With the 2012 Summer Olympics in full swing, we’re getting fed a daily diet of medal counts, amazing feats, disappointing chokes, and a litany of stories about winners and losers. Unlike recreational youth soccer where the bar is set very low and everybody walks away a trophy clutching winner, in the Olympics the bar is set very high and only the top three in the world walk away with a medal. In sales, reps “win” or “lose” based on their results to quota. The Sales Leader plays a key role in setting the bar for rep achievement. Set the “bar” too low and everyone wins (and finance loses ?). If they set the bar too high, then potentially no one wins. Sales Leaders should target about 55% of the sales force reaching or exceeding quota, with the performance spread following a normal bell-shaped curve. This creates a “culture of winners” while at the same time keeping costs of sales in line.
Sounds simple, right? But quotas are contentious. In the clients I’ve worked with over more than 15 years I can only think of a few Sales Leaders that believed their quota programs were working really well. So how should the Chief Sales Executive go about setting quotas? Where should they set the bar? To do this well, Sales Leaders should follow five important steps:
1. Select the right quota methodology. The methodology (or formula) for deriving quotas is well-defined, data driven, and fitting for the type of selling role. For example, a bottom-up account planning based approach is best for Strategic Account Managers, while job-based quotas or algorithms based on market potential are best for Territory Sales Reps.
2. Define and execute the right quota setting & allocating process. Who, when, and what needs to happen in a timely fashion? Sales Leaders should proactively work with their 1st and 2nd Line Management, Finance, and the Executive Team to manage the steps according to a set-back calendar from the start of the new performance period so reps will get their quotas on time.
3. Build in a reasonable amount of over-assignment. What is reasonable? It depends primarily on the growth rate of the business. Slow growth companies typically manage over-assignment between 0% and 5% of Company Plan. Faster growth companies will have 10-15% over-assignment. I’ve seen it as high as 35%. This is extreme.
4. Keep crediting rules as simple as possible. I’ve seen too many companies over-complicate the crediting rules. Quotas and crediting rules should be designed together. A change in crediting rules impacts a reps ability to meet their quota. Minimize the number of “overlay” resources to the bare necessity to manage cost of sales.
5. Over communicate. Quotas should be painfully obvious to the rep. And Sales Leaders should use robust communication methods to explain what the quotas are, how they are derived, and where reps stand throughout the performance period. When quotas are raised, provide clear rationale based on market potential, new products, or investments in the sales force. It’s nearly impossible to over-communicate quotas.
To execute these five steps well, Sales Leaders need help, often in the form of a strong sales strategy and operations team. This team needs access to good market and company data. They need analytical expertise for modeling sales potential at market, account and product levels. They need good process skills to help the Sales Leader lead an effective bottom-up and top-down process for setting and allocating quotas. Quota programs also require effective tracking and reporting systems and governance throughout the year.
It’s a lot of work. This is why so many Sales Leaders take the short cut of simply peanut buttering next year’s growth objective across their reps. But doing this, particularly over time, can lead to a culture of whiners instead of winners. Quotas matter a great deal to each rep. Collectively how they are set shapes the culture of the Sales Force. It is worth the time and investment to develop and manage quota programs correctly. When done so, top performers will excel, core performers will be stretched to do more and low performers will know what they must do to stay on the team.
For more insights on setting the bar to foster the right culture in your sales organization, join 100+ other sales leaders at Alexander Group’s Chief Sales Executive Forum in Palm Beach, FL.
Original author: Paul Vinogradov