Challenges with Sales Quotas
Sales quotas are the allocation of the company’s goal to the business units, sales teams, and finally the front line sales organization and are usually linked to the compensation plan. At the front line, the sales quota represents each rep’s ownership of her piece of the revenue plan or profit plan. While sales quotas arguably may not be part of the sales compensation plan, without them, most sales compensation plans won’t work. A team can painstakingly work through each step of the sales compensation evaluation and design process and create a great plan that can be neutralized by poor sales quota setting.
Sales quota problems are consistently at or near the top of the list of compensation plan challenges for most companies. In our work, we see about 30 percent of companies that do not have sales quotas ready at the beginning of the year. This is alarming because a company’s reps could continue on the path of last year’s quota for months, all the while knowing that they’ll likely be charged with a big increase before the year’s end. For the sales compensation plan to be a good communications tool, reps need clear direction on what the company wants them to do.
In a recent SalesGlobe study, we identified the top challenges companies face with sales quotas:
- Sales 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 when setting the sales quota. However, planning ahead by looking in the rearview 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 sales quotas. Sales 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.
- The sales organization doesn’t believe in the sales 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 sales 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 sales quotas. The organization would like to set sales 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 sales quotas is now better than ever.
- Sales 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 sizable one time deal that isn’t realistically repeatable year after year but is still included in next year’s sales quota.
- The sales 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.
While quota setting is often thought of as a quantitative, numbers-driven discipline, four of the top six challenges presented above are not related to the numbers but instead are related to the process, the people, and their belief in the process. Sales quota setting is as much a people and organizational change management challenge as a numbers challenge.
SalesGlobe can help your organization develop simple solutions to the complexities of creating a high performance sales quota process and accurate quota setting methodologies that reflect the sales strategies in each of your markets.