what products or customers are

profitable

They don't care either

Tradition

Sources
of
Inappropriate
sales
goals
managers
resistance
to
gearing
up
the
Incorrect
sales
Sales
force
Strategy
to
sell
more
profitably
Inadequate
Sales
Support.

Activity quotas
Quota Base
Balanced
Product
Mix

Objective

Gets selling time for all products

Minimum
Services

Balanced
Customer
Mix

New
Customers

Increased
Selling
Effort

Diversifies company

Can help balance production

Training customers sales force

Setting displays

Workshops

Studies at customer's business

Encourages diversity of customers

Firm is less dependent on one type or size of customer

Encourages prospecting

New customers are vital

Demonstrations

Closes

Bids

Prospecting
Combination quotas

Sales

New customer

Service

Any of the above can be combined

Methods of setting sales quota:

1. Establish parameters for developing quotas
The start of the quota-setting process is to look at history to determine what sales success
your team has had in the past or what sales success your team is likely to have in the future.
Common parameters that can be used to define quotas include:

Historical trends: How much of which product lines have been sold in your various
sales territories over time?

Last year's revenue: What was the total revenue from all products and sales
territories?

National standards: How much did all vendors (selling the same types of products)
sell?

Territory analysis: How much does each salesperson think can be sold in his or her
territory based on the existing pipeline and recent successes?

The best quota-setting practices include looking at several of these parameters. For example,
you might look at historical trends while your staff members go through their own records for
a detailed territory analysis.
2. Add a growth expectation
Step one helped you understand history. Now you have to take the next step to predict
revenues for the next year (and then convert that revenue into quotas for your sales team).
Each company has its own method for determining how much growth in revenue should be
achieved. That expectation should be:

Realistic: What is doable for your products in the current state of your market? Some
industries can realistically expect sales growth of 5% while others may see 100%.

Challenging: The goals you set should require each member of your team to work
hard to meet the assigned goals.

3. Adapt the quotas to each sales rep

Adding the figures from steps one and two, you have the total revenue expected from your
sales force. You could now be tempted to divide this total revenue by the number of
salespeople to define the quota for each person. But in fact, not all salespeople are created
equal. And not all sales territories are created equal.
Instead, look at each salesperson individually before determining the appropriate quota to
assign. Some factors you need to consider are:

Tenure: Sales reps who have been with your company for several years have welldeveloped pipelines and contacts within their territories. They are more likely to sell
more than those who have just joined your sales team.

Assigned job: If you have different types of salespeople within your team, you may
need to adjust quotas based on the type of job. The potential for sales of telemarketing
people may be different from that of outside salespeople.

Sales skills: Face it -- some members of your team just have better sales skills than
others. Having better sales skills is more likely to result in higher sales results.

Market potential: Each territory may be different in its needs and appetite for
acquiring each of your products.

Competition. In some territories, the competition may be strong and thereby reduce
the potential for sales. In other territories, competition may be weak or non-existent.

Using these factors (and others that might be unique to your company), assess your
expectations for each of your sales reps. Then use those expectations to determine the right
quota for each person.
4. Get buy-in from your sales team
If quotas are imposed on your salespeople without an explanation of how they were defined,
the result could be resistance. It's important to have your staff buy in to your process for
setting quotas, believe that these goals are achievable and work toward meeting or exceeding
their assigned quotas.
To increase the buy-in of your sales staff to your quota-setting process:

Start with a planning meeting. In one of your sales meetings, outline the process you'll
be using to set quotas. Describe each of the steps you will be taking and the likely
completion date. Most importantly, explain how your team will be involved in this
process.

Have your reps help gather information for the quota-setting process. Let your
salespeople gather the information about their individual territories that you will use
as one of the parameters for setting your quotas.

Meet with each person to determine an individual quota. In the meeting, discuss any
factors that might influence the setting of that person's quota. Make it a joint decision,
if possible, to assign a specific quota.

5. Adapt quotas to market realities

No matter how careful we are in our plans to set revenue targets or break these targets into
quotas, we cannot predict what will happen in the economy. Changes in market conditions are
inevitable. That means that quotas may have to be changed accordingly. Set a timetable for
yourself to periodically review and assess your team's quotas. That way, you can make any
necessary adjustments.

METHODS FOR SETTING SALES QUOTAS:

Quotas based on forecasts and potentials.

Quotas based on forecasts only.

Quotas based on past experience.

Quotas based on executive judgments.

Quotas salespeople set.

Quotas related to compensation.