Sales quota allocation – choosing the right methodology is criticalBy: David Eddleman Sales Compensation, Sales Coverage, Sales Quotas, Sales Strategy
The impact of quotas on sales compensation is well known. Designers of sales compensation plans must consider the ability of the sales organization to properly set company wide sales goals, and most importantly set quotas at the territory level. Quota attainment scorecards and graphical representations are important to sales compensation design efforts. After all, quota attainments drive pay curves and associated monies earned through sales performance.
But let’s look at quota issues beyond incentive payouts. Consider that the process in which quotas are allocated to territories, is totally separate from sales compensation. In addition to process and methodology, the ability to set company-wide goals and allocate to territories, is a reflection of the firm’s understanding of market potential. Without good quota setting process and without adequate cognizance of territory-level market potential, skewed attainments will likely drive unfavorable sales force results. Productivity can be dashed by 5-10+% and costs can be increased by up to 20%. A few of these detrimental outcomes may include: poor rep morale, increased rep turnover, sales coverage ineffectiveness, overlay/support role strategy failure, unfair influence by high performer reps, and a general inability to provide an appropriate risk/return sales environment.
So what is the best methodology for quota allocation? There are many from which to choose. A good place to start is knowing that the best methodologies include both top-down and bottom-up territory-based inputs. Too often, quotas are spread evenly across territories except for a few qualitative management adjustments. In general, stable territories, those with longstanding recurring revenue customers, require less rigor. Newer territories will require more attention, more market-based analyses, as well as increased rep collaboration. As I work with clients on formulating optimal methodologies for their environments, several factors are evaluated such as:
- Rep’s previous year’s share contribution to the aggregate territory
- Rep’s territory growth potential
- Funnel potential (especially applicable for long sales cycle environments)
- Sales rep workload capability
- Competitor Influences
- Rep tenure and/or time in territory
- Mix of recurring vs. new growth revenue expectations
- New product/service introductions
Regardless of your company’s current sales strategy focus (e.g. revenue growth, market share, new product introductions, profitability) choosing the right quota methodology to achieve attainment balance will facilitate the firm’s success. Balanced attainment means 60-65% of reps should achieve 100% of their goal or greater, and 35-40% should be less than goal. Selecting the right inputs and quota methodology is critical.
The Alexander Group works with sales leaders and sales operations professionals to implement successful quota programs. Investments in process, data analyses, and rep participation pay off. Best in class sales organizations are continually inspecting and improving their methods in order to stretch and grow for optimal performance.
Learn more about Alexander Group’s Quota practice.