The Main Rules Of Quota Setting

Quota, or target, setting is one of the three main elements of a motivation scheme (alongside terms and conditions, and territory allocation.)

If one of these elements fails, the whole plan is likely to fail. For example, if a commission system pays generous commissions, but the quotas are too high or not achievable, the sales staff will not be properly motivated. An effective scheme is one in which all three elements are in harmony.

In this article we will focus on quotas and how best to set them for maximum success. 

Who Is Responsible For Setting Quotas?

Assigning quotas is a skilled task that requires time, careful thought, research, and experience. Quota setting requires both a qualitative and quantitative approach.

The overall responsibility of allocating quotas lies with the sales management team, who must work closely with the incentives design team.

What Are The Risks Of Incorrect Quotas?

Incorrect quotas can wreak havoc with your company’s bottom line and staff motivation. Some common consequences of incorrectly set quotas include:

  • Instability among the sales team, and a sense of unfairness and dissatisfaction.
  • Confusion over which products to focus on promoting, and sales staff focusing on the wrong products.
  • Increase in unethical selling as sales people try to reach targets in any way they can.
  • Staff become demotivated and stop making any real effort to sell.

Quotas that are too high or too low puts your company at risk of negative consequences.

If the quota is too high, the sales people will become demotivated, and are much more likely to look for another job. Your company loses revenue due to the sales person’s lack of effort, plus you must go to the trouble of replacing them.

If the quota is too low, sales staff won’t be motivated to bring their best effort. Sales staff need a certain level of challenge to keep them excited about their targets, and reaching for more and better sales. A low quota often leads to a lackluster team.

It is difficult to keep all sales people motivated and happy with their quota, but management should aim for most of the team to feel that their targets are fair and achievable. 

What Is A Fair Quota?

The main aim when setting quotas is to keep them achievable for the majority of the sales force. Sales people perform at different levels, but you should aim for 70% – 80% of sales people reaching their targets at all times. Regarding the rest of the team, around 10% will be exceeding their targets, with the remaining 10% – 20% falling short.

The quota should be fair not only for each individual, but for the sales team as a whole. For example, you cannot give one person a target that is ten times higher than another team member who is selling the same product. Of course you will need to adjust targets a certain amount to allow for the differences between territories, but quotas should still be similar. 

Keeping quotas fair across the team is important for motivation and morale, and it also protects the company. If you assign 50% of the target to one person in a team of twenty, what happens if that person leaves, or doesn’t perform as expected? Fair quotas are better for sales staff, and the company.

What Is The Best Way To Set Quotas?

There are three main approaches to quota setting:

1. Senior management sets the total target for the whole sales team. They might also set other objectives beyond simple revenue, such as profitability, new client acquisitions, and retention numbers. The quota represents the performance management expects from the sales team. Sales managers divide the number between individual sales people to give each person their target. The quota is normally inflated to provide a safety net so that if sales people fall short, they still get the necessary results.

2. The sales people and their immediate managers agree targets together, and then communicate those targets to upper management. The targets are based on the previous year’s achievements and the capabilities of the sales team.

3. The company uses a hybrid approach, which is a combination of the first two. Management and sales people work together to find a balance between company expectations and the capabilities of the sales team.

Whichever approach a company uses, it is vital that they make use of data from previous periods, and historical information about quota attainment. Management should also take market growth predictions and anticipated product growth into account.

A note on quota software: There are many software solutions that claim to automate the job of setting quotas. However, in my experience of working with dozens of enterprises, I have found that manual intervention is always necessary. Software simply cannot replace the human touch, and good instincts.

How Often Should Management Adjust Quotas?

Although it is normal to adjust quotas sometimes, it is important not to overdo it. The rate of adjustments must match the length of the quota. For instance, if there is a yearly plan with yearly incentives, management should not adjust it mid-year. If this is a concern, it is better to work on shorter quotas rather than yearly ones, so management can adjust if necessary after each quota period.

It is not enough to focus on the terms and conditions of an incentives plan, or the correct commission percentage. Setting the correct quotas is equally important – if the quotas are wrong, the whole incentives scheme could fail.

Use the rules set out above to ensure targets are fair, motivational, and achievable, and your incentives scheme will be much more effective.

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