Most sales organizations assign sales goals to their sellers. Sales quotas are an integral part of the sales accountability system. They align field sales performance with corporate objectives. They are a yardstick for performance coaching. They provide measurement for incentive sales compensation purposes. When functioning correctly, sales quotas provide a shared understanding of revenue objectives between sales management and the sellers. However, sales quotas are the outcome of a complex process. Here is the needed charter: Sales leadership needs to get sales quotas right by striving to achieve standards of sales quota excellence supported by constant monitoring.
During one of the many impressive economic booms in the Gulf States, I vividly recall one of my first teaching assignments in the region. Attending the session were sales and marketing executives of locally headquartered companies. The VP of commercial lending for one of the region’s largest banks began, “David, I grew my revenue 30% last year, my boss wants 40% growth this year.” He continued, “This is unreasonable, yes?” Of course, the answer to the question begins with more questions: “How was this number calculated? Is it a reasonable number for the bank? Is it a reasonable number for the head of commercial lending? Is it a reasonable number to allocate to all of the commercial lending officers within the department?”
The Alexander Group recently conducted the Sales Quotas Practices Survey. More than 170 leading companies shared their perspective on the status and health of their sales quota systems. The findings provide a profile of how companies continually invest to improve their sales quota system.
The survey’s key findings suggest that most companies have a suitable level of sales quota effectiveness.
Survey Question: How do you rate your current quota allocation process?
Overall, 75% of the companies judge their quota program to be acceptable (neutral) to better than acceptable. Most companies have crafted successful sales quota programs. Meanwhile, a quarter of the companies need to improve their sales quota program.
However, the survey’s outcomes are a bit more problematic. For example, more than 60% of companies want at least 60% of their sales personnel to reach and exceed quota. However, the actual results suggest otherwise.
Survey Question: What percent of sales personnel in the primary sales job met or exceeded quota in 2014?
Less than 50% (48.5%) of sales personnel reach and exceed their quota. In practical terms, this reflects an almost equal balance between “winners” and “losers.” This number is less than the preferred 66% of salespeople reaching or exceeding goal most companies prefer as an outcome.
Other key findings include:
What about the seminar student—the Middle East commercial bank lending VP? Determining whether a 40 percent increase in goal is reasonable or not cannot be answered without investigating “how” the number was determined. My advice to the VP? “I suggest you develop your own fact-based number and meet with your boss. If the variance is significant, ask for explanation and reconsideration or, at a minimum, a review of the goal mid-year.”
Sales quota programs are “blind systems,” meaning we do not know their effectiveness until the end of the performance period. As a blind system, management needs to make numerous investments to increase the likelihood of program success.
Use this checklist to improve the effectiveness of your sales quota program. These standards of excellence reflect the survey findings, and our judgment of the preferred characteristics of an effective sales quota program.
Setting the Annual Corporate Number
Ensuring Quota Program Governance and Accountability
Assigning the Number Through Quota Allocation
Assessing Quota Program Effectiveness
Making Mid-Performance Period Quota Changes
Crediting Sales Results
Documenting and Communicating the Sales Quota Program