The Many Wrong Ways to Set Quotas

Believe it or not, over 30% of companies do not have quotas ready by the first month of their fiscal year, and some companies often delay several additional months. Sales reps are left to figure out what they are supposed to be doing on their own. Companies assume reps are working toward the same goal they had last year, plus x percent; but reps often claim they don’t know what they are supposed to be doing. Even after quotas have been set and allocated, 50% of companies continue to make adjustments during the year.

We hear several recurring questions around quota setting:

1. Should we set quotas on historical performance or market opportunity? Most quotas do not reflect actual market or account opportunity; many quotas actually weaken the sales compensation plan, and many put business performance at risk.

2. Are we actually penalizing our best reps with our quota process? We sometimes put our best reps at a disadvantage with a “performance penalty.”  Reps who do well in the organization get rewarded next year with a bigger quota based on the current year’s performance.

In future years we may penalize them even further. By continuing to give the highest performing reps the biggest quotas, we increase their goals as their market share increases and their penetration of that market increases; but, over time, their potential untapped market opportunity decreases.

3. Is the issue performance or is it the quota? Often companies will look at quota performance – the number of reps hitting quota – and determine the organization is not doing well in terms of quota setting. This is only part of the story and may be a symptom of a larger sales effectiveness problem. The issue could actually be sales performance.

4. How can we incorporate forward-looking metrics? If looking in the rear view mirror at historic results is putting us at a disadvantage, how can we do a better job of looking ahead? Considering factors such as total market opportunity, account level sales potential, relative growth rates, and rep capability may reveal an answer.

There are many explanations for why companies continue to have issues with quota setting. One reason is company legacy: “We’ve always done it this way over the years, and we’ve never really looked at other ways of doing it.” Another reason is that the organization runs out of time and resources.  Consider how much time is put into designing and evaluating the sales compensation plan during the year. If we are on a calendar year fiscal, we might start in August, work up through November and finish designing the compensation plan in
December. And then someone will say, “Next week we’re going to set quotas.” People will go off into an obscure, smoke-filled conference room and somehow produce magic numbers. By the time quota-setting comes around, we have exhausted our time and resources, and we don’t have enough of either to properly determine quotas.

Quota setting can also be a challenge if we don’t have good data, or we don’t have a good methodology. This begs the question: How else would we set quotas if we didn’t just take historic results and project ahead 10%? Can we improve how we do it?

 

To learn more, visit  SalesGlobe or email mark.donnolo@salesglobe.com. 

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