Most of the time when sales leaders set quotas, they are thinking about market opportunity. And many of those leaders think of market opportunity only as historical performance, not future possibilities. They try to project a market’s future by looking in the rear-view mirror at what happened last year or over the past several years. In fact, SalesGlobe research revealed that nearly 65% of companies use some form of historical method when setting quotas, which may highlight one reason it can be so difficult for companies to be forward looking. Add to that the disruption to business caused by the COVID-19 pandemic and setting and managing quotas has become a very challenging endeavor.
On our weekly Rethink Sales Round Tables, we’ve responded to a number of questions about how to handle quotas this year and moving forward into 2021 and beyond. Here’s a sample of the questions and responses based what we have heard in talking to sales leaders across industries –
What are the high-level considerations for handling quotas and comp during this pandemic?
We’ve seen a lot of different approaches to handling quotas and compensation for the short term (more detail on this below). Companies realize that they are likely going to have a higher compensation cost of sales this year. There is a conscious investment decision being made, where if they’re running into revenue roadblocks and they’re not going to see that revenue in the short term, they’re instead paying for leading indicators that ultimately will bring them revenue later, like proposal volume, relationship development, helping rather than selling to customers, or supporting in some sales ops roles.
But the real answer lies in asking the challenge question, “What is the organization trying to accomplish during this period? When we get to the end of COVID, what do we want the outcome to be with our sales team and our customers? And what are we willing to invest?” Maybe the answer is, “We want our customers to feel positive about how we worked with them during this period. And we want our sales team to feel good about how we worked with them during COVID, too. We want them to feel loyalty to us, which may increase the retention of our salespeople when we come out of this period.”
So, look at the bigger picture – your culture, your compensation philosophy – as you consider your investment decision. You may choose to make a different investment decision and keep your people whole, knowing that it costs more in the short term, but when the market gets competitive again, your people will stick with you. Or your philosophy may be like a different, more “rough and tumble” sales organization we talked to: “Sales is in it with us. They get the financial reward in the big years and in the lean years, we’re going lean.”
In addition to income protection, are companies thinking of giving quota relief as well?
Most companies have not reduced or adjusted quotas for the year. The moves they’re making are either to re-seasonalize quotas by pushing them further out into the year, to make the going a little bit easier for the rep. Or they’ve broken quotas into more discrete periods, by taking an annual quota and breaking it down into quarterly or semi-annual quotas, to gain time for visibility in order to make any adjustments.
The ultimate answer to quota relief is still a couple of months out as organizations are still waiting for more clarity and visibility in the “pandemic fog,” while continuing to assure the sales team that things are going to be ok and we will figure it out as we get there.
You talked about discrete quotas and cumulative year-to-date measurements as options. We have had a cumulative year-to-date measurement in place, but we are unsure of what our particular environment is going to look like and forecasting is proving difficult for 2021. I’ve always thought that discrete quotas can create mistrust with the sales team because they can be jiggered to the detriment of the team. How do these work in practice?
We usually see that question going in the other direction, like “We’re used to having quarterly quotas, and what is cumulative year-to-date all about?” Or “We’re used to having a full year quota and then when someone reaches that threshold in the middle of the year, they start getting paid.” Often companies are accustomed to the discrete periods, e.g. Q1, Q2, Q3, Q4 and you hit it within Q1, it’s treated as reached within the quarter and then restarts in Q2.
What we recommend for more strategic environments is a cumulative year-to-date approach. For example, if I had an annual quota of $4M for the rep and, assuming no seasonality, I simply divided it up equally between quarters – $1M for Q1, $2M for Q2, $3M for Q3 and $4M for Q4. The reason we like this, in a strategic environment, is that it allows the rep to catch up. So, if the organization did a good job setting that quota, and someone needs more time beyond Q1 to get those larger deals, they have time to catch up.
Where you should be careful with cumulative year-to-date quotas is considering accelerators. If you have a salesperson who hits their accelerators too early in the year and then “bottoms out” later, you can end up in a negative balance situation.
If you go with quarterly quotas, anytime you have artificial endpoints like a month- or quarter-end, then you may have gaming around those endpoints, either pushing deals out or pulling them into the period, to stand a better chance of making quota for this period or the next.
What’s in Store for Quotas in 2021?
First of all, geographic boundaries are going to matter less, especially for non-strategic accounts. You will see territories created and balanced differently, especially if the rep doesn’t need to be there in person for client visits.
Also, quotas will become more account-opportunity driven. As we have said, “History is history.” While many companies use history in their quota setting, the problem is that they’re using their rear-view mirror to predict future performance. So, we want to get more account level information to understand what the market opportunities are and will be using data sources to give us more granular account information. We’ve talked about that in prior sessions – if you’d like an account-based look at data, reach out to us.