About a year ago, we met with a company whose sales organization struggled to meet quota, year after year. The president of the company, who had grown up in sales, could not understand why her salespeople struggled, or why they complained that quotas were too high.
Her quota setting process was simple: “You add 10% to last year’s quota. It’s Sales 101,” she said multiple times.
While adding to last year’s quota may seem sensible, and may be the only quota setting process she’d ever heard of, it’s really not a great idea.
Quota setting is part art and part science. On the art side it’s important to ask a few very practical questions. What percentage of your salespeople are hitting quota? Look at the distribution of performance to make sure the numbers you will realistically get will total to the organization’s goal. Does it have to be a best practices number, for example, 90% of people making quota each quarter? You can have any distribution you want; you just want to build a predictable distribution of performance.
We want quotas to be attainable, but not for everybody. Motivational – but not too easy. We want a certain portion of the people to be at or above quota because we want to see a culture of winning. In terms of benchmarking, most companies typically have 50%-70% of reps at quota or above.
That’s a significant number of people; if you have a majority of people at or above quota, then you have a culture of people winning. Some organizations will have only 10% or 20% of people at or above quota. Sales leaders in these companies say, “We want quota to be a very tough thing for people to get to. We want it to be quite an achievement.”
That’s great. But if most of your organization is below quota then how do they feel about themselves? What are you doing for the morale of the organization?
You can get to that mathematical result with only 10% of people at quota but you create a less motivational environment. Don’t penalize your best reps with your quota process. Reps who do well in the organization get rewarded next year with a bigger quota based on the current year’s performance, creating a performance penalty.
Automatically adding 10% to last year’s quota may sound like firm science, but it’s not good science, and it doesn’t account for the art of motivation.
Mark Donnolo is managing partner of SalesGlobe and author of What Your CEO Needs to Know About Sales Compensation and The Innovative Sale. You can reach him at firstname.lastname@example.org.