Sales teams are the most goal-oriented groups in any organization. Sales quota attainment benefits salesperson motivation, direction and even livelihood, thanks to most commission-based compensation plans. For a business, sale targets are crucial because they rely on consistently exceeding sales revenue thresholds for survival.
Advanced KPIs tell sales management the whole story of the sales pipeline. Business leaders can key into the sales cycle to see where sales activity and sales efficiency need improvement. By monitoring the numbers, sales leaders are able to more accurately strategize and leverage sales forecasting.
Sale goals maximize your team’s performance. There are numerous ways to define and use sales quotas, each with its own recommended applications. Understanding different sales quota measurements and effective calculation methods helps you develop appropriate strategies for your business. With practical sales quotas in place, salespeople will be challenged and driven to achieve meaningful goals.
What is a Sales Quota?
A sales quota is a measurable sales target set for sales reps or teams to achieve within a particular sales period. Salespeople may be subject to daily, monthly or quarterly sales quotas.
Sales quotas are minimum sales levels, but they are not limited to a dollar or sold unit measurements. If it is more advantageous for achieving sales goals, you may benchmark lead generation or product demonstration activity. Sales quotas could even vary among individuals within the team if it means getting peak performance from everyone.
What is the Importance of Setting Sales Quotas?
Goal-setting in general is important for any member of an organization. When an individual has a specific target to achieve, they are likely to work harder and more efficiently.
Fine-tuned goals symbolize our strengths and highlight our weaknesses, offering a path to improvement. In sales, motivation and pride are products of strategic sales quotas. Sales reps with challenging yet achievable expectations can focus their efforts on striving for a valued measure of success.
Sales management implements sales quotas to understand their team’s performance and identify opportunities. By establishing calculated sales quotas, business leaders can be more effective in the following ways:
- Ensuring compensation plans (including commissions) are fair and effective.
- Revealing weaknesses or bottlenecks in the sales pipeline.
- Highlighting successful reps and replicating their sales techniques.
- Monitoring and regulating selling expenses.
- Creating achievable goals and benchmarks.
What Types of Sales Quota do You Need?
There is no standard sales quota that can be broadly applied to measure sales team effectiveness. Industry characteristics, immediate business priorities and sales teams’ needs all factor into determining appropriate sales metrics.
To find the right type of sales quota, you have to define the options. Here are the four main categories of sales quotas.
As the most direct indicator of good business, revenue generation is the center of most sales quotas. Sales reps are tasked with closing enough business to reach a particular dollar amount within a specified time period.
Sales cycles are a large factor in determining the sales quota timeframe. In retail sales, leads are converted within a few days or even within a single interaction. Sales quotas can work on a short monthly or even weekly basis. In contrast, SaaS salespeople working on monthly sales opportunities or enterprise account managers take much longer. Sales quotas may need to be stretched to quarterly or annual goals to be practical.
Revenue sales quotas give salespeople multiple ways of accomplishing their goals. If a goal is set at $1 million annually, a salesperson could sell five $200,000 products or ten $100,000 products.
Many sales leaders measure profit over gross revenue to ensure sales are contributing to growth. When pricing is flexible and negotiable or there is a varying amount of margin between products, this strategy is sensible. Salespeople will be motivated to keep profit in deals, upsell and introduce add-ons because they will reach quotas faster.
Activity quotas measure the actual work being put into closing sales. Activities can be directly related to sales, such as new account openings. They could also include particular components in the sales cycle, like numbers of cold calls, meetings or demo presentations. If you are trying to instill good CRM behaviors, activity quotas can audit follow-up frequency and lead nurturing.
Using activity metrics helps you monitor sales support functions. For example, marketing assistants who manage email communications can be kept on task with activity quotas.
Volume quotas hold sales reps to a specific number of units to sell in a specific time period. Consider measuring quotas by revenue as well. If product offerings are slim and the price is locked, volume can indicate an acceptable amount of dollars earned.
Volume quotas are ideal if managers are trying to introduce new products, build baskets or even clear out inventory. With these sales targets, sales reps have simple, clear guidance on where to direct their sales efforts.
Many sales teams have combination sales quotas in place for accountability and incentives. This commonly involves combining a net revenue or volume quota and an activity quota. For example, a team member may need to schedule 10 meetings in a month and close two deals. A sales manager could also set revenue quotas but include margin goals for bonus potential.
A combination strategy is often the best way to give salespeople a roadmap to achieving large goals. By giving them smaller goals, managers can reinforce positive behaviors and keep salespeople grounded in processes. The key is to find a few critical focus areas and prioritize goals around them. When you set too many goals, attaining quotas becomes too rigid, overwhelming and unmanageable.
How to Calculate a Sales Quota
Avoid arbitrarily assigning sales quotas. Instead, hone quotas to keep effort, motivation and sales quality at their peak.
