Sales quota: Why should you set Sales quotas and how do use them?
Salespeople, how tired are you of hearing “coffee’s for closers”? If you said “very,” I have to say I’m sorry because I’m about to do a Glengarry Glen Ross on you.
This classic from 1992 is now a must-see for every salesperson. In the movie, Alec Baldwin plays a blunt sales manager who goes to a small business to get the sales team going. At the end of the week, the top two salespeople will get access to good Glengarry leads, while the rest will be fired.
Table of contents
- What Does Sales Quota Mean?
- The Importance Of Sales Quota
- Different Types Of Sales Quotas
- How to set and reach sales quotas
- Tips For Sales Quota
- Sales quota examples
What Does Sales Quota Mean?
The value of goal-setting is common knowledge. We all plan and work toward our goals, not just in sales. We plan both the near and distant future.
Then, why do we bother to aim so high?
For the simple reason that doing so is the foundation of accomplishing anything worthwhile. Achieving this is a major milestone on the road to success.
The same holds true in sales. Sales representatives have their own set of established quotes based on their level of expertise, tenure with the company, and position within the organization.
It’s a list of things you’ve been tasked with achieving by the higher ups in the company.
Monthly, quarterly, or even daily sales quotas are possible, depending on the company, the size of the sales staff, and the nature of the industry.
The Importance Of Sales Quota
Quotes give sales reps a reason to come up with plans that will help them reach their goals.
When these quotas are met, it can lead to satisfaction and more motivation. If the goal is not met, it can lead to frustration and less motivation.
When used in the right way, sales quotas are a very powerful tool.
Check out the points below to get a better idea of why it’s important to have sales goals.
It’s very important to be clear when you’re working with the sales team. Sales quotas help clear up the confusion and make it easier to work.
They help you to open your mind and think of the larger impact that you can create.
Sticking to your goals is very important. You can’t get them unless you work hard and put your mind to it. Sales goals do make you more responsible.
Different Types Of Sales Quotas
Before giving the team sales goals, it’s important to define them. Most sales quotas are based on how much money is made, how much is sold, and how much is sold.
A. Sales Activities
If you want to expand your business, you need a system to monitor and analyze your sales operations from afar. Teams and fields can engage in a wide range of similar or dissimilar activities.
But the basic concept would be the same no matter where you went. Here are some metrics you may use to keep tabs on your sales efforts:
- The number of calls made
- Total closures the reps make
- How many meetings did the inside sales rep create etc?
We’ve already talked about how sales is a numbers game. The most common and general type of sales quota is the revenue quota. Sales reps need to sell the service, product, or subscriptions to make a certain amount of money for the given period.
Most of the time, this kind of sales goal is set every three or four months. The sales quota can be set once a year for organizations with high ticket prices and long sales cycles.
When prices are flexible and upselling is common or expected, revenue quotas may mean the amount of money that can be made profitably. If you sell a lot of different products with different profit margins, you might want to focus on profit quotas instead of sales. Sales reps can be given incentives on top of their profit goals, which is good for both sides.
C. Volume Quota
Quotes should be talked about in terms of dollars or units, depending on how many sales there are. Both of these are often used because they are simple to understand. The sales volume quotas can be further broken down into quotas for each product, which helps the manager make sure that each product gets the attention it needs. When sales goals are based on dollars, salespeople may be more likely to focus on expensive items that don’t bring in the most money.
There is another kind of sales quota that can be a mix of all of the above.
We know why sales goals are important and what kinds of sales goals there are. But it’s just as important for every team to follow the sales quota tips that will help them reach their goals faster.
How to set and reach sales quotas
Companies typically use one of two methods, the top-down strategy or the bottom-up approach, to establish sales quotas for their personnel.
Many large corporations operate with a top-down structure. Top-down planning can be used to set sales targets when businesses need to achieve a specific level of gross revenue. A large organisation, for instance, can utilize customer relationship management software to analyze market tendencies and assess how they relate to the firm’s evolving requirements. In response, the business can formulate sales quotas to guide the sales force in its efforts to satisfy those demands.
The expertise of your team is emphasized greatly more in the bottom-up method. Setting achievable sales goals for your team may require looking at historical data to identify patterns in performance and any seasonal fluctuations. When you use this tactic, you may have to temporarily set aside your company’s expansion objectives in favor of boosting morale among employees. In the long run, this approach is more likely to lead to steady expansion for your team.
Tips For Sales Quota
So, let’s talk about some sales tips that will help any business or organization with a dedicated sales team.
1. Never talk about the past quotas
Strategies that worked well last year might not work as well this year. There might be ‘n’ a number of reasons to prove this sentence. The markets change, the business world is always changing, your own teams change, your profits change, etc.
Instead, learn from what you’ve done. Look at the ratio of mistakes to successes. Check to see which ways of selling worked for you and which ones didn’t.
2. Quotas should be discussed with teams
Managers of the team can’t decide the team’s goals behind closed doors. The management is always in charge of making decisions, but the team should be involved.
Sales reps and managers have fought on the ground and know the market better than the leaders because of it. In general, data might show something different, but the truth is different. For example, the management might think that the market and industry are doing very well and that the quotas should be raised.
But the sales reps, who talk to customers every day, might have a different opinion. So, the decision should be made after taking into account what the sales teams and management have to say.
3. Quotas should be realistic
When you set your team’s quotas, the big number should be real and doable.
Organizations often give their sales teams goals that are too high and can’t be reached. This makes the sales team feel less motivated. If you know that the finish line is impossible to reach, you won’t try to get there because you won’t think it’s worth it.
The same thing goes for the sales team. Organizations that want to make more money often put the onus on the sales team, but they don’t realize that this won’t help them get anywhere.
Now that we know what sales quotas are and why they’re important, let’s talk about how to reach them.
Sales quota examples
Example #1: Activity quotas
Let’s say that a company that makes AI software recently came up with a new way for machines to learn. The company wants to reach out to more people to get customers who fit its new target audience.
The head of sales at this company decides to give the sales team a set of goals to reach. These quotas include calling 20 prospects every day, sending out 30 emails to spread the word every day, and using sales engagement tools to keep prospects’ attention once they get in touch.
These quotas aren’t just based on the amount of money sold, because the goal with this new product is just to make people aware of it. With a smaller pool of prospects and less familiarity with the product, the most important initial quotas are all about reaching out and creating demand.
Example #2: Profit quotas
Let’s say that a company that sells computer hardware usually sets a quarterly sales goal of $20,000 per sales rep. The company wants to grow at a steady rate over the next five years to reach that goal.
With the help of CRM automation software, the sales leaders of this company decide to raise quotas for the whole company by 2.5% each quarter. This means that each sales rep needs to sell $20,500 worth of products in the next quarter to meet their goal.
Profit quotas only say how much money needs to be made. They don’t say which products need to be sold. A salesperson could meet their quota by selling either 20 products with medium prices or 5 products with high prices.