This is the second in a two-part series of Ten Success Factors for Better Quotas. Click here for Part I.
6. Move Beyond History. Most organizations set quotas by looking backwards (The old, “Take last year’s goal and add 10% method).But this historic approach can punish your top performers – you’re simply adding a bigger expectation on top of a rep that had a great sales year. Historic quota-setting may also create a “porpoise pattern,” where sales and quota attainment leap up and then dive in alternating years.
- A rep will have great revenue performance (a leap) in year one;
- That rep gets punished with an inflated quota in year two;
- Therefore, the rephas low attainment of that inflated quota (a dive) in year two.
- Rep gets a lower quota in year three;
- Followed by another leap in great performance over that low quota.
- Pattern continues ad nauseam. Company never has clear picture of revenue forecasted.
Challenge your team to acknowledge history but to lean toward forward-looking indicators of market opportunity.
7. Balance Market Opportunity with Sales Capacity. Rather than history, market opportunity should be a primary driver of the quota. More specifically, territory opportunitywill give you a good indication of what portion of the total goal should be allocated to each territory.
But market opportunity is only half of the answer. The other half is the physical capacity of the sales force to close a certain amount of business. Do you have enough reps to cover all the potential? By understanding and balancing the two sides of market opportunity and sales capacity, you can get a multi-dimensional view on how to allocate the quota.
8. Fit the Methodology to the Account Type. One quota-setting approach does not fit all situations. (Next week I’ll discuss 5 different quota setting methodologies and – spoiler alter – some are better than others.)While a flat quota may work well for transactional accounts, a market-opportunity approach might be better for a mid-sized account. At the top of the account pyramid, national account quotas may be more accurately based on the information and strategies developed in an account plan. Apply an appropriate approach for each type of segment or market.
9. Make Your Approach Scalable. Keep it simple, sales comp people.
A telecommunications organization we worked with had updated and piloted its new quota process, and it worked perfectly.It included top-down and bottom-up inputs, predictive market data, and precise steps for the entire team to work through the process. Unfortunately, what worked perfectly in the pilot stage fell apart disastrously when introduced to the entire sales organization. The process was just too complicated, delicate, and unwieldy. Err toward the side of simplicity. Accounting for every possibility may feel more accurate, but it will require too many people too much time. Go with a simple, streamlined approach.
10. Don’t Over, Over-Allocate. A sales rep in a Fortune 100 transportation company recently cornered me and asked: “Why is it that our CFO reported to Wall Street that we were on plan for revenue for the quarter, yet leadership is beating on us because we’re behind in the field?” After a little digging, the answer was clear. It was a case of over, over-allocation of the quota.
Over-allocation refers to the practice of taking the sales goal for the business overall and, as it is allocated down to the next level of management, adding a little extra. Adding a lil to the top. For example, a company with a $1 billion corporate goal with a sum of all front line quotas of $1.05 billion has over-allocated its goal by five percent. Most organizations over-allocate quotas by about 3% -5% from top goal to front line. It’s like an insurance policy. If a sales position remains unfilled for a period of time with no one to cover that territory, the over-allocation makes up for some of that loss. If a rep falls dramatically short on his quota, the over-allocation also makes up for some of that performance shortfall.
Over-allocation, within limits, can keep the organization on-track with its quota. However, when the quota is over-allocated too much at too many levels, it can lead to distortion on the front-line. In the case of the transportation company, the company had over-allocated its goal to a point where the C-level and the front line had two different realities. The sun was shining at the C-level while the front line saw only cloudy skies. Keep your quota allocation trim so that executives and reps all participate in the company’s success.
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