SALES OBJECTIVES AND

QUOTAS
 Sales Quotas
• What are Sales Quotas?
• Sales quotas are sales goals or targets set by a company for each
of its marketing / sales units for a time period
• Marketing / sales units broken to the smallest level are regions,
branches, territories, salespeople, intermediaries, brand product
• Quotas are tactical in nature and
• Derived from the sales force’s strategic objectives
• Objectives of Sales Quotas
• To use quotas as performance standards or performance goals
• To control performance
• To motivate people by linking quotas to compensation plans
• To identify strengths and weaknesses of the company -of
salesperson, quota, territory, product quality, positioning
 Types of Sales Quotas
• Organisations set many types of sales quotas:
• (1) Sales volume,
• (2) Financial,
• (3) Activity,
• (4)Combination
 1)Sales volume quotas
• For effective control, sales volume quota should be
set for the smallest marketing units
• Sales volume quotas can be stated in
• (a) Rupees,
• (b) Units, or
• (c) Points
 Sales Volume Quotas (Continued)
• 1a)Rupees sales volume quotas are appropriate when
salespeople are required to sell many products and of small
value
• 1b)Unit sales volume quotas are suitable when
• Salespeople are selling a few products
• Price of each product / service is high
• Prices of the product fluctuate rapidly
• 1c)Point sales volume quotas are appropriate when the company
wants salespeople to sell mix of products where some products
contribute more to profits
 2)Financial Quotas
• Here, companies can convey to salespeople that it is
not sales but profits that are more important .
• Financial quotas are of 2 types
• 2a) Gross-margin quotas
• 2b)Profit contribution quotas ( see next slide )
• Profit contribution quotas are generally more accepted by sales
managers as control over direct selling expenses (unlike cost of mfg)
• 2c)Expense quotas
• In many companies, expense quotas are stated as a percentage of
sales
• Expense quotas to be administered with flexibility, to make
salespeople cost conscious, while allowing reasonable expenses
else can have negative effect as some salesman may cut even
necessary travel and this could affect sales
Profit quota
 3)Activity Quotas
• Objective is to direct salespeople to carry out important
non-selling activities
• eg. Calling on hot prospects , payment collection from
defaulting customers, obtaining mkt info, calling on current
ABC customers
• Steps involved are
• 1)define important activities
• 2) find time required for carrying out these activities
• 3) decide priorities to be given among these activities
• d) deciding quotas or frequencies for these activities
• ( see next slide )
Activity quota
 4)Combination Quotas
• Used when companies want to control salesforce performance on both
key selling and non-selling activities
• Focus on a few types of quotas, to avoid confusing salespeople. An
example:

Type of Quota Quota Actual Percent Weight Percent

Quota (Importance) Quota x
Weight
Sales Volume (Rs) 5,00,000 4,50,000 90 3 270
Receivables 45 50 89 2 178
(days)
New Customers 04 05 125 1 125
(Nos)
Total 6 573
• Total point score=573/6=95.5 for a salesperson
• Typically uses ‘points’ as a common measure to resolve the
problem of different measures used by various types of quotas
( see next slide too)
Evaluation of salespeople using
combination quota
 Methods for Setting Sales Quotas
• In practice, companies use more than one of the
following methods to increase their confidence in sales
quotas
• 1)Total market estimates
• 2)Territory potential
• 3)Past sales experience
• 4)Executive judgement
• 5)Salespeople’s estimates
• 6)Compensation plan
 1)Total Market Estimates
Method
• This process is followed by small companies who do
not have money, data, people to determine sales
potential of individual territories
1) Estimate next year’s total market demand, or industry
sales forecast, using sales forecasting methods
2) Decide the company’s estimated market share for next
year
3) Company’s next year sales forecast= (1) x (2)
4) Find each territory’s percentage share out of the total
company sales in the previous year (and use same
percentage for this year)
5) Territory sales quota = (3) x (4)
 2)Territory Potential Method

• This procedure is followed by large companies :

1) Estimate next year’s industry sales forecast using sales
forecasting methods
2) Estimate multiple factor index (MFI) for each territory,
based on various factors that influence sales of the product
and their weights.
3) Territory sales forecast=(1)x(2)
4) Territory sales quota = (3) x estimated market share of the
company in the territory
 3)Past Sales Experience Method
• The process consists of taking past year’s sale of each
geographical territory, adding an arbitrary percentage (or a
percentage by which the market is expected to grow), to
past one year’s sales (or an average of previous 3 to 5 year’s
sales), and thus setting each territory sales quota
• Simple and inexpensive method
• However ,the assumption that future sales are related to
past sales not always correct ( eg past poor mkt coverage
and lack of correction,also ignores changes in sales
potential of territories)
• hence , this method should not be the only method used
• Past sales should be only one of the factors used for
deciding sales quotas
 4)Executive Judgement Method
• Senior executives use their judgement when the
product, territories, and the company are new or very
little market information is available
• Executives predict company sales and also territory sales
quotas
• This method should generally be used along with other
methods
5)Salespeople’s Estimate Method
• Some firms ask their salespeople to set their own quotas.
• Salespersons may set either very high or too low
• Many sales managers use 2 or 3 of above methods, discuss
with salespersons to get their inputs, and mutually decide
6) Compensation Plan Method
• Some organizations set quotas to fit with their sales
compensation plan
• Eg if last year 12 million sales achieved, comp plan based on
achieving more than 12 million and at the same time having a
cap on compensation or
• Eg. A company wants to pay a monthly salary of Rs 15000, plus a
commission of 3% on monthly sales above Rs 5,00,000. The
quota is set in such a way that salesperson would find it very
difficult to say cross total compensation of Rs 30000 per month
( 15000 salary plus 15000 commission )
• However this method does not give any importance to sales
potential of territoriesor past sales
• Sales quotas should not be based only on comp plan, because it
would “put the cart before the horse”
Insight into Setting & Administration of Sales Quotas
• Set realistic quotas
• Understand problems in setting quotas- eg over or
underestimation of sales potential
• Ensure salespeople understand quotas-through participation
in setting and feedback on performance
• Have flexibility in administering quotas-major changes in
market demand (eg competitive offer, recession ) or company
strategies eg price increase
• Use monthly or quarterly quotas for incentives and annual
quotas for performance evaluation
• Select a few quotas
• Select quotas that have relationships with marketing
environment and sales situations ( see next slide )
 Relation between quota selection
and marketing environment
• Companies select type of quota depending on mktg environment , company
objectives , sales situations etc
• But remember to have few quotas ( not more than three or four quotas)
or salesmen will be confused
• For new salesmen , it makes sense to have activity quota
• When company’s products are in growth phase of product life cycle or in
growth economy , quotas should be percentage growth in sales or mkt share
• When company’s product is in maturity stage , instead of sales growth ,
focus should be on profit contribution quotas for sales people and territories
• When company ‘s objective is to increase sales from existing customers ,
salesmen quotas should be about sales growth as well as customer
satisfaction or customer service
 Companies not using quotas
• Is very rare and not recommended . Else company objectives
will not be achieved
• Must have strong reasons to not use quotas. Eg sales volume
quotas may have long term impact on customer relationship
eg Nortel , Seigel ,so maybe not sales volume quota but have
other types of quotas
• Some companies give other names . May call it sales goals or
objectives
•Sales quotas are not suitable if product is in short supply
(sellers market)
•Any type of company having no quotas ???????
SELLING-BY-OBJECTIVES
MANAGEMENT

Selling by objectives (SBO) is the process

whereby the manager and salesperson jointly
identify common goals, define major areas of
responsibility, and agree on the results expected.
 Key Learnings
• Sales quotas are sales goals or targets set by a company for its
marketing units like regions, territories, salespeople
• Firms set many types of quotas like sales volume, financial,
activity, and combination of above
• Companies use more than one of the several methods used
for setting sales quotas. These are: total market estimates,
territory potential, past sales experience, executive judgment,
salespeople’s estimates, and compensation plan
• Companies should select a few quotas, which should be
realistic and should be administered with flexibility