Quota season is here again. For many sales leaders, next year’s sales planning meetings are already appearing on calendars. Building a sound quota program is an important part of the planning cycle to ensure quota effectiveness. Most sales leaders aim for 55 to 60 percent of their reps to achieve or exceed quota along a “normal” distribution curve. There’s less debate about the desired end state from a results perspective. However, few sales leaders and their organizations devote enough time to build and maintain a systematic quota program that effectively supports achieving these results on a consistent basis. And sales leaders are vocal about this challenge – nearly two out of three respondents (65 percent) to the Alexander Group’s recent 2014 Sales Compensation Trends Survey© rank quotas as their number one sales effectiveness challenge.
Setting correct quotas does not need to be bureaucratic or complex. Know and apply the five key elements to doing it right (explained below). Skipping steps, taking short cuts, or overlooking one or more key element is usually what causes quota programs to fail. Sales leaders should ask themselves, “Do we have all of the necessary and programmatic elements of a quota setting program in place? Are we preforming all of the requisite tasks to set correct quotas?” If parts are missing or leaders lack confidence in the data, or succumb to top-down pressure (and set unattainable goals), or delay the process beyond reason, trouble begins. Many sales leaders fall into reactive mode as last minute financial goal changes get pushed down to them late (and sometimes very late) in the year. Don’t succumb to this reactive behavior and the resulting quota program “roulette.” Take an active and systematic approach to drive an effective quota setting process. Here are five elements to consider:
Quota Methodology: Effective quota programs begin with a sound methodology. Your quota methodology or formula defines the primary basis for calculating quotas. There are many factors to consider: type and quantity of accounts, historical performance, territory potential, funnel potential, competitor threats, market share and other factors. Choosing the right methodology is very important, and equally important and critical is applying the methodology consistently across territories. Below is just one illustration of methodology selection:
Process: The quota process is the who, what and when of quotas. It sounds easy, but in our experience many companies do not have a simple calendar nor comprehensive guidelines around process. For example, data from our Trends Survey indicate that only 33 percent of respondents use any form field sales force inputs (bottom-up) in their processes. The root of the challenge lies in the need for cross-functional involvement. Sales leadership, sales ops, field sales, finance and HR all need to be involved in some capacity. Also, cross-functionality helps address auxiliary issues related to quotas such as alignment to new compensation measures, account transfers, ramps for new hires, terminations and other issues. We recently engaged with a high technology company that had several different quota approaches across the Americas, Asia and Europe. The global sales leader complained, “I really don’t know how they come up with regional goals.” Each region had developed their own methodologies and process. To achieve alignment, we conducted a simple exercise of mapping processes and methodologies. Then, working with a cross-region team we agreed upon a uniform two-page set of guidelines that outlined a simple, transparent process and timeline for releasing individual and team targets. The result: The VP of Sales and the individual reps all had much better clarity on how their quotas were set.
Accountability: Who should own the process? Sales Management owns and leads it. However, in our experience many sales leaders wait for finance to give them final goals before they kick off the process. Finance delivers the top-down based on shareholder expectations and corporate strategy. But the sales leader shouldn’t wait for this to get the process started. The sales leader can begin building goals based on a bottom-up approach. That way when the top-down numbers are ready, the sales leader can quickly and confidently reconcile the numbers and allocate quotas for the coming year.
Communication: It probably goes without saying that quotas should be communicated by sales leadership. It’s helpful to communicate any related changes to roles, territories and compensation plans at the same time. Ideally this is done on the first day of the new fiscal year. In our experience, most individual sales goals are delivered late, after the start of the new fiscal, and sometimes very late, even months in to the new year. You’re probably thinking, “Yes, and I have seen even worse.” Obviously this is a bad practice. It’s not fair to the reps, and it’s unnecessary. Sales leaders should avoid blaming finance or other departments. Leaders can avoid this with a sound sales quota program that includes a well thought out methodology, process and time line.
Audit: Track attainments and analyze drivers of distributions during the year. You will be well informed to make adjustments to methodology and to the overall quota program, too. However, do not change quotas mid-year. Most companies (72 percent of respondents from our Trends Survey) change fewer than 10 percent of incumbent quotas. Changing more than 10 percent of incumbent quotas likely reflects a quota program that is poorly functioning. If you’re in this group, you may need an urgent and complete overhaul of your program.
Building a sound quota program does not have to be complicated. It does need to include the above elements for broad confidence across the company. How your individual sales reps “climb their hills” is important. Knowing that they can achieve their goals and earn their sales compensation depends on the quota program.
Start preparing now for setting correct quotas for the coming performance period.