How to beat your team’s sales quota, part three: Setting the quota

upward trending arrow on chartThis is the third part in a series on beating your team sales quota. The other parts are on hiring new sales reps, onboarding the reps, culture, managing and coaching, and aligning sales and marketing.

Okay: so you’ve hired good people and given them a thorough onboarding and training. However, if most individual reps and teams still aren’t meeting quotas, there may be a simple reason: the quotas aren’t realistic.

As with any goal in life, sales quotas need to be realistic and attainable, but they also can’t be too easy.

  • If they are too difficult, even skilled sales people will find them unreasonable and leave the company.
  • If they are too easy, the company will be paying too much to mediocre sales performance and possibly not realizing its full revenue growth potential.

Quotas should be based on such historical factors as size and frequency of sales, performance of the company, reps, territory and the industry.

Rather than going solely with a top down “we need to grow by X percent next year” mandate, the company should start by looking at the various products and services it sells, and markets and territories that it serves. Goals also have to be created around the growth of existing accounts and the acquiring of new accounts. Then have the sales teams roll those up and create goals for each.  That’s right: involve the sales team from day one. They know the customers better than anyone and will have the best idea of where growth can come from. And many companies have found that from sales to marketing to product design they get the best long-term results by involving the line employees in developing goals and the means of meeting them. Working together, sales management and the team can produce realistic and stretch sales goals.

If senior company management thinks that the sales goals that come out of that process are too low, then a conversation between them and sales leadership is needed to determine what would be required to meet the more aggressive goals. That may include more lead generation activities by marketing and possibly additional sales headcount.

If, for example, the industry and company have been growing at a 10% annual rate, and management wants to set a 20% growth target for the next year, there needs to be a serious discussion about what needs to be done to achieve that: will it require changes in products, pricing, marketing, sales force headcount, or what? And does the company have the capacity to deliver on the goal?

Sales quotas typically include an aspirational element and should not be something that 100% of reps in a large organization will meet. Let’s say 80% of reps make quota. There can be several reasons why 10-20% of reps didn’t make quota:

  • Unique conditions in their territory or accounts
  • They weren’t trained and supported properly
  • They are poor sales reps

In terms of the first item, don’t discount this – or just the law of averages working against an individual rep at some points. (Even the best hitters have slumps.) I recently saw a reunion panel of people who had founded and participated in the MIT Blackjack Team. When asked what lessons they had learned, one person who’s gone on to found and  manage several companies said he learned that a person can be following a good system perfectly and still have a bad streak, while other players at tables he played at would be doing the stupidest things and still get lucky and win – for a while.

If the problem is poor training, support or coaching, then it’s up to sales management to address that.

If the problem is the skill or motivation of the individual, then he needs to be let go.

By the way, some sales leaders think the psychology of aspirational quotas is counter-productive and that reps will best respond to a quota slightly below expectations, being more motivated by the possibility of exceeding quota. It may vary depending on the individual rep and the culture of the company.

For new reps, the company needs to consider how long it will take them to get up to speed. In some fields that can be done in a few weeks, in others it can take six months or more. I’ve seen individual sales plans from major financial services companies that expected a new rep would need 18 months to build a large enough book of business to support himself solely on those commissions alone, with a diminishing base salary being provided until then. Obviously the length of the average sales cycle comes into play when determining what a reasonable ramp up should be for a new rep. But even if you can’t expect immediate sales from a rep who is working deals with long sales cycles, you should expect measurable progress on building a pipeline.

Companies have to consider how they’re going to treat their star performers. In some companies, if a rep has a great year that becomes the quota for the next year – sometimes the individual rep’s quota will even be that number plus the percentage increase all reps are expected to deliver. That may be reasonable, based on her accounts or territory. But it also may not be reasonable – unique circumstances may have helped create that banner year. If all conditions aren’t taken into consideration, a star performer may feel like she’s being penalized: she may feel she has to have a breakout year every year and deliver way beyond what is expected of others just to make quota. You could end up losing a rainmaker.

Quarterly quotas will not necessarily be the annual quota divided by four. Some industries have annual trends in which certain quarters are stronger or weaker. On the other hand, a theoretical company that typically does not have quarterly swings but is growing will want to set each quarter’s quota higher than the quarter before.

And gross sales is not necessarily even what you want to use to set your quota. In some companies it may be gross profit – part of how reps are incented to not give away too much on price. You can even give higher commissions on deals that have higher gross profit, rather than just basing commissions on sales.

Finally, make sure that your quotas, like your entire compensation plan, are easily understood. I was doing work with an insurance company one time that had an extraordinarily complex commission plan. I literally studied it for an entire afternoon and still didn’t fully understand which sales would and wouldn’t produce a commission for a rep. I like to think that I’m a reasonably intelligent person, and if I can’t understand a compensation plan in four hours, it’s probably too complex.

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