So what makes good quota-setting so challenging? We see 10 issues that make a difference when setting quotas. Knowing the causes and leveraging these success factors could help you set clear quotas for your organization.
- See Beyond a Single Number
When executives design a good sales compensation plan, the team steps back and admires the final product. To the design team, it’s not just a sales compensation plan, it’s a sales compensation program. The plan may be a work of elegance and intricacy, because sales compensation plans for the entire organization can be a complicated and exhaustive logic puzzle. When the plan is presented to the sales person, the first thing she does is read through it, carefully.
The quota, by comparison, is simply a number. It carries the same level of impact as the sales compensation plan but often lacks the attention it requires. It’s $5.3M or perhaps $24.6M. Regardless of how high or low the number is, we know one thing for sure, nobody really likes their quota, It’s not elegant. It’s not intricate. The thinking that went into setting that number may not be apparent. From a rep’s perspective, his boss might have just come up with that number yesterday to try and dole out the punishment from above. In truth, the work that goes behind a good quota may not be simple at all. Emphasize the importance of a good quota-setting process and don’t let its seeming simplicity minimize its significance.
- Remember the People
As we saw from the top challenges, quota setting is about the people and the process as much as the numbers. If managers and reps are in the dark, or their input isn’t reflected or explained in the result, the same effect could be produced by just giving them a number. If they understand the process, the process is transparent, they have input, and they see the results of their input the resulting quota will be better received by all.
- Involve the Right Team
Quotas involve a different set of players than sales compensation. During the sales compensation process, sales or human resources is often in the driver’s seat. With apologies to finance organizations across the world, many wild quota-setting rides begin and end with these very bright people behind the wheel. Finance, unfortunately, rarely has visibility, like the front line, on where the market opportunities are. Instead, their vision is usually set to investor requirements for growth. Finance often needs some market-sensitive guidance. Make sure the quota-setting team, including finance, is oriented toward market opportunity as well as corporate growth expectations.
Jay Klompmaker, longtime professor of business administration at the University of North Carolina at Chapel Hill’s Kenan-Flagler Business School, likens the necessity of including both finance and front line sales reps in the quota setting process to the old anecdote of a group of blindfolded people each feeling only one part of an elephant.
“One group feels its leg and thinks it’s a tree. Another group feels only its trunk and thinks it’s a snake. But multiple perspectives are critical to understand the whole situation. With quotas, you have to include the top and the front line. You get a much better view of what’s happening if you include both groups. And, you’ll get more buy-in and active participation from that sales force when they’ve got some role in that quota setting,” he says.
- Don’t Get Lost in the Legacy
One of the most popular quota-setting approaches is called “the way we’ve always done it.” This familiar but flawed quota approach has a way of living on like a crazy old aunt who shows up at Thanksgiving. She may not be perfect, and nobody can understand her, but we only have to deal with her once a year, and that’s easier than changing our address. If your quota process isn’t working, be a champion of change, not a defender of the legacy.
- Get a View from the Bottom-Up
One of the easiest ways to set quotas is to divide the big corporate number and allocate it down to the organization in some pro-rata fashion like size of territory or portion of total sales. While it’s easy, it’s also a one-way street from the top of the organization down to the field that usually results in a disconnect and reluctant quota ownership by the field. By combining a bottom-up view with the top-down expectations, you can consider granular information from the field on account opportunity and reconcile it with a bird’s eye view of how that opportunity looks across markets and overall macro forecasts or trends for market growth.
Andy Summerfield, sales director for Everything Everywhere, the UK’s largest mobile operator, follows a bottom-up, top down process. “We choose a target setting that’s at a budget level. So when we’re building the budget from bottom-up, in the July timeframe for the following year, we work out what will happen to our existing base, what level of dilution we can tolerate, and what we need to add into the top in terms of acquisition. And the budget then tends to drive out the KPIs [key performance indicators] and the metrics that we translate straight into targeting. Then we do the usual of adding some stress to go with the buffer across all of those models. The process works very smoothly for us,” says Summerfield. “If all of my sales guys hit their relevant numbers, we know that we will comfortably hit our budget.”
Next week I’ll write about the next 5 steps in setting effective quotas. Contact me at firstname.lastname@example.org with any questions.