Sales Quota - Principles and Methodology

A quota is an expected performance objective or is a sales assignments or goal to

be achieved in a specific period. Sales quotas are routinely assigned to the sales
units.

A Sales Quota is also seen as a standardized method of evaluating the

effectiveness and performance of salespersons. A quota is based on sales. There is
a difference between a quota and potential.

A Sales potential is the maximum share of the market demand that a firm can
obtain under the legal environment. A sales forecast is an estimate of what a firm
expects to sell during a time using a marketing plan. Hence, sales forecasts can be
set above, below the sales forecast.

Importance of a sales quota

1. The Sales managers use the sales quota for motivating salespersons. As
they believe in linking it to the rewards, it will fetch them. Achievement of
quota also fetched them feedback regarding their performance. In multi-
product situations, the salespersons will know where to direct their energies
to which sectors for achieving the sales quota target.

2. Quotas lead organizations by Management by Exception. This concept

means that good performers who achieve their quotas are found to see their
interests are taken care by the organization. Similarly poorly performing
salespersons will see that they will receive attention from their superiors in
this matter.

3. Sales quota also helps in giving directions to the salespersons efforts.

Its seen in organizations that attaining sales quotas are linked to incentives
and rewards. They also help in achieving a means for measuring performance
through the measure of individual activity.

Principles of Quota Setting

a. Setting of sales quotas is a challenge to the sales manager and should be

handled with precision and adequate skill.
b. Objectivity to be observed while fixing quotas and should be based on figures
drawn from the market: - the recent market trends should be analyzed while
setting a quota.
c. It must be simple to understand both to the manager and the sales people
d. Quotas set above the achievable limit often de-motivate and result in high
turnover in the organization.
e. It must be flexible to the prevailing and emerging market conditions.
f. There should be a level of definiteness. It means that quotas must be specific
and the purpose for setting such quotas must be well defined.
g. It should be either fixed in terms of geographic territory, on money value, or
based on units of product.
h. A participatory quota setting procedure followed jointly by the sales manager
and sales people together serves as a tool of motivation and leads to the
realization of the organizational sales goals.
A sales quota must satisfy the SMART principle. It must be Smart, Measurable,
Attainable, Realistