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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.
A sales quota is often developed based on attempting to find a balance between last year’s revenue and the expected revenue for the coming year.
- Revenue quotas – the total revenue received from sales
- 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
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. They must relate to the sales cycle of the business so at all times they are achievable and there is the ability to recover if a salesperson falls behind within one of the cycles.
For most companies, the 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. Often companies look at sales pipeline value to determine deliverability – how much velocity does the pipeline have into the coming year. This is not good practice as numbers can be inflated or inaccurate for a multitude of reasons.
Sales Focus Advisory validate sales quotas and targets to ensure they are achievable but drive above industry growth rates.
When a 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.
- Support – Identify any additional tools that will be required to deliver quotas and prepare in advance to support the sales team timely.
Having completed over 200 reviews of quotas and targets, 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 – says Adele Crane
Many companies can lift their sales results toward the 32% mark without incurring increased costs to their sales headcount. It is about understanding what changes are required, the right KPIs and measurement to be applied to deliver the output. Much like in lean manufacturing, you can be working hard and producing results, but lean shows the way to maximise output and minimise cost.
Using the robust Sales Focus Methodology, we can review existing sales quotas and goals, and assist you to set goals that are fair and equitable. From those numbers, KPIs and other measurables to support sales implementation are established. Indicators that manage the horizon and show what adjustments are required, what additional support may be needed, and set up everyone for success.
Importantly sales teams are taken through the processes allowing them to understand and make great decisions on how they can better manage their quota and increase their earnings through bonuses and commission plans.
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.
Popular Insights On Setting Sales Quota & KPIs for you
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The impact of a misaligned sales organisation can be challenging through to catastrophic for company’s revenue achievement. To illustrate this, consider a sales force consisting of twenty-five sales people with an average revenue target of $2 million each. If 60% of the sales force meet their revenue target while the remaining 40% perform at only 90% of budget, the resulting revenue shortfall for the business is $2 million per annum that can fall directly to the bottom line profit!
As CEO, you have a critical role in ensuring sales organisation effectiveness and the final responsibility for delivering top line earning growth, which in turn drives the share price that is so integral to many executive packages today. It is your responsibility to understand the dynamics of the business and ultimately communicate and drive the strategies that will profitably grow revenue.