Sales quotas are an imperfect sales management tool, and the quota setting process is saddled with drama, “horse-trading,” and hand-to-hand combat with the finance team.
We run through the process year-after-year in the hope that quotas will yield reliable results, and that sales and finance both will celebrate. Not!
Follow these best practices to improve your sales quota setting process:
#1: Sales Quotas = Accountability. Sales quotas force performance accountability, and they offer a broad and robust sales management framework for sales planning conversations and coaching. Don’t set sales quotas so high they are unattainable (not fair to the salespeople) and don’t set them at a level where 90% of your team will hit quota (not fair to the company).
#2: Don’t Tangle Quotas with Compensation. Quotas should be a function of company revenue or booking goals, the number of salespeople, and the market or customer opportunity for growth. Compensation is a separate conversation, that often distorts quotas over time, particularly with lots of tenured salespeople. Don’t modify quotas to adapt to compensation targets, as distorted quotas become disconnected from financial goals.
#3: Apply Sales Potential To Quotas. “To whom much is given, from him much is expected.” If you have a salesperson that sells computer servers to Amazon as an assigned account, she should have a much higher quota than salespeople that have a smaller or lower growth account or prospect base. Tenured salespeople tend to end up with the largest accounts, yet we often see their quotas on par or negligibly higher than their team members with smaller accounts. The most significant growth accounts should result in a higher quota for the assigned salesperson.
#4: Don’t Get In the Quota Credit Escalator Game. The thorniest compensation and quota tracking problems happen when someone decides to give more than 100% sales quota on a deal, or give multiple salespeople quota credit for the same deal. Compensation software companies love this type of plan because they know it makes your brain hurt to explain the compensation plan, much less track the compensation. A best practice is to split quota, but never allocate more than 100% quota, period.
#5: Ask Someone From The Outside To Help Set Quotas. Striking the right balance between sales and finance is complicated in most companies, and the spoils often go to the party that has the most influence with the CEO at the time. Getting help from a third-party takes most of the emotion out of the process and has a better chance of striking an ideal balance between the interests of sales and finance.
Quotas are more just as often wrong as they are right; however, the accompanying noise factor disproportionately distracts from the overall confidence of the allocated quotas.
Consider applying our recommended best practices to drive improved accountability and confidence in the quota setting process.