Creating sales quotas can be confusing, complex and error-prone. The Alexander Group research shows that 59% of the companies report correct goal/quota setting as the #1 challenge facing the sales compensation program. Perhaps that’s why 30% of the companies don’t establish any quotas.
The fact is, there’s simply no better way to drive business results. Without quotas, your reps would have nothing to shoot for and you’d have no realistic way of knowing whether they are on track and if you’ll meet your company’s revenue goals. They sell what they sell and earn what they earn. Without establishing quotas, it is impossible to understand pay for performance which is important for structuring a sales compensation plan correctly.
The idea of having a clear target to reach for became very clear to me when I was out for a run yesterday. You see, I’ve taking some time off from running and am struggling to get back into it. I have no real goal set up yet, no race to train for, no one pushing me to go further. Just me, out in nature, running along at whatever pace I decide feels right for the day for as long as I feel like it. That’s fine if you just want to get some exercise but not if you want to improve. Improving your performance means having clear benchmarks to be measured against.
It’s easy for me to draw a comparison to sales organizations that run towards a specific goal and those who run just to run. Let’s face it, your sales team is busy; really busy. There are lots of things competing for the sales rep’s time. What are they trying to achieve today, this week, this month? Are they focused on achieving their annual goal or specific milestones along the way?
Some companies take the time to develop a quota based on real territory potential by looking at each account and prospect within the territory and set a realistic quota. Others will take the top line revenue number, add an uplift factor, divide by the number of reps in the sales team and assign that number equally across the sales organization or based on territory potential. But there are organizations that just don’t assign a quota to a rep!
Those companies who assign an aggressive yet realistic quota to each sales rep based on tangible territory potential achieve better results. Aberdeen’s research shows that Best-in-Class firms using Sales Performance Management solutions report 83% of sales reps achieved their annual quota. How is your company stacking up to that statistic? For most of your reps to reach or exceed their goals you must first establish a fair and equitable quota and provide the tools necessary to aid in the sales process and measurement towards the goal. Oh, and don’t forget sales coaching is needed along the way.
That brings me back to my track workouts with the Gate City Striders. Each week, we would work out with a track coach who had designed the summer workouts to improve our performance. The coach was there to encourage us. The coach would call out interval times. We knew what our goals were for each lap. This simple technique helped us become better runners and have some fun too! There is nothing like a little contest to bring out the true competitive nature of your sales team!
The sales rep’s annual quota should be broken down to quarterly targets allocated based on seasonality to focus them on achievement of smaller milestones. They will be able to measure their progress towards the goal and put specific activities in place to achieve it before it’s too late. This idea needs to be integrated into their sales compensation plans to deliver the right focus on achieving quota. When a company doesn’t have clearly defined goals, why would they push a little harder to achieve the next level?
I find that many companies who do not have sales quotas have a flat rate commission plan too. That is, they pay the same commission rate regardless of performance. By design, a flat rate commission plan will pay the under-performers too much and possibly not enough to retain their top performers.