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Every year, you and your sales team are asked to
project revenue potential for next year. And every year, a revenue goal is
converted into a quota for each of your reps. But what is the process you use to
set quotas? Do you use the dartboard method of establishing the total revenue
goal and then divide it equally by the number of salespeople on your team? Do
you take an expected percentage of growth and apply it to last year's quotas? If
so, you may have a quota system that can be described as bad or ugly: bad
if it seems arbitrary or unobtainable, and ugly if it demotivates your
sales team.
If instead your goal is to develop good quotas for your sales team
that help improve sales productivity, read on. This article outlines the process
for setting quotas that will not only help establish realistic sales goals but
also will motivate your team.
1. Establish parameters for developing quotas
The start of the quota-setting process is to look at history to determine
what sales success your team has had in the past or what sales success your team
is likely to have in the future. Common parameters that can be used to define
quotas include:
- Historical trends: How much of which product lines have been sold in your
various sales territories over time?
- Last year's revenue: What was the total revenue from all products and
sales territories?
- National standards: How much did all vendors (selling the same types of
products) sell?
- Territory analysis: How much does each salesperson think can be sold in
his or her territory based on the existing pipeline and recent successes?
The best quota-setting practices include looking at several of these
parameters. For example, you might look at historical trends while your staff
members go through their own records for a detailed territory analysis.
2. Add a growth expectation
Step one helped you understand history. Now you have to take the next step
to predict revenues for the next year (and then convert that revenue into quotas
for your sales team). Each company has its own method for determining how much
growth in revenue should be achieved. That expectation should be:
- Realistic: What is doable for your products in the current state of your
market? Some industries can realistically expect sales growth of 5% while
others may see 100%.
- Challenging: The goals you set should require each member of your team to
work hard to meet the assigned goals.
3. Adapt the quotas to each sales rep
Adding the figures from steps one and two, you have the total revenue
expected from your sales force. You could now be tempted to divide this total
revenue by the number of salespeople to define the quota for each person. But in
fact, not all salespeople are created equal. And not all sales territories are
created equal.
Instead, look at each salesperson individually before determining the
appropriate quota to assign. Some factors you need to consider are:
- Tenure: Sales reps who have been with your company for several years have
well-developed pipelines and contacts within their territories. They are
more likely to sell more than those who have just joined your sales team.
- Assigned job: If you have different types of salespeople within your team,
you may need to adjust quotas based on the type of job. The potential for
sales of telemarketing people may be different from that of outside
salespeople.
- Sales skills: Face it -- some members of your team just have better sales
skills than others. Having better sales skills is more likely to result in
higher sales results.
- Market potential: Each territory may be different in its needs and
appetite for acquiring each of your products.
- Competition. In some territories, the competition may be strong and
thereby reduce the potential for sales. In other territories, competition
may be weak or non-existent.
Using these factors (and others that might be unique to your company), assess
your expectations for each of your sales reps. Then use those expectations to
determine the right quota for each person.
4. Get buy-in from your sales team
If quotas are imposed on your salespeople without an explanation of how they
were defined, the result could be resistance. It's important to have your staff
buy in to your process for setting quotas, believe that these goals are
achievable and work toward meeting or exceeding their assigned quotas.
To increase the buy-in of your sales staff to your quota-setting process:
- Start with a planning meeting. In one of your sales meetings, outline the
process you'll be using to set quotas. Describe each of the steps you will
be taking and the likely completion date. Most importantly, explain how your
team will be involved in this process.
- Have your reps help gather information for the quota-setting process. Let
your salespeople gather the information about their individual territories
that you will use as one of the parameters for setting your quotas.
- Meet with each person to determine an individual quota. In the meeting,
discuss any factors that might influence the setting of that person's quota.
Make it a joint decision, if possible, to assign a specific quota.
5. Adapt quotas to market realities
No matter how careful we are in our plans to set revenue targets or break
these targets into quotas, we cannot predict what will happen in the economy.
Changes in market conditions are inevitable. That means that quotas may have to
be changed accordingly. Set a timetable for yourself to periodically review and
assess your team's quotas. That way, you can make any necessary adjustments.
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