What Is a Sales Quota or Goal? Definition And Meaning
(Reprinted with permission from tenfold.com. Source: https://www.tenfold.com/what-is-a-sales-quota-goal-definition-meaning)
It’s the number that agents are frantic about every working day. It’s the number that decision-makers look at to know whether their current frontline is effective or not. Yes, these are sales quotas.
What is a sales quota?
In certain periods of time—every day, week, month, or year—sales agents have set amounts that they target to achieve, these are what they know as their sales quota. These quotas or goals are used by companies to inculcate in each agent what his or her role in the company is. Also, these numbers are what higher-ups use to determine each agent’s commission.
The most common time frame given to agents by most companies is a quarterly period. This certain length gives the sales force enough time to align sales strategies with the goals of the entire organization. Also, a quarterly quota is beneficial when taking into consideration the ‘seasonality’ of certain products.
Types of Sales Quotas
1. Sales Volume Quota
This type of quota takes into account the amount of sales, both in terms of monetary and physical units, delivered within a given amount of time. These types are usually pegged in an annual basis. Areas of an organization which receive sales volume quotas are the product line, product range, branch offices, and individual sales people.
2. Profit Quotas
This type of quota is based on a company’s gross margin or gross profit. To compute for gross margin quotas, organizations deduct the cost of goods sold from the sales revenue; while calculating gross profit quotas require organizations to subtract selling expenses from the cost of goods sold from sales revenue.
3. Forecast Quotas
This type of quota draws from a company’s previous sales performance in a given time or in a specific location. Kristin Zhivago, co-founder and president of Cloud Potential LLC and Cloud Era Institute, lends this helpful tip to produce better forecasts “The key to forecasting accurately is to know how and where these other influences are occurring.”
The Other Side of Sales Quotas
Michael Dunne, vice-president for research at Gertner, Inc., says “Fortune 1000 companies are increasingly appreciating the need to increase the coherence, consistency and effectiveness of practices for organizing sales territories, quotas and compensation to improve sales execution. These disciplines are recognized as interdependent and decisive in guiding the selling function.” He also adds “With quotas management, companies confront the critical task of defining and assigning sales targets to individuals, teams and organizations that set the vital expectations required for securing sales achievement over the duration of the fiscal year.”
More than being every agent’s daily, weekly, monthly, and annual target, sales quotas are much more than numbers that serve as a frontline’s driving force. A sales quota can be used as a variable by which decision-makers analyze certain critical areas of their agents’ performance. Most key sales metrics like Percent of Organization Achieving Quota, Quota Attainment Average, Average Annual Quota for Field Salesperson, and Average Annual Quota for Inside Salesperson revolve around quotas as their central focus. All four of these metrics aid in the formulation of strategies that will help boost your agents’ efficiency, and ultimately, your organization’s ability to deliver quality customer service.
Also, apart from other common sales practice mistakes, particular ways of setting these goals can be detrimental in determining how an agent performs. Being that certain organization’s have incentive packages for agent’s who reach or even exceed their quotas, there are those who set unrealistic goals. Mark Hodak, an adjunct professor of business ethics at NYU’s Stern School of Business, says “Companies tend to forget that an incentive to perform is identical to an incentive to cheat.” He also adds “Every large organization in the world has got these land mines of perverse incentives. It’s just a matter of degree to which of these things are allowed to run amok.” This was in response to last year’s issue regarding Wells Fargo & Co. employees opening more than 2 million unauthorized customer accounts.
The easiest way to determine whether the quota you set for your agents is attainable is to see if 80% can achieve it in a given period of time. “Quotas set too high will do more harm than good, causing high sales turnover and creating a demoralized environment for those who stay,” says Renee Zemanski. If it is a frequent occurrence that the 80% aren’t able to achieve these set goals, then it would be best to tailor your numbers to that which is mutually favourable for both your agent’s and the organization. A quota set with both your agent’s and organization’s welfare in mind can lead to the delivery of good results. Nick Hedges, President and CEO of Velocify, in an article for Forbes, says “Ultimately, if you want your company’s sales team to perform at its best, you need to offer a challenge. While aggressive sales quotas can involve certain risks, these can almost always be managed with smart monitoring and intelligent policies.”