Types of Sales Quotas

Sales quotas are quantitative goals set by managers to measure and compare the performance of individual salespeople and to help determine their compensation. Three major types of quotas are volume-based, profit-based and combination quotas, and all three can be used either for measurement or for compensation.

Volume-Based Quotas

When based on sales volume, quotas may be expressed either in dollars or in number of units. Both are widespread because they are easy to compute and understand. Sales volume quotas can be broken down into quotas for individual products, brands or lines, which can help managers ensure that all offerings get appropriate attention. Dollar-based quotas may encourage salespeople to focus on items that are expensive but do not yield the highest profits.

Profit-Based Quotas

Sales quotas may be based on either net or gross profit margins of a product, brand or line. The advantage to the manager of this type of quota is that it eliminates the temptation to overemphasize highly visible, popular or trendy items over profitable ones. However, measurements of progress are generally less clear when goals are expressed in profits instead of in dollars or units. For this reason, profit-based quotas may encounter some resistance from salespeople.

Combination Quotas

In a growing number of firms, managers are designing new types of sales quotas -- called combination quotas -- that combine two or more activity- or behavior-based goals. These goals are chosen to reinforce a set of skills that salespeople are expected to master and continually improve. For example, a combination quota could include: number of customer calls, percentage reduction in sales expenses, number of product demonstrations, frequency of conversions from trial to sale, percentage of customers who repeat or increase purchases or number of new accounts opened.

Other Measurement Dimensions

With increasing global competition and product customization, many companies are trying to differentiate themselves based on customer satisfaction. Their challenge is to motivate their salespeople to focus on building long-term relationships instead of making one-time sales. One motivational approach is to incorporate data from customer satisfaction surveys into traditional quota targets. For example, each salesperson may be tasked not only to sell certain numbers of items but also to attain satisfaction ratings at or above the median for his division.