Two Basic Quota Setting Methods

So most of us can probably agree that adding 10% to last year’s quota (despite impassioned pleas from some that “It’s sales 101!!”) isn’t always the most effective quota setting method, especially from a rep’s perspective. But setting quotas based on Historic information is the most common method.

 Let’s look at two basic quota setting methodologies:

 

  1. Flat quotas: This is your most basic technique, where everybody gets the same goal; say $3 million for the year. The assumption is that all opportunities and resources are equal. Everybody has got free run of the market, there are no boundaries, and we can go out and we can capture as much of that market as we want. And then we’ve got people that are of relatively similar capability. This might work great for a startup company, or moving into a new market – like a new country. But once the organization becomes a little bit more developed and we start to put territories in place, then sometimes it becomes a constraint on being able to set those flat quotas. 
  2. Historic Quotas. This is the most common way to set quotas, and it’s based on a belief that history predicts the future. One of the main problems is that it creates a performance penalty: you punish your best reps with a higher quota the next year, when likely their market is now even more saturated.  

As you move toward market-driven or account-driven quotas, you can start by taking the training wheels off here. Look at the historic trend but then acknowledge the difference between some of your markets. For example, we might find out that Arnold has a market that’s more competitive than Jones. Or Smith might have a higher market share than Hamilton. Make some adjustments in that historic based on what’s going on with that particular market relative to the other markets.

 Next week we’ll look at two better quota setting methodologies: market-driven quotas and account driven quotas.

 To learn more, visit SalesGlobe, read What Your CEO Needs to Know About Sales Compensation, or contact Mark Donnolo at Mark.Donnolo@salesglobe.com.

 

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