Setting Sales Quota and KPIs – measurements for growth
Setting Sales Quota and KPIs can often be described as one-part numbers and one-part intuition. Often developed based on attempting to find a balance between last year’s revenue and the expected revenue for the coming year.
What is the difference between Quota and Target?
The quota is the minimum sales levels that you would expect a sales team to deliver in a given year. It defines the level of sales performance that is expected by the sales manager to his/her sales reps.
Sales target is the number that sales teams are expected to stretch to deliver and typically where the commission can be earned as a reward for performance.
Is Quota always a sales number?
There are different types of quota that can be established depending on the type of product or service that your business offers and your sales processes. The common types are:
- Volume quotas – often related to the volume of physical product sold
- Profit quotas – set in place to reduce excessive discounting
- Activity quotas – number of sales calls or sales activities undertaken by sales reps
All these types of sales quotas have a place but can be better managed through good pricing structure, authority limits, and sales plans, reviewed regularly by sales managers.
Quotas and Targets can set your culture
When new quota attainment plans are announced, sales leaders and salespeople move into overdrive in an effort to bring them down. At the same time, company executives hold firm and listen to the usual reasons for them being too high or unrealistic in some areas.
For most companies, validation of the sales organisation’s capability to deliver the number is not rationalised. You may have applied a bottom up approach to determine the company costs and profitability required whereas often in sales a top down approach is applied to validate is it possible to deliver the planned number.
Sales Focus Advisory validate sales quotas and targets to ensure they are achievable but drive above industry growth rates.
When a sales quota review is conducted, it provides a fact-based methodology enabling the executive to demonstrate how the quota can be achieved—a working plan of success.
For sales quota to be accepted, and delivered, these four components must exist.
- Fairness – Fairness is an essential principle to follow. Salespeople embrace quotas more easily if they perceive them as equitable.
- Transparency – Fairness is communicated through transparency, which will also play a large part in building salesforce support and engagement.
- Deliverable – Ensure quotas are deliverable, and each salesperson has a clear guide and plan of how to deliver their quota. Often you see just the top performers hit their numbers due to the lack of a plan for all the individual team members.
- Support – Identify any additional tools that will be required to deliver quotas and prepare in advance to support the sales team timely. You need to review that those items are still relevant over a period of time.
So how do you ensure the sales quota meets those four demands?
Traditionally companies will apply a mathematical process of uplifting various or all accounts from the previous year and roll the dice to create a new sales figure for the coming year. There will be variations added around new products being introduced or products being redundant. Some changes around the available market share, and any other calculation that can be drawn on to justify an increase to those on the ground.
The fundamental error with this process is point 3- is it deliverable?
The question is not answered by the debate of markets and customers, which are the usual go-to scenarios. The answer to point 3 is combined into the cost of sales to deliver the outcome. Not the costs of goods but the cost of sales feet on the ground or the telephones. The productivity and other contributors that will define whether the sales quota is realistic or not.
The most significant assumption made is that the numbers being delivered each year in history were managed with the right productivity, focus, and deliverables.
Having completed over 200 reviews of sales quotas, it can be said that 90% of sales numbers were too low, and the company was losing profit directly and indirectly in how the sales team was measured and directed.
Companies need to seek justification for their number through robust sales calculations to identify a fair number that benefits the company and employees.
Those calculations then develop the KPIs and other measurables to support sales implementation. Indicators that manage the horizon and show what adjustments are required, what additional support may be needed, and set up everyone for success.
Taking the sales team on the journey
When the numbers have been tested, and the mechanics are understood of what is required to deliver the sales goal, it is important to engage the team in developing their sales plans to support the numbers. Show them how they can deliver and the process they can apply to minimise their workload and increase the output of their efforts. Allow their knowledge of the market, customers, and potential new businesses to guide them in establishing a plan.
Introduce the new KPIs and measurement tools, so they understand the increased measurement is not a deterrent but there to support their efforts. This will also give them tools that allow them to have control over potential additional earnings in bonuses and commissions as they understand what levers to pull to achieve mutual sales goals.
In the current market, setting sales quota and KPIs for measuring growth will be challenging and needs to be validated carefully before being released to the sales team. Their apprehension of the new normal and how they will operate will weigh heavily on how receptive they are to receiving the new number.
If you would like to discuss quota setting and KPIs – measurement to carefully guide your team into the new normal, please reach out for a conversation.
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