At their most basic, a sales quota is a target that your sales team must meet in a specific time period. They’re set by management as a way to encourage the team to meet sales targets, which are often tied to the overarching business goals your company has for any given year.
To help give you a better understanding of sales quotas, let’s take a look at the multiple types of quotas and what you need to consider when setting quotas.
Sales quotas must be tied to performance measures
Sales quotas are not always based on revenue, although that tends to be the most common objective. There are many different performance measures that sales reps are evaluated on. Choosing the right performance measures should start with understanding your business objectives and the type of activity that each of your reps is engaged with. For example, if pure sales growth is your objective then you should set quotas around revenue, but if profitability is your main goal you should set quotas based on margin.
Let’s look at a few different common types of performance measures that you could set quotas around.
The goal with a sales volume performance measure is to incentivise as many unit sales as possible. It’s ideal for situations where your main business objective is transaction volume.
Revenue is the performance measure that most quotas are tied to. This encourages sales reps to hit specific revenue targets.
Activity performance measures are used to track a specific component of the sales process. For example, it’s used for BDRs or SDRs as they follow up with leads who have downloaded content assets, watched an online demo, or interacted with the company at an event.
Many more mature businesses used profit as a performance measure don’t offer too many discounts or sell lower value and less profitable deals.
How to set a quota
Before setting your quotas you need to determine which performance measures make the most sense for your business. Look at both your business goals and structure when selecting your performance measures.
The next step is to select quotas that are achievable by 60 to 80 percent of your salesforce. . Even when you’re pushing for growth, if you set your quotas too high, your sales team is going to burn out trying to reach them. If more than 80% are reaching their numbers, you can consider increasing it. But you still have to be careful that you don’t set them too high.You will need to factor in many variables when setting quotas, such as the different customer segments, verticals, products and territories that your reps sell into. It’s critical that your sales reps feel their quota is attainable or you risk demotivating your team and high attrition.
Finally, you need to make sure that the total sum of all individual quotas will ensure you achieve your business objectives even after factoring in the average 80% attainment. Quota planning and quota setting is a challenging discipline that requires deep insights into your business and strong analytical skills.