Sales Transformation

How to set sales quotas early — and why it matters

Setting sales quotas early drives seller motivation, improves productivity and leads to quota attainment and better sales results overall

April 05, 2023

Our research shows sales reps are more productive when they know their sales quota, yet only 34% of companies communicate quotas ahead of the fiscal year. Learn how to set quotas early.

While sales organizations design compensation plans and new sales initiatives before each fiscal year, many organizations wait until after the year begins to share their sales quotas. In fact, only 34% of companies communicate quotas beforehand, according to our 2023 survey of sales organizations on quota-setting practices. This makes it much harder on sales representatives to plan ahead or set personal goals.

Our research also shows that sales reps and their managers are the most motivated and positive at the beginning of the year, with more than a quarter (27%) of companies saying their employees are more motivated during the first month than any other period.

“Some argue that communicating quotas at the start of the year may demotivate reps if they think the quotas are too high,” says Joseph DiMisa, Korn Ferry’s senior client partner and global salesforce effectiveness and rewards advisory leader. Yet, when we asked what message a company sends when it delays quota communication, the results were startling. More than half of reps (41%) equate late quotas with internal incompetence or think the company has something to hide (16%). “That’s not an ideal way to start a sales cycle,” adds DiMisa.

We also see that sales reps are more productive when they know their quota. Almost half (43%) said giving reps their quotas before the start of the year significantly improves productivity because it helps with setting strong goals.

How to set sales quotas earlier

Sales organizations should follow four steps to set sales quotas earlier, giving their reps and managers more time to prepare for the year ahead.

1 Establish ownership

Designate an individual or group as the owner of the quota-setting process. According to DiMisa, “Assigning responsibility for setting and adjusting quotas enables consistency in management and establishes accountability.” He suggests that quota setting should reside in sales operations, but finance or sales can also lead the effort.

2 Start early

Start setting quotas when you begin the sales compensation process. It’s common for sales compensation design to start in the eighth or ninth month of the fiscal year, and this is a great time to start the quota process too. “This way, the quota and compensation team can discuss and develop a strategy together.” DiMisa notes.

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3 Gather the right data

Quotas are only as good as the data behind them, so the more data you gather, the better. By determining marketplace potential and identifying the factors that affect sales performance, leaders can set accurate and effective quotas. The key is to gather as much information as possible to understand customer needs, historical production, sellers’ capacity to sell and corporate expectations.

DiMisa advises that organizations should answer these seven questions in order to gather the right data:

How do you define high and low sales performance (e.g., volume, activities and revenue)? This question allows the sales organization to define appropriate sales targets.
How predictable are sales results? This data allows the organization to understand the sales cycle and buyer’s journey and, ultimately, the timing of sales results.
What external and internal factors influence sales rep performance? Some conditions outside a sales rep’s control affect the buying cycle. This data will inform you when you need to take those factors into account when setting quotas.
What is your sales reps’ selling capacity (total selling and nonselling time)? Sales organizations need to understand whether it’s possible for sellers to meet their quota attainment goals.
How many deals flow through your sales funnel? It’s crucial to understand deal movement in your funnel to determine a realistic timeframe for sales. Knowing how long the sales funnel takes and the average deal size helps organizations to determine the value of each step in the sales process and deals overall.
What is the cost of a sale? Quotas should be based on what each organization is willing to spend to close a deal.
What is the incremental sales potential for each sales area? Organizations should learn about the potential market in each region so they can assign the right resources and set proper sales targets.

4 Identify the approach

There are two ways to proceed when setting quotas: cost of sales and cost of labor.

The cost of sales approach looks at what it costs to sell the unit, product or service. Payouts may be based on a percentage of volume sold or the individual unit, product or service sold. The more (or less) reps sell, the more (or less) they’re paid.

The cost of labor approach is based on what the industry might pay. Sales targets are set to stay in line with market pricing. A company is willing to pay a sales rep a certain amount (e.g., $40K in incentive) because that’s how the market values the job. In this approach, compensation is directly tied to quota attainment or the standard industry performance benchmark.

So, which is the best approach? “That depends on five factors—business stage, sales complexity, control over the sale, pay prominence and company support,” says DiMisa.

The difference early sales quotas can make

Our work with sales organizations in all industries shows that sharing quotas early has an impact. Clarity about “the number” puts reps on the right path with the right mindset to accomplish sales results.