CEO Blog Nation: Taking the Guess Work Out of Quota Setting And How To Avoid 5 Common Mistakes

February 02, 2016

by Mark Donnolo, Managing Partner, SalesGlobe

Quota problems are consistently near the top of the list of sales compensation challenges for most companies. A team can painstakingly work through each step of the sales compensation design process and create a great plan that can be wrecked by poor quota setting. Given the choice, I’d rather have a good sales compensation design and a good quota-setting process than a phenomenal plan and a bad quota setting process. If I see somebody getting significantly underpaid or significantly overpaid, it’s almost always because of poor quota setting, not the structure of the plan.

While quota setting is often thought of as a quantitative, numbers-driven discipline, most challenges are not related to the numbers but instead are related to process, the people, and their belief in the process.

Below are five of the top mistakes I see from quota setting teams.

Quotas are driven by historic information that does not represent the opportunity in the market. The natural tendency of most organizations is to consider recent historic performance of the rep or the team and add something to that. However, planning ahead by looking in the rear view mirror doesn’t usually account for the true untapped growth opportunity in a territory or the unrealized capability of the salesperson.
The organization doesn’t have an effective process to accurately set quotas. Quotas are often set by some method that’s not seen as accurate or reliable. Whether there is a good process or not, the perception that the process is ineffective can be just as big of an issue.
Quotas create a performance penalty in the next year for high performers. The organization perceives that a good year will be met with an unrealistic growth expectation for the following year. This can be a real hurdle for the rep if some of last year’s great performance came from a sizeable one-time deal that isn’t realistically repeatable year after year.
The quota setting process is not transparent, and people don’t know how their quotas were set. A number comes to the rep on a sheet of paper or by word of mouth without a clear explanation of how it was developed. Sometimes managers and reps think of this as spreading the pain because the overall number may simply be seen as unachievable.
The sales organization doesn’t believe in the quota setting process. The organization may have a process. Managers and reps may even be part of the process giving their “bottom-up” input to what they think is attainable in their territories. However, the mystery is that no matter how much input the field provides, the number still comes back as if it was a completely top-down decision. Reps and managers wonder why they should bother.
The organization doesn’t have accurate information to set quotas. The organization would like to set quotas well but the data doesn’t exist or isn’t reliable. This was a more common issue a decade ago but with ever improving customer and market data, the possibility of setting good quotas is better than ever.

Instead of making the mistakes above, aim for a quota-setting process that takes market opportunity into account. Market opportunity should be a primary driver of the quota. More specifically, territory opportunity relative to other similar territories can give you a good indication of what portion of the total goal should be allocated to each territory. Balance that with sales capacity. Depending on how talented your sales team is (and how many people you have), you may be able to accomplish more in any given territory than with a new or less skilled team.

One quota-setting approach does not fit all situations. While a more analytically-driven, standardized quota may work well for small accounts with a transactional sales process, a more bottom-up market opportunity approach might be better suited for a mid-sized account segment. Near the top of the account pyramid, national account quotas may be more accurately based on the information and strategies developed in an account plan. That account plan might provide input for quotas and also serve as a planning and coaching tool for sales managers to use with their account managers. Apply an appropriate approach for each type of segment or market.