Sales quotas are a critical part of growing your business. They provide concrete steps to taking your company where you want it to grow.
They also require a delicate balance: set the quota too low, and sales fall flat. Set them too high, though, and you run the real risk of frustrating and alienating your sales team.
Here are some best practices on how to set more accurate sales quotas and how to motivate your team to hit them.
Quota setting best practices
Distinguish goals from quotas
Some people use the terms sales goals and sales quotas interchangeably, but they have two separate functions in your organization. Sales goals are all about your overall dreams for your business. Leaders set sales goals to look at the long run. What markets would you like to dominate? What kind of revenue do you want your business to earn? Goals are about looking ahead.
Sales quotas, on the other hand, is the tool you use to reach your overall goals. It combines your vision with practical steps to guide your sales team. Sales quotas provide the practicality needed to grow your company.
The oft-quoted rule of thumb for good sales quotas is that it can be achieved by 80% of your sales team and within 5% of your baseline metric. Like any rule of thumb, though, it rarely helps sales managers and leaders with the specifics. It’s often possible for companies to reach more than 5%, depending on your specific company and market. Likewise, 5% may be too much of a stretch for another particular company.
Set reality based quota
A sales quota based on growth goals alone is likely to alienate even your best sales reps. Only 30% of sales reps hit their quota when it's based on growth goals alone. Your sales team will quickly grow discouraged when they find that the quota they are expected to meet doesn’t match the reality that they are experiencing in the field.
Discouraged salespeople can hurt your company. Besides the damaged morale, unrealistic quotas are the second most common reason that sales reps leave a company. Replacing sales reps can be very costly: it takes 21 months on average for a salesperson to turn their first profit. Your profits are likely to take a hit if your company works like a revolving door for your sales team.
To create the highest profit for your company, you need to create a sales quota based on reality. This means that you need to take your sales history into account. If you don't look at what your sales team has been capable of in the past, you are unlikely to create an accurate quota.
By utilizing sales technology, such as your CRM, you can look at your past statistics to get a better picture of how you can improve your quota.
Avoid the Rear-View Mirror Trap
Creating a sales quota based on your goals alone can be a dangerous, and potentially costly, mistake, but many managers and executives run into the opposite problem as well. They choose to rely solely on past data to create their sales data.
Referred to as the Rear-View Mirror Trap, it doesn’t take into account the current market and environment. It can potentially run into the problem of either setting the bar too high or too low.
The holiday season, for example, could seriously skew the historical data. If you doubled your sales in November and December, for instance, it probably would be unrealistic to expect the same numbers in January. Often, sales reps will feel betrayed when management increases their quota after a good month or quarter. If they're working in the same territory as earlier, then there are fewer people to sell to since they many prospects were turned into clients.
To account for these fluctuations, some leaders opt to do a yearly analysis instead. However, an economic downturn or continued dominance in a territory may make relying solely on history disheartening for your sales team.
Businesses are in constant flux too. New products or services, new territories, and new marketing ventures can all change the landscape for your sales team. Basing your quotas on past sales alone will probably not take the changes your company is experiencing into account.
To get the most accurate quota for your sales team, you need to take the market forecast into account as well as historical data. Technology can help you sort out the potential for the upcoming quarter as opposed to looking at history alone. They can allow you to see how many potential clients are in the pipeline, for example, to give you a sense of how well you can expect your sales reps to perform.
How to Set a Motivating Sales Quota
Since relying on your sales goals and sales history will only frustrate your sales team, is it worth setting a sales quota at all?
When you set a sales quota that utilizes modern technology, you can create a sales quota that will motivate your salespeople to continue reaching for their goals and stretch themselves just the right amount.
The key is in creating individualized and activity-based quotas.
Not all of your sales reps are the same. Each one has different territories, expertise, experience, abilities, and products that will all affect how they will perform individually.
Sales tech allows you to avoid the "top-down" or "peanut butter" effect where sales quotas are spread evenly amongst your sales staff. Instead, quotas should reflect where each salesperson is in their sales journey to motivate them.
High performing sales reps should feel challenged just enough to avoid complacency. Newer sales reps or those put in more difficult territories, on the other hand, should be encouraged rather than deflated by their sales quotas.
For example, if you have two salespeople in different territories where one has a longer sales cycle length because of the clientele in that area. Even if they start with the same number of leads, the sales rep with the shorter sales cycle is likely to outsell the longer one. Their quotas, then, should reflect their sales environment.
By individualizing your quota, you can create a more accurate quota that will motivate, rather than deflate, your employees.
In times past, goals were often based on financial considerations. If everyone was selling the same product, a sales rep would be required to sell so many units each month. If there were different products, they might be expected to sell a certain dollar amount during a set period.
However, faced with a certain number each month can be daunting for your sales team. Instead, an activity-based quota allows them to break down how much they need to do each day and makes it more manageable to accomplish. It also allows you to track how much your employees are working. Is it a bad month, or are your salespeople failing to put in the work? An activity-based quota allows leadership to see what is going on and motivate sales reps to put in the work necessary to win the sales.
The use of activity-based quotas utilizes the concept of “small wins.” An idea innovated by psychologist Karl Weick, "small wins" explores how hitting small and achievable goals will motivate a person to continue to strive towards a larger, overall goal. If the task before them is too daunting, though, they likely feel too defeated from the beginning even to start.
Harnessing these small wins will energize your sales reps when the thought of reaching their overall sales target feels too far away. Especially at the beginning of the month or whenever they receive their sales quota, concentrating on daily tasks will keep them from overwhelm and help them to start making strides to meet their quota.
Activity-based quotas create a more productive work environment, but leaders shied from using them in the past because they were difficult to track. Sales reps often didn't have time to notate every phone call, follow-up email, or demo when they were busy making sales. However, technology makes it easier than ever to keep active tabs on each interaction with a potential client.
Your CRM can help management and sales reps see precisely how much work they can accomplish to help them stay motivated even if their overall quota seems daunting.
Stay Focused on Your Sales Quota
Don’t run into the trap of a “set it and forget it” sales quota. Sales quotas aren't made just to be visited at a monthly, quarterly, or yearly meeting to see if they were met. They need to be looked at regularly if you want to achieve them.
You don't set sales quotas for the fun of it. They are the achievable steps to meet your overall sales goals. If your team is going to meet them, then, they need to stay focused on meeting their sales quota continually.
You can harness technology to make sure that your sales team can see where they are on the journey to making their sales quotas. Our CRM allows them to take stock of their activities daily to make sure that they’re on the right track to meet their quota. They can then get the small win they need to continue striving towards their goals.
Get Ahead with Better Sales Quotas
The old ways of creating sales quotas aren’t enough to keep up in the competitive market. Basing a sales quota on your sales goals or history alone isn’t accurate. It leads to discouraged sales teams and worrisome turnover that could seriously damage your business and eat into your profits.
Utilize sales technology to energize, motivate, and retain your sales team. An individualized and activity-based quota will help keep your sales reps from feeling frustrated, overwhelmed, or burnt out by their sales quotas. Also, make sure that both your leadership and sales team look at the sales quotas and where they measure up.
By celebrating the small wins and giving them something they can control, such as how many phone calls they make in a day, will improve your company culture and help your reps meet their quotas.
Create better quotas and happier employees with by utilizing technology today!