According to CSO Insights’ 2018-2019 Sales Performance Study, only 54 percent of salespeople are making or exceeding quota. With organizations generally targeting a 70 percent quota attainment goal, this represents a major challenge to sales effectiveness. There are two lenses in which to view that statistic:
- Sellers have a performance issue
- Organizations aren’t setting quotas effectively
According to research, both are likely culprits!
Quotas are a vital part of the annual sales plan. When done well, quotas fairly allocate business goals into actionable targets, and they give individuals a way to focus their efforts and strive for achievement. Unfortunately, a lot of quota setting activity suffers from a lack of rigor. The resulting subjectivity reinforces the status quo rather than drives growth and achievement. Yet, there is an objective way to set quota that incorporates high-level organizational goals while also meeting the realistic expectations of individual sellers. Let’s explore five essential strategies for setting aggressive but attainable sales targets.
1. Incorporate Elements of Both a Top-Down and Bottom-Up Approach
A top-down approach focuses on setting sales targets based on the company’s anticipated growth and allocating that number across teams and individuals. This approach combines a company’s past performance with anticipated changes in market conditions, new product launches and more. By contrast, a bottom-up approach focuses on setting sales targets based on reps’ past performance. To account for the pros and cons of each, incorporate elements of both a top-down and a bottom-up approach. For instance, the top-down approach may miss the potential of each individual sales rep’s opportunities in their territory or accounts (e.g. knowing that a new regulation is going to impact a particular seller’s territory). On the other hand, the bottom-up approach may lose sight of organizational-level objectives and promote what’s already happening, missing out on market opportunities.
2. Engage Sales Reps and Sales Managers in Quota-Setting Discussions
When it comes to setting quotas, half the battle is overcoming skepticism from the sales team. Regardless of how attainable a quota a company sets, expect pushback from sales reps. To overcome this obstacle, proactively engage sellers to collaborate with them during the quota-setting process. Walk sales reps through the process and solicit their feedback, especially during the bottom-up part of planning. One of the most important perspectives sales reps can provide is a gut-check on the potential of winning more business in their accounts. For example, a sales leader may be inclined to keep raising the bar for high-performing reps who consistently meet their quotas. Engaging them in the process may reveal insights about their accounts or territory that uncover fewer opportunities to drive desired growth, such as consolidation or some other factors which can impact revenue potential.
3. Allocate More Time Than Anticipated To Setting Quota
“We just closed the books on last year and we are already four weeks into the year and our reps don’t have goals. No wonder we are behind on Q1 already!”
Sound familiar? Many sales organizations take a reactive approach when it comes to setting quotas. Maybe a new fiscal year just began or executives released a new set of corporate growth goals, sending everyone in the organization scrambling. This results in rushed, inadequately developed sales quotas. In reality, this process needs to be deliberative and rigorous. Allocate at least sixty days to set quotas, and have a methodical, structured process that considers multiple points of view and uses all available data. Furthermore, build in periodic opportunities to revisit quotas, such as a quarterly review or a review triggered by major developments within a territory or large account.
4. Integrate Quota Setting with Other Planning Processes
Engage the sales operations team to ensure appropriate alignment between territory assignments and compensation and incentive programs. When a company plans in silos, it ends up with an imbalance of achievement. Cross-check all assumptions against capacity and staffing:
- What are the actual activities that it takes to sell?
- How much time do they take?
- What are the typical conversion rates and other measures of productivity?
Get granular in this analysis to figure out the level of effort required to complete a sale:
- What percent of leads convert to opportunities?
- What percent of first calls convert to proposals?
- What percent of proposals convert to quotes?
- How many interactions does each take on average to achieve each of these outcomes?
Sales leaders need this information to determine whether a sales team is staffed appropriately to actually deliver on the quotas assigned—and will then need to make decisions on whether to increase staffing or find ways to improve productivity.
5. Be Open to Revisiting Quota—On a Limited Basis
Things change. While organizations need to limit quota modification, at times it may be necessary—one such scenario is quota relief. The challenge is that sales leaders who use quota-relief buckets can apply them unevenly and sometimes unfairly. Because sales reps are acutely aware of how a sales leader doles out quota relief, it’s critical that an organization not allow abuse and manipulation of its system. Set clear criteria for what qualifies as quota relief and establish strong governance frameworks with multiple layers of reviews and approvals.
Quota setting is not a perfect science. The impact of accurate quota setting affects the entire organization, as many other business functions rely on meeting projected sales targets, such as staffing, talent evaluation and marketing, to name a few. To set rigorous sales targets that are both aggressive and attainable, work proactively to incorporate elements of both a top-down and bottom-up approach, engage sales reps in the process, allocate more time to setting quotas than anticipated, integrate quota setting into other planning processes and consider revisiting quota on a limited basis.
Having trouble setting sales quotas? Learn more about Miller Heiman Group’s sales consulting services, which includes complex diagnostics of your organization’s sales process.