Setting Sales Quotas and Targets

As a sales manager, one of your annual tasks is to sit down with your salespeople and set mutually acceptable sales targets and quotas along with levels of sales activity.

Then, for the rest of the year, you have to ensure they’re hitting their targets by monitoring their activities and results. And then, if they aren’t "making quota," it’s your job to find out why and help. That’s a major part of what sales management is all about.

Sales Quotas and Targets
A  sales quota is the gross amount of business that either a salesperson says he can do or the company says must be done. It’s usually a target if the salesperson sets it and a quota if the company sets it.

In either case, too many people generate the number using the SWAG method (scientific wild-ass guess). When you consider that hiring, product purchase, advertising, expansion and other decisions are made based on the estimated future earnings, it’s important that sales quotas be set as realistically as possible.

I’ve seen too many companies hand down the numbers and then make operating decisions as though the numbers will come to pass, no matter what. This usually results in cash flow crunches followed by recriminations and scorn being heaped on the sales department for not making the numbers.

Sales quotas can be inflicted, extrapolated, dreamed-up or developed. Regardless of how they evolve, without agreement or buy-in from the salespeople, the exercise of quota setting becomes academic at best and a farce at worst.

Imposed / Inflicted Quotas
Quotas imposed from above and inflicted on those below are a closed issue. As a sales manager, you can do nothing more than motivate the troops, monitor progress and manage the process.

Imposed quotas become a test of your team building, coaching, and creative thinking abilities. You have to keep rallying the team, coaching them for continual results while creatively dreaming up ways to make things happen.

Extrapolated Quotas
Extrapolated quotas are often the result of no real planning. In good times, the company simply states that this year’s quota will be 10 percent (or whatever) higher than last year’s. In bad times, the company expects the salespeople to do at least as well as last year.

No matter how bad the market situation is, it’s a rare company that takes a look at the economic conditions and establishes a quota less than last year’s.

Dreamed-up Quotas
A dreamed-up quota is usually a figment of the salesperson’s imagination. It comes about because the salesperson knows she won’t be held accountable for achieving it.

The idea is that the salesperson tells her sales manager whatever he wants to hear. It doesn’t matter if the numbers are unattainable.

Developed Quotas
A developed quota has the best chance of success because it’s developed as a joint effort between the salesperson and the sales manager.

A properly developed quota has a high possibility of acceptance on the part of the salesperson. If achieving the quota is tied to the salesperson’s personal or business goals, the chances of success become even higher.

When developing sales targets and quotas, it’s important that they be mutually established. If your salespeople aren’t involved in setting the sales goals, they won’t feel any responsibility for reaching them. No amount of brow-beating will get a salesperson to take ownership of a sales goal that he or she didn’t have a key role in setting.

Mutual goal setting removes the salesperson’s major excuse for not reaching the target. If you impose it on him, he will claim it was unrealistic. If he is part of the goal-setting process, he will accept responsibility for achieving the goal. And it becomes a matter of pride for the true sales professional to reach the goal.

Developing “Developed” Quotas
As a sales manager, you know what you have to achieve for the upcoming year if the company is to be successful (or survive!). This number becomes the base on which you have to develop individual quotas with your salespeople.

One approach is to tell the salesperson what the proposed quota is for the upcoming year and see if she feels she can achieve it. If she says yes, you’re almost home-free. Now you just have to assist the salesperson to develop a plan to achieve the desired results. This method differs from an inflicted quota in that the salesperson is free to say no.

Another approach is to ask the salesperson to turn in her own quota (or best guess) and wait to see if her guesstimate equals or exceeds your base number. If so, all that remains is to develop the plan to make it happen.

If her quota is less than the number you need, you have a selling job to do. At this point, disclose the base number and see what can be done about closing the gap. In other words, negotiate around the difference between her number and yours, not the total quota number.

For example, if you need a salesperson to bring in $1,000,000 of business and she estimates she can close $900,000, ask the salesperson to review her accounts to see where she might be able to develop an additional $100,000 worth of business over the next 12 months. Or you might ask the person, "What needs to happen for you to make up the difference in the numbers?"

In the end, as a sales manager, you must realize that if the numbers you need are reasonable and the person can’t or won’t do the numbers that need to be done, you’ll have to find someone who can.

How to Eat an Elephant
Quotas can look big and imposing "” just like an elephant. And just like an elephant is easier to eat one mouthful at a time, quotas are best looked at in smaller chunks.

While quotas can be a simple annual number like $1,000,000 in sales, it’s better if the annual quota is at least broken down on a quarterly or monthly basis.

Companies that have good sales records can tell what their general selling pattern is. For example, they can tell what percentage of the year’s sales comes in each month or quarter and this information can be used to divide up the quota over the year.

This makes the quota more palatable to the salesperson and allows the sales manager to track the sales progress for each salesperson as well as the company as a whole.

Bottom Line
Whether you’re doing a full-blown annual forecast or just a quarterly review/revision, turning the sales quota-setting ritual into a collaborative effort instead of a sermon from the mount can make the process less painful and more profitable for everyone.

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2 Responses to “Setting Sales Quotas and Targets”

  1. Sandeep Anand December 14, 2015 at 1:27 am #

    This is very informative and very easy to understand. I have now have a clear idea on how to proceed with the discussing about and setting quotas/targets with my Sales Team. Thank you very much.

    • Brian December 14, 2015 at 9:05 am #

      Sandeep:
      Glad to have been of service.
      Brian

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