The difficulty of setting accurate sales quotas
According to our 2020–2021 Sales Performance Study, only 53% of salespeople are making or exceeding their quota. With organizations generally targeting a 70% quota attainment goal, this represents a major challenge for sales effectiveness.
There are two possible reasons for this shortfall:
- Sellers have a performance issue
- Organizations aren’t setting sales quotas effectively
Both reasons are likely culprits, according to our research.
Sales quotas are a vital part of the annual sales plan. When done well, sales quotas fairly allocate business goals into actionable targets. They give individuals a way to focus their efforts and strive for achievement.
Unfortunately, a lot of quota-setting activity suffers from a lack of rigor and process. As a result, subjectivity creeps in, which reinforces the status quo instead of driving growth and achievement.
Yet, there is an objective way to set a quota that incorporates high-level organizational goals while setting realistic expectations for individual sellers. Here are five strategies for setting aggressive but attainable sales quotas.
1. Incorporate elements of both a top-down and bottom-up approach
A top-down approach focuses on setting sales quotas based on the company’s expected growth and allocating that number across teams and individuals. This approach combines a company’s past performance with anticipated changes in market conditions, new product launches, and more. By contrast, a bottom-up approach focuses on setting sales quotas based on sales reps’ past performance.
To account for the pros and cons of each approach, incorporate elements of both for more effective quota-setting.
For instance, the top-down approach may miss the potential of each sales rep’s opportunities in their territory or accounts (e.g., knowing that a new regulation is going to impact a particular seller’s territory). On the other hand, the bottom-up approach may lose sight of organizational objectives and reinforce the use of the seller’s current sales strategies, missing out on market opportunities.
2. Engage sales reps and sales managers in quota-setting discussions
When it comes to setting sales quotas, half the battle is overcoming skepticism from the sales team. Regardless of how attainable the quota that a company sets, expect pushback from sales reps.
To overcome this obstacle, proactively engage sellers and collaborate with them as you set quotas. Walk sales reps through the process and solicit their feedback, especially during the bottom-up part of planning.
One of the most important perspectives that sales reps can provide is a gut-check on the potential of winning more business in their accounts. For example, a sales leader may be inclined to keep raising the bar for high-performing reps who consistently meet their quotas.
Engaging reps in the process may reveal insights about their accounts or territory that uncover fewer opportunities to drive desired growth, such as consolidation or some other factors that can impact sales performance and revenue potential.
3. Allocate enough time to set sales quotas
Does this sound familiar? “We just closed the books on last year. We’re already four weeks into the year, and our reps don’t have goals. No wonder we’re behind on Q1 already!”
Many sales organizations take a reactive approach like this when it comes to setting quotas. Maybe a new fiscal year just began. Or maybe sales leaders released a new set of corporate growth goals, sending everyone in the organization scrambling. Changes like these result in rushed, inadequately developed sales quotas.
In reality, the quota-setting process needs to be deliberative and rigorous. Allocate at least 60 days to set quotas. And follow a methodical, structured process that considers multiple points of view and uses all available data.
You should also build in periodic opportunities to revisit quotas. For example, you might schedule a quarterly review or a review triggered by major developments within a territory or large account.
4. Integrate sales quota setting with other planning processes
Engage your sales operations team to ensure appropriate alignment between territory assignments, compensation and incentive programs. When a company plans in silos, it creates an imbalance of achievement.
Cross-check all assumptions against capacity and staffing using questions like these:
- What activities do sellers use to sell?
- How much time do these selling activities take?
- What are sellers’ typical conversion rates and other measures of productivity?
Get granular in this analysis to figure out the level of effort required to complete a sale:
- What percent of leads convert to opportunities?
- What percent of first calls convert to proposals?
- What percent of proposals convert to quotes?
- How many interactions does each seller take, on average, to achieve each of these outcomes?
You need this information to determine whether you’ve staffed your sales team appropriately to deliver on assigned quotas. Then you need to decide whether to increase staffing or find other ways to improve your sellers’ productivity.
5. Be open to revisiting sales quotas on a limited basis
Businesses are subject to change. Typically organizations need to modify quotas only occasionally, due to instances such a quota relief, or an adjustment to a sales quota that has already been set.
The challenge here is that sales leaders who use quota-relief buckets can apply them unevenly and sometimes unfairly. Because sales reps are acutely aware of how sales leaders dole out quota relief, it’s critical that an organization not allow abuse and manipulation of its system.
Be sure to set clear criteria for what qualifies as sales quota relief. Then establish strong governance frameworks with multiple layers of reviews and approvals.
Take the next step towards setting strategic sales quotas
Quota setting is not a perfect science. The impact of accurate quota setting affects the entire organization, as many other business functions rely on meeting projected sales targets, such as staffing, talent evaluation, and marketing, to name a few.
To set rigorous sales quotas that are both aggressive and attainable, work proactively to incorporate elements of both a top-down and bottom-up approach. Don’t be afraid to engage sales reps in the quota-setting process. Allocate more time to setting sales quotas than anticipated, and integrate quota setting into other planning processes. And, when necessary, consider revisiting your sales quotas.
Having trouble setting sales quotas? Our sales effectiveness consulting services, which include complex diagnostics of your organization’s sales process, can help. Contact us to learn how we can help your organization set the right sales quotas to foster success.