Sales quota planning is an important component of Sales Performance Management, but comes with a set of unique challenges.
In fact, many organizations have reported that setting the correct sales quota is the single biggest issue they face in designing their compensation programs. However, it is surprising that even in this era of technology, most companies base devising and assigning sales quotas on guesswork.
Using guesswork instead of a data-driven approach has rarely resulted in sales teams surpassing their assigned quotas. With agility being mission-critical in competitive markets, companies would do well to employ a transparent and data-backed methodology for their sales quota planning process.
This approach would help ensure that sales quota planning is in sync with company goals and priorities. Read on to learn more about the essential aspects of sales quota planning and the benefits it entails for businesses.
What is Sales Quota Planning?
Sales quota planning can be described as the business process where company management works with sales leadership to determine the sales quota for every salesperson as well as the entire sales team. Decision-makers leverage predictive planning and what-if scenario planning to analyze multiple sales quota scenarios to make informed decisions regarding assigning sales quotas.
A sales quota is defined as the financial target that every salesperson, individually and the entire sales team collectively, must achieve within a specified period. Sales quotas are highly time-sensitive and can be divided into monthly, quarterly, half-yearly, and yearly targets.
Sales quotas are generally defined by sales leaders in terms of units sold, dollar amount or onboarding of a given number of new customers. In most cases, fulfilling or exceeding the sales quota earns a performance bonus for sales professionals.
A comprehensive sales planning process takes inputs from all sales professionals to set achievable quotas and then optimize the results based on data inputs. To complete the process, company leadership performs top-down planning to assign suitable quota targets to everyone in the sales department.
How to set up your sales quota
Getting the sales quota and sales territory planning right can offer a potential increase of 2% to 7% in sales without incorporating any other changes. Hence, companies must ensure that realistic sales quotas are assigned to salespersons, and if less than 80% are able to achieve the target, then it is vital to recalculate the quota.
Here are the important steps that must be followed to set up the sales quota correctly.
Define the baseline
Sales leaders must set realistic baselines to better comprehend the performance required from sales teams to satisfy the targets that the company must achieve. This baseline works as the minimum performance standards that salespersons should meet.
The best way to go about this process is by analyzing the revenues achieved by the sales team in the last financial year. This would help understand the minimum revenue required every month from each sales rep. Now, sales leaders must consider factors like seasonal variations, the size of the territory, the number of salespersons and others. The baseline for every salesperson must then be adjusted accordingly to bring it within the realm of possibility.
Though, it is vital that sales leaders must factor in the expected market growth to ensure that sales quotas are not set too low either. After all, the company must strive to grow every year to survive in competitive markets.
Begin at the bottom
A common mistake that most sales leaders make as a part of sales quota planning is taking a waterfall approach. Herein, sales quotas are set on the basis of the management team’s plans rather than the actual abilities of team members. This might result in setting up such quotas that might rather demotivate salespersons instead of motivating them.
Instead, sales leadership must take a bottom-up approach to sales quota planning. Sales leaders need to analyze past data to better understand the abilities of their team and then set the quotas accordingly. If the present workforce is unable to meet the targets, then the decision must be taken regarding either hiring new salespersons or upskilling the existing salespersons to perform better.
Fix Activity Targets
Once the optimal baseline quota has been defined, sales leadership sets the activity goals. This process involves creating a roadmap for the entire sales team to better comprehend the actions they must take to meet quotas. These actions can include making calls, sending emails, giving product demos etc.
After setting the quota, sales leadership must actively monitor the performance of every salesperson to ensure that the activity targets are being met.
Sales Quota vs Sales Goals vs Sales Targets
Sales quotas, sales targets, and sales goals are often confused for being alternative names of the same metric. These three are completely different concepts, with each being equally important for sales teams.
Sales quotas are an integral part of the planning process undertaken to assist salespersons in achieving special sales goals. Most organizations first define the total number of sales they want to achieve in a year. Then, sales leaders break down that number based on the number of sales that must be completed to achieve that number.
This number is then further divided by the number of sales that every salesperson must complete in the period to attain it. The number of sales and their monetary value would then be the quota for every salesperson. Commissions and incentives that salespersons are eligible for are usually based on the achievement of their sales quota.
Similar confusion prevails amongst many professionals when it comes to sales targets and sales quotas. As discussed, sales quotas are generally defined for individual salespersons, but sales targets are normally set for the entire sales team. Sales targets define the volume of deals sales teams must secure during a period to achieve their revenue goals. In fact, most salespersons use sales targets to better understand their sales goals and sales quotas and then how to achieve them.
Why is Sales Quota Planning important for 2023 and beyond?
The present era of business is the era of data. Modern companies undertake a data-based approach for sales quota planning to drive growth in 2023 and beyond. This approach has helped many businesses become 6% more profitable and 5% more efficient.
The sheer importance of data-driven sales quota planning makes it an indispensable part of the strategy for sales leaders via these factors:
- Employee motivation: Setting unrealistic quotas would lead to lowering the motivation levels of employees. It is essential that sales leaders analyze historical data and create their forecasts after considering the prevailing market situation. Sales quota planning must go together with sales territory planning to ensure that the morale of salespersons is high. This would eventually motivate them to go for the assigned sales quotas.
- Territory Planning: Unless and until the leadership optimizes its sales territories, it is virtually impossible for the sales team to achieve their quotas. Sales quota planning helps sales leadership better understand the need for redefining or redesigning sales territories based on the prevailing circumstances. Optimal sales territory planning holds the key to the success of salespersons.
- Resource Allocation: Optimal utilization of resources can only be ensured when there is the optimal allocation of resources. Salespersons need full support from the leadership in terms of resources to achieve their quotas. Sales quota planning helps sales leaders better understand the resources that every salesperson must be provided to achieve the desired numbers.
- Clarity and Transparency: Sales quota planning brings much-needed transparency to sales operations. When decisions are based on data instead of guesswork, the chances of errors in quota setting are minimized. Moreover, individual sales team members are highly involved in the planning process, so they are clear about the actions they must take to achieve their sales quotas.
Improving your Sales Quota Planning process
The sales quota planning process is never the end; rather, it is an ongoing process that must always be optimized. This is where the need for a sales planning platform comes to the fore. With huge volumes of data available across sources, sales leaders are virtually drowning in opportunity. What they need is a software tool that helps them make the most of this data.
With the help of a sales planning platform, sales leaders are in a great position to optimize their sales quota planning. With the help of data analysis from such a platform, the leaders are in a better position to draw meaningful insights that can optimize the sales quota planning process.
Sales leaders can better understand the impact of various factors on sales quotas by running multiple what-if scenarios. Moreover, by creating a single source of truth, these platforms ensure consistency in the decision-making process. Therefore, companies must integrate a sales planning tool with their existing systems to better manage their salespersons and accurately determine their sales quotas.