Get Sales Quotas Right
Most sales organizations assign sales goals to their sellers. Sales quotas are an integral part of the sales accountability system. They align field sales performance with corporate objectives. They are a yardstick for performance coaching. They provide measurement for incentive compensation purposes. When functioning correctly, sales quotas provide a shared understanding of revenue objectives between sales management and the sellers. However, sales quotas are the outcome of a complex process. Here is the needed charter: Sales leadership needs to get sales quotas right by striving to achieve standards of sales quota excellence supported by constant monitoring.
During one of the many impressive economic booms in the Gulf States, I vividly recall one of my first teaching assignments in the region. Attending the session were sales and marketing executives of locally headquartered companies. The VP of commercial lending for one of the region’s largest banks began, “David, I grew my revenue 30 percent last year, my boss wants 40 percent growth this year.” He continued, “This is unreasonable, yes?” Of course, the answer to the question begins with more questions: “How was this number calculated? Is it a reasonable number for the bank? Is it a reasonable number for the head of commercial lending? Is it a reasonable number to allocate to all of the commercial lending officers within the department?”
The Alexander Group recently conducted the 2015 Sales Quotas Practices Survey. More than 170 leading companies shared their perspective on the status and health of their sales quota systems. The findings provide a profile of how companies continually invest to improve their sales quota system.
The survey’s key findings suggest that most companies have a suitable level of sales quota effectiveness.
Survey Question: How do you rate your current quota allocation process?
Overall, 75 percent of the companies judge their quota program to be acceptable (neutral) to better than acceptable. Most companies have crafted successful sales quota programs. Meanwhile, a quarter of the companies need to improve their sales quota program.
However, the survey’s outcomes are a bit more problematic. For example, more than 60 percent of the companies want at least 60 percent of their sales personnel to reach and exceed quota. However, the actual results suggest otherwise.
Survey Question: What percent of sales personnel in the primary sales job met or exceeded quota in 2014?
Less than 50 percent (48.5 percent) of sales personnel reach and exceed their quota. In practical terms, this reflects an almost equal balance between “winners” and “losers.” This number is less than the preferred 66 percent of salespeople reaching or exceeding goal most companies prefer as an outcome.
Other key findings include:
- 59.1 percent report that quota allocation administration resides in the sales operations function.
- 64.6 percent notify the sales personnel after the start of the fiscal year.
- 40.1 percent report that quota accuracy is acceptable.
- 34.3 percent report that they make mid-year quota adjustments affecting 1 percent to 5 percent of the sellers.
- 100 percent is the median compensable revenue as compared to the actual revenue, making the two numbers virtually equal.
- 49.7 percent say their quota policy and practices are formally documented.
What about the seminar student—the Middle East commercial bank lending VP? Determining whether a 40 percent increase in goal is reasonable or not cannot be answered without investigating “how” the number was determined. My advice to the VP? “I suggest you develop your own fact-based number and meet with your boss. If the variance is significant, ask for explanation and reconsideration or, at a minimum, a review of the goal mid-year.”
SALES QUOTA HEALTH CHECKLIST
Sales quota programs are “blind systems,” meaning we do not know their effectiveness until the end of the performance period. As a blind system, management needs to make numerous investments to increase the likelihood of program success.
Use this checklist to improve the effectiveness of your sales quota program. These standards of excellence reflect the survey findings, and our judgment of the preferred characteristics of an effective sales quota program.
Setting the Annual Corporate Number
- Engage the executive team, including sales management, to establish the new fiscal year corporate objective.
- Constrain the amount of quota over-assignment to the sales department and sellers to less than 5 percent of the corporate fiscal objective.
Ensuring Quota Program Governance and Accountability
- Confirm that sales leadership selects and deploys the most appropriate quota allocation methodology.
- Assign quota allocation and quota management to sales operations.
Assigning the Number Through Quota Allocation
- Have sales personnel participate in the quota allocation process when they have moderate to high account knowledge.
- Begin and complete the quota allocation process prior to the start of the fiscal year.
- Assign quotas at the individual territory level.
- Allow at least two months to allocate quotas.
- Assign annual quotas, unless performance horizons are short.
- Notify sales personnel of their new quotas after the start of the fiscal year.
Assessing Quota Program Effectiveness
- Strive to have at least 60 percent of sales personnel reaching or exceeding goal.
- Raise quota achievement so the median quota performance exceeds 100 percent of goal.
- Establish standards for quota program success.
- Analyze quota attainment and quota distribution on a regular basis.
- Continue to invest in increased quota accuracy.
- Use both robust internal performance data and external market data to improve quota allocation accuracy.
Making Mid-Performance Period Quota Changes
- Keep mid-year quota changes to a minimum, not to exceed more than 5 percent of the sellers.
- Require senior sales leadership approval for any quota adjustments.
- Define and limit the reasons for mid-year quota changes.
Crediting Sales Results
- Avoid double sales crediting. Keep double sales crediting within 105 percent of actual revenue.
- Give full sales credit when sales personnel are no longer responsible for the order.
Documenting and Communicating the Sales Quota Program
- Document fully the sales quota program.
- Use multiple and varied methods to communicate quota program policies and practices.
- Engage the first-line sales manager in the quota management and communication efforts.