Developing a Sales Quota

Bill Warner Thursday, January 03, 2008

Do you set goals for yourself? What happens when you establish a goal and believe in it? You work hard to achieve it. What happens when you achieve it? You feel good about yourself and your success drives you to achieve more.

A sales quota is a goal. It is a target you expect your sales staff to meet. It must be a target your sales team believes they can achieve. Each sales person must understand the importance of their target and how it fits in as part of your total business plan. When you wrote your business plan, you established specific sales targets. The sales quotas you assign to your sales staff are the building blocks used to meet the goals stated in your business plan.

The sales quota is part of an incentive compensation system. As milestones within the quota are met, the sales representative is paid a commission or bonus. So, the more the sales person sells or the closer the salesperson gets to achieving the sales quota assigned the more money they are paid in commissions or bonuses.

The development of a quota system in your business can be simple or complex. Planning is required and some business judgment has to be applied. The following are some simple rules you could follow:

  • Company revenue goals and the business plan should be the basis of and tied to the quota
  • An achievable quota is required before it can be deemed an effective quota
  • The sales people must view the quota as achievable
  • Quotas that are impossible to meet are ignored
  • Unrealistic quotas will make you look foolish
  • Industry typical sales quota attainment should be considered in setting the quota assignment
  • A simple, clear and easy to understand quota and compensation system is required to ensure sales person focus on the right goals
  • Define the sale, the event for which quota is paid, in the context of determining how the quota attainment commission is going to be paid
  • Don’t penalize successful sales people by pushing their quota out of reach; they may retaliate by selling less
  • Don’t threaten by using a quota system as a weapon against poor performers, it will not solve the problem

Establish parameters for developing quotas

  • Historical trends: How much of each product and each service have been sold in total and in your various sales territories over time?
  • Last year’s revenue: What was the total revenue from all products, services and sales territories?
  • Industry standards: How much did all vendors (selling the same types of products and services) sell?
  • Territory analysis: How much do the sales people think they can sell in their individual sales territories based on their existing pipeline and recent successes?
  • Simplicity: Keep it simple. The easier it is to understand the better it will be to guide the actions of the sales people.
  • Life cycles: Particularly in high tech industries such as computer hardware/software, telecommunications, biotech and others will also impact revenue performance trends and should therefore, be considered.

Add a growth expectation

  • Realistic: What is doable for your products in the current state of your market? Some industries can realistically expect sales growth of 5% while others may see 100%.
  • Challenging: The goals you set should require each member of your team to work hard to meet the assigned goals.

Adapt the quotas to each sales rep

  • Assigned job: If you have different types of salespeople within your team, you may need to adjust quotas based on the type of job. The potential for sales of telemarketing people may be different from that of outside sales people. The potential for product sales vs. services sales may be different.
  • Sales skills: Some members of your team just have better sales skills than others. Having better sales skills is more likely to result in higher sales results and therefore higher quota assignment.
  • Market potential: Each territory may be different in its needs and appetite for acquiring each of your products or services.
  • Competition: In some territories, the competition may be strong and thereby reduce the potential for sales. In other territories, competition may be weak or non-existent.

Adapt quotas to market conditions and company revenue plan

  • Roll-up: The quota of all sales people added together should be at least equal to the company revenue plan.
  • Over assignment: Since some sales people will not make their quota the total quota assigned should be more than the company revenue plan.
  • Market conditions: As market conditions change (up or down) the quotas may need to be adjusted. This is so sales people don’t significantly over achieve quota or become demoralized because of under achievement.

Other considerations

  • Sales resources: Completing the research listed above, you may discover that you need more sales people in order to achieve your company revenue goals.
  • What’s included: Determine what is included in the quota – products, services, maintenance, long term sales, follow-on sales, out of territory sales, etc.
  • Guide behavior: The quota and compensation plan should guide and motivate the sales people to achieve the specific goals of the company business plan.
  • When paid: Decide when sales quota attainment triggers payment of commissions – monthly, quarterly, yearly.
  • Quota sharing: Decide if it’s possible for more than one sales person to be paid if two or more sales people work on the same sale.
  • Ramp up: When assigning new sales people a quota or when introducing new products/services the quota should ramp up – start lower and increase to a higher number as traction is attained.
  • Sales management – Management vs. staff: Sales executives or managers should be on a quota. The sales managers can have their own individual sales quota assignment, a quota equal to the sum of the quotas of the sales people reporting to the manager or a combination of the two.

Get buy-in from your sales team

  • Explain quota: If quotas are imposed on your salespeople without an explanation of how they were developed and defined, the result could be resistance.
  • Planning meeting: In one of your sales meetings, outline the process you’ll be using to set quotas. Describe each of the steps you will be taking and the likely completion date. Most importantly, explain how your team will be involved in this process.
  • Involve sales people: Have your sales people help gather information for the quota-setting process. Let your sales people gather the information about their individual territories that you will use as one of the parameters for setting your quotas.
  • Individual meeting: Meet with each person to determine an individual quota. In the meeting, discuss any factors that might influence the setting of that person’s quota. Make it a joint decision, if possible, to gain buy-in and commitment from the sales person.

After reviewing this list of considerations you my think quota planning is a complex process? It is and you should consider getting help if you are not experienced in the process.

Filed Under: Business Operations, Sales Tips & Strategies



Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.

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