3/10/2020 What Are Sales Quotas (and Why Does Your Sales Team Need Them)?

Your Sales Team Need Them)? | Propeller CRM Blog

What Are Sales Quotas (and

Why Does Your Sales Team Need
Them)?
Emily Bauer
Content Marketing for Propeller CRM
November 2, 2017

It’s hard to make progress without rst setting a clearly de ned

goal. After all, benchmarks give us something to strive for and
help us recognize when we’re improving.

For sales team, sales quotas act as a benchmark and can

provide the motivation reps need to perform their best and
support the business’ goals. Many sales teams thrive with the
help of quotas. The key is to set quotas that are both
challenging and attainable.

What is a Sales Quota?

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A sales quota refers to a time-bound sales target set by

management for a particular region, sales team, or individual
rep. Sales quotas are often attached to a daily, monthly, or
quarterly period.

Sales quotas can be measured in a number of different ways,

including by pro ts, sales, or rep activity.

The Importance of Setting Sales Quotas

Not only do sales quotas play an important role in sales

forecasting and monitoring rep activity, they also set
expectations and motivate sales reps to hit a given level of
activity.

Managers can also use sales quotas to learn more about their
team’s productivity, success rate, and optimal sales processes.

Setting sales quotas allows you to:

Ensure compensation plans (including commissions) are

fair and effective
Reveal weaknesses or bottlenecks in the sales pipeline
Highlight successful reps and replicate their sales
techniques
Monitor and regulate selling expenses
Create achievable goals and benchmarks

Choosing the Right Type of Sales

Quota for Your Team

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Before deciding how to set sales quotas for your team, you
need to understand the different four main types of quotas.
Sales quotas are often based on revenue, sales activity, volume,
or some combination of the three.

1. Revenue Quotas

The most common type of sales quota is revenue-based. Reps

are expected to sell enough units or subscriptions to earn a
certain amount of revenue for the given period.

This type of sales quota is usually set for the quarter or the
month. However, businesses in industries with a longer sales
cycle might use annual revenue quotas. For instance, since
many SaaS companies operate on monthly contracts, they
might choose to set quotas based on the value of the client’s
annual contract.

Revenue quotas can refer to net revenue, especially in cases

where prices are exible and upselling is common or expected.
If your products have a range of different pro t margins, you
might use pro t quotas instead of focusing on revenue. Pro t
quotas incentivize reps to spend time selling items that yield a
higher pro t.

2. Activity Quotas
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Another option is to create quotas based on sales activity. This

can include the number of new clients landed for a given
period. However, it can also expand to include activities that
are part of the sales process but don’t translate directly into
sales.

For example, reps might be expected to make a certain number

of phone calls every week, book a certain number of meetings
per month, or close a certain number of deals by the end of the
quarter.

3. Volume Quotas

Quotas based on volume incentivize reps to move a certain

amount of inventory or register a certain number of new users.
These types of quotas are often set for the team to achieve
over a given year. Depending on the business, the quota might
break down further by region, product, or individual sales rep.

4. Combination Quotas

Many sales teams operate with some combination of sales

quotas in place. Combined quotas often involve an aspect of
both sales volume and rep activity. For instance, reps might be
asked to set ten appointments with new prospects and close
40% of those leads for a total of four new customers.

However, setting too many different types of quotas can be

problematic if it causes your sales team to become unfocused.
When in doubt, prioritize a select few activities or benchmarks
that you want your team to prioritize, rather than asking
everything of your sales reps.

Why Your Sales Quotas Must Be

Tough but Achievable
Some managers assume that setting the bar as high as possible
is the best way to get results. Because, hey, even if the team
falls short, they’ll still have a pretty good quarter.

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Unfortunately, this isn’t how sales quotas work at all. In fact,

setting an unrealistic sales quota can actually deplete morale
and damage productivity – which, in turn, hurts pro ts.

Think about it: if your sales reps know the quota you’ve set is
unattainable, why would they even try to reach it? Asking more
of your reps than is possible is guaranteed to make them feel
like failures, even if they’re killing it.

Other complications can arise from setting unfair sales quotas.

For example, your sales reps might resent the company for
creating a toxic environment, which leads to increased
turnover and bumps up costs associated to rehiring and
training.

Unrealistic sales quotas can also encourage unscrupulous

behavior. Desperate sales reps might resort to overly-
aggressive sales tactics, mislead their prospects to make more
sales, or fudge the numbers to suggest they closed more deals
that they actually did.

On the other hand, a challenging but achievable quota

incentivizes reps to try their hardest without burning out. Your
reps should be recognized for their hard work, so make sure
your compensation plan keeps them motivated and rewards
them generously for making or even beating their quota.

Two Common Methods for

Creating Sales Quotas

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Now that we’ve established why sales quotas need to be

attainable yet challenging, let’s discuss how you can go about
setting fair quotas for your sales team. The two primary
approaches to creating sales quotas are the top-down and the
bottom-up approach.

The Top-Down Approach to Sales Quotas

The top-down approach essentially means the company sets a

goal for the quarter or period (for example, we want to earn
$10,000 this month) and then assigns sales quotas to support
this goal (i.e. each of our ve sales reps must bring in $2000 so
we hit our target).

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When quotas are createdFeatures
using a top-down approach,
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management comes up with the numbers based on the
organization’s objectives. Whether these are determined by
comparing your business to competitors or by analyzing
historical data, a top-down approach begins with a desired
result and works backwards to gure out how much your reps
must sell to achieve it.

For instance, if the goal is to earn $10,000 revenue this month All-in-One CRM
and the average deal size is $500, then your sales team needs Inside Your
to close twenty deals by the end of the month.
Gmail

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Depending on the number of reps on your team, you can assign

individual sales quotas in terms of number of deals each rep
must close or the amount of revenue they each need to bring in
in order to meet your goal.

Generally speaking, sales quotas increase as a business’

Turn your Gmail into a
average deal size goes up. Unfortunately, can sometimes lead Sales Machine! Propeller
to unrealistic quotas if your reps are expected to hit higher and CRM lives in your Gmail
higher quotas over time. inbox and brings your
sales data to you.

The Bottom-Up Approach to Sales Quotas

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Alternatively, a bottom-up approach involves looking at what
each rep is capable of and analyzing historical data (like how
much each rep sold last month) and then creating quotas based
on those numbers.

Since an ideal sales quota is challenging and realistic, you

should use the bottom-up approach to come up with a quota at
the upper bound of what your reps are proven to be capable of
selling.

If you want to create sales quotas using a bottom-up process,

start by guring out how many deals each of your sales reps
can reasonably close in a given month. For example, look at
previous periods to see what the typical closed-won rate was
and use that data to forecast for the coming period. Then,
multiple that number by the average deal size to get a rough
idea of what you can expect from your salespeople.

Quotas created using the bottom-up approach are often more

realistic, balanced, and attainable than those set using the top-
down method. Remember, reasonable sales quotas keep
everyone happy – they’re good for management, your sales
reps, and the company – so it’s worth considering a bottom-up
approach.

Better Cold Email Campaigns Help Your Reps Hit Their

Targets

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You can manage your team to success with the help of sales
management software. Here’s another way to help reps
achieve their sales quotas: give your team the tools they need
to succeed! That includes a powerful CRM platform that
enables them to send personalized, effective cold emails.

And since more effective sales start with better cold email
campaigns, we’ve put together a package of 17 proven cold
email templates that you can share with your team.

Get the Templates

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