Setting Sales Quotas

One of the biggest compensation challenges faced by sales leaders is setting up sales quotas. In fact in a survey by ZS Associates it’s the numero uno compensation related challenge consistently for the past 5 years. There is always something missing to make the goal attainable.

Consider an analogy, to ride a bike, learning to ride it on the road needs practice which demands time. Just getting the best bike with the best specifications and going through the how-to-ride manual won’t be enough. Here are a few ways to ensure fair, well planned sales quotas:

Making the time – Most of the companies spend enormous amount of time in designing sales compensation plans but fail to emphasize on setting effective sales quotas. This can be a potential threat to sales-force motivation and compensation fairness and might also result in inhibiting the very meticulously designed plan. Effective sales quotas require a significant investment in testing, analysis and communication. (To learn to ride a bike, we need time in the driveway practicing balance, agility and steering.)

Setting the right goals – Motivation is an individuals’ assessment of whether or not they can achieve an expected growth rate. Setting effective quotas require deep analysis of sales potential like market size and targeted market, a balance in accuracy, fairness and clarity for the sales force. (The bike might be exciting, but a ride the way around the block throughout the day might leave one exhausted and the bike damaged.)

Setting reasonable goals – Goals work best when they are challenging and attainable. Not focusing on market analysis, ignoring major market movements or allocating a sales forecast that is too high or too low will not motivate and challenge the sales force, it will rather affect sales drastically. This leaves most companies to cope with payouts unrelated to performance and/or misalignment with the compensation budget. (One might not care about qualifying for the tour one day, but to race one a buddy would send him/her running for the helmet.)

Using the buddy system – In the process of quota setting, there is a chance that the most rigorous approach won’t come out perfect. Getting it right, getting sales force buy-in implies engaging first-line sales managers. Giving managers the opportunity to make small, governed adjustments in quotas can incorporate local market knowledge and help overcome issues with insufficient sales or potential data. (Targeting a daily end point which is 50 miles from the starting point is too far, but by adjusting the plan to ride on a different, shorter and realistically attainable route would motivate the biker to achieve the goal as well as get better at it.)

Setting good quotas in terms of achievability takes effort, analysis, organization, accurate information and serious support. Most of all, it takes discipline, enthusiasm and commitment to the set goal. For a new biker, keen on learning to ride, getting a bike and keeping up in spite of the minor physical hurdles requires all the above three qualities but enthusiasm to top it all. Same can be asserted in case of sales quotas. Feel free to share your experiences regarding sales quotas via comments below.

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