Sales managers setting high, unrealistic sales goals with a “shoot for the moon” philosophy do more harm than good. When a goal seems unattainable, sales teams will become demoralized and unproductive. Salesperson turnover will likely increase and cutthroat individualism will replace teamwork. To meet goals, reps may resort to aggressive or misleading sales tactics, inaccurate sales reporting or creating team conflict.
Setting unfair sales quotas is costly. Training expenses rise due to salesperson turnover and customer satisfaction declines from poor experiences. With a demanding but attainable sales quota, salespeople can maintain positive energy that is directly reflected in the results. Sales culture and team performance are improved, creating greater return at a lower expense.
Keeping rewards in line with meeting or exceeding sales quotas adds even more motivation. Compensate your salespeople well for reaching targets. Making quotas achievable yet challenging makes the reward even more real, keeping established sales veterans and new reps engaged.
Many sales leaders abide by the 80 percent rule, where 80 percent of your sales team can achieve the goal consistently. If you have trouble maintaining that level, you need to balance your business’s needs with reasonable expectations. There are three steps to creating actionable sales quotas that work toward organizational objectives.
Establish Your Baseline
Your business’s baseline is the bare minimum requirement to meet its needs. Establishing a baseline helps you understand the number of sales necessary to accomplish goals.
Baselines are an average of previous sales numbers, usually taken over the prior 12-24 months of sales. Use those numbers to then calculate periodic sales expectations. Let’s say a sales team sold $10 million over 12 months. You could tie that to a $2.5 million quarterly sales volume goal.
When you have your baseline set for your determined sales period, you need to adjust for seasonality and market variations. Many businesses have regular spikes and lulls in seasonal buying. If you have divided sales territories, there may be more opportunities in one area than in another. Setting averaged sales quotas may make quota attainment nearly impossible in certain situations. By reviewing historical data, you’ll be able to set more reasonable monthly or quarterly baselines for all of your reps.
Quotas based on baselines should also account for growth. Make the baseline a benchmark where sales are expected rather than the goal. Tying a company’s growth forecasts into sales quotas maintains its efficacy. Pushing sales boundaries is important to ensure salespeople are working toward the larger goal of winning more market share.
Start From the Bottom-up
A top-down sales quota often makes the most sense for businesses trying to remain profitable and grow. In this model, a company starts with sales numbers that achieve its objectives. It then divides that larger number into revenue or volume sales quotas.
The downside to the top-down approach is that the needs and potential of the salesperson are largely removed. The company only focuses on what it needs rather than what is realistic for the individual salesperson.
A bottom-up sales approach is a more considerate method of reviewing each rep’s past performance to calculate quotas. This acknowledges an actual, accomplishable target that is more likely to keep a salesperson engaged. You’ll get close to creating a challenging but reasonable sales quota when you set it at the upper end of their actual past sales.
When these sales quotas achieve organizational goals, everyone wins. Salespeople know they can attain goals with enough effort and the company earns more revenue while spending less money.
Set Activity Goals
When you establish your baseline quota and adjust for variables, you can set activity goals that guide their work. These can be a daily checklist, setting up calls, emails or meetings that need to be worked on. Set these small activity goals, gearing them toward the larger objective of meeting the sales quota.
Some Examples of Sales Quota Calculators
Setting up sales quotas does not have to rely on processing rigorous, custom calculations. To make management easier, simple online sales quota calculators let you quickly create accurate sales targets.
Yesware Quota Calculator
Yesware offers an extensive tracking toolkit to manage activity goals and report revenue and volume attainment. Integrate its intuitive tools into email add-ons and Chrome extensions for easy, instant access to sales analytics.
The Yesware Quota Calculator allows you to calculate bottom-up or top-down quotas with simple input fields. Users can put in historical data to generate minimum goals or peg down individual goals from overall business needs.
Panalysis Sales or Conversion Target Calculator
The sales calculator from Panalysis takes a broad perspective on estimating quotas for sales reps. The simple inputs look at annual figures and averages such as revenue goals, monthly conversion rate and growth forecasts. Because it uses long-term data, salespeople will likely have to adjust smaller sales targets for seasonality and market influences.
Calculator Soup Profit Goal Calculator
If you are setting profit-based quotas, Calculator Soup’s profit goal calculator is a simple way to find reasonable targets. The calculator allows you to analyze different variables in sales, costs and profits while referencing your constant fixed costs.
Users input their expected costs and sales to see what profit they need to generate. They can also set target profit goals and see what that implies for allowable costs and sales.
Setting attainable sales quotas is an instrumental component of achieving larger sales and business goals. By keeping your expectations clear, measurable and reasonable, you can effectively manage team morale.
Motivate and direct your sales teams toward a specific goal, thereby improving their efficiency and effectiveness.. For managers, those effective sales quotas are driving your bottom line and highlighting good behaviors to replicate.
Whether you need help devising quota strategies or implementing behaviors to push sales potential, the Selling Revolution can help. Our consultants partner closely with clients to understand their short-term needs and long-term goals. We formulate winning strategies to embed in the sales culture, setting clients up for continuing success. To learn how we can help you achieve your organizational goals through better sales practices, book an introductory call today.