Advantages & Disadvantages of a Sales Volume-based Quota System
Some businesses measure sales performance by setting a quota for each salesperson to achieve. For example, the quota might be a certain amount of sales revenue in dollars or a specific number of units sold. Over-performers might receive bonuses, while under-performers might get reprimanded or targeted for remedial training. While a sales volume-based quota system can be effective, it also has some disadvantages.
A major advantage of a sales volume-based quota system is that it's easy for everyone to understand. Salespeople can quickly determine where they stand in relation to the performance standard, and sales managers can track and compare the performance of many salespeople at once. In other words, a simple metric such as the number of units sold in a month provides a clear and objective indicator for everyone.
A major disadvantage of a sales volume-based quota system is that a simple metric might not reveal the whole story. Suppose, for example, that a sales manager sets a sales quota at a certain amount of revenue, in dollars, based on the revenue obtained last year during the same period. During that time, much might have changed in the local economy, meaning any significant changes in revenue have less to do with the salespeople’s performance than with external factors beyond their control. The sales manager might berate or praise employees based on a metric that has little to do with actual efforts.
Another disadvantage of a sales volume-based quota system is that salespeople might not have access to equal resources. For instance, suppose each salesperson has a designated territory. If income levels are starkly different in the various territories, meeting a quota in one area might be much easier than in others, regardless of effort.
If a sales volume-based quota system is fair, the salespeople might be happy with the results, or at least understand that they only have themselves to blame for not achieving the sales quota. But if the system is flawed in any way, leading to unjust praise or punishment, morale will plummet as salespeople grow frustrated. Another problem is salespeople might start manipulating the system. For instance, a salesperson might try to achieve impressive year-to-year gains by delaying closings at the end of one year, thus artificially inflating the following year’s numbers. In other words, sales managers must ensure that a sales volume-based quota system is fair to all employees and isn’t vulnerable to unethical manipulation, or low morale might hurt the sale team's performance.