At their most basic, a sales quota is a target that your sales team must meet in a specific period of time. They’re set by sales 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 and quota attainment, let’s take a look at the multiple types of quotas and what you need to consider when setting sales 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 when reviewing and setting sales goals. There are many different performance measures that sales reps are evaluated on. Choosing the right sales performance measures should start with understanding your business objectives and the type of activity that each of your reps is engaged with. Being clear on sales processes too will assist in sales performance management.
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 sales performance measures that you could set quotas around.
Types of Quotas
If you're looking to develop a high-performing sales team, as a sales leader, it's up to you to set the pace. This might mean increasing sales activity for the quarter or reviewing the product or service your company is promoting again to ensure everyone understands the core features and benefits to the customer.
Let's dive into the type of sales quotas you'll want to focus on as a team.
Sales or Revenue Quota
The goal with a sales volume performance measure is to incentivize as many unit sales as possible. It’s ideal for situations where your main business objective is transaction volume.
This type of quota is for sales reps who have a specific number of units they must sell each month or a revenue based goal they must meet within a specific period of time. This is one of the more common sales quota types.
Sales Volume Example: Tim is a sales rep with ABC Data, a SaaS company that sells a monthly subscription for their service. Tim has a sales volume quota to sell 50 subscriptions per month. He must sell at least 50 subscriptions in order to meet his sales quota. He receives a commission for each sale and a bonus when he reaches his sales quota.
Forecast Quota
A forecast quota is what a specific sales territory or team is tasked with hitting. This is typically based on historical performance within a region or team and the revenue target they must hit. It will generally increase year to year if the high-performing sales team exceeds their forecast quota.
Forecast Quota Example: Let's say Tim is the eastern territory rep for ABC Data. Normally, he sells $10,000 in sales during Q1. Tim forecasts an increase on his Q1 revenue by 15%, then his forecast quota would be $11,500 for the quarter.
If Rob, the rep who's responsible for western territory, normally sells around $5,000 in Q1 revenue, might have a different quota based on his specific region and market.
Activity Quota
Activity quotas are performance measures used to track a specific component of the sales process. This might require a BDR or SDR to fulfill a set number of sales activities over a period of time, generally a month or quarter.
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.
Activity Quota Example: Jack is an SDR inside a software company that provides a SaaS (software as a service) product. He supports 3 full-time sales reps and has an activity quota of 20 follow-up calls per day and 200 follow-up emails per month.
This quota type is used when a BDR or SDR is part of a high-performing sales team but isn't the one responsible for closing the final sale. Using this type of sales quota allows them to feel like they are contributing to the sales targets set for the sales team as a whole. They're able to provide valuable support to the reps through this sales activity.
Profit Quota
Many more mature businesses who use profit as a performance measure don’t offer too many discounts or sell lower value products or less profitable deals.
This type of sales quota is based on gross profit or margin of an entire sales team. It can also be dedicated to a salesperson or the product/service grouping.
A less common sales target, it's calculated when you subtract the cost of the goods or services you sell from the overall revenue generated.
Profit Quota Example: Tim sells a SaaS monthly subscription to small businesses. Tim is able to sell the company's monthly subscription at a higher price point than his colleague, Rob. Therefore for Tim to meet his Profit Quota, he doesn’t need to sell as many subscriptions as Rob.
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.