A sales quota is the target or minimum sales volume expected from a sales employee, sales team and/or department, during a defined period. Sales quotas are frequently set in monthly, quarterly and annual allotments and commonly expressed in sales dollars or sales units. When quotas are set effectively, the consistent attainment of quotas will directly and positively impact a company’s ability to achieve its overall sales budget or plan. Most sales commission payouts are linked to the attainment of quotas. It is common for sales quotas to increase year over year.
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How To Set Sales Quotas
Review future, company and department performance goals and budgets. Understand what the sales department must deliver monthly, quarterly and annually in order to achieve its goals.
Analyze sales trends for the past two years including dollars, units and product/service information. Understand the causes for sales growth, sales declines and seasonal fluctuations. Examine quota attainment at the representative, team and department level. Consider changes to sales resources and staffing levels.
Compare the prior year’s performance trends with the future, company and department goals. Determine what growth or decline is expected. Quantify the overall gap between last year’s performance and the future, expected performance. Determine the revenue expected from existing customers versus new business.
Complete an opportunity analysis. Identify where the best sales opportunities are within your existing customer base and with prospects. Look externally at geographic and industry trends that may impact future sales performance. Familiarize yourself with internal changes that could help or harm sales such as new product introductions or changes.
Review the sales expense budget. Determine if your full time equivalents (FTEs) will grow, decline or remain flat. Understand the budget for sales commission expense and cost of sales.
Determine if you will “over assign” quota dollars. This is the process of adding a buffer between the sum of your sales quotas and the sales budget. For example, if your sales budget is $10 million, you could set sales quotas to sum $11 million, to add a $1 million buffer. Some sales leaders consider the over assignment, as insurance to improve their chances of achieving sales goals.
Determine how you will spread the sales growth or decline including the “over assignment,” if applicable, across your sales team. Some sales leaders hold all sales representatives to the same level of quota growth, regardless of territory, skill set or geography. Other leaders tailor the sales quota amounts to individual employee or territory needs.
Build a quota model that will allow you to create “what if” scenarios for different quota amounts. Some of the data inputs and outputs will include number of FTEs, sales dollars, expected quota attainment, commission dollars and cost of sales. (Quota models are often built using Microsoft Excel or Access.) It may be helpful to include finance and human resources experts in the quota modeling process.
Set reasonable quotas that will lead to the achievement of the overall sales revenue budget while also meeting your sales expense goals.
If quotas are set too high, attainment will be low, commission payouts will be low and employee morale will likely decline. If quotas are set too low, employees will exceed goals, and commission payouts will be very high. You may exceed your cost of sales budgets, and not meet your overall company sales performance goals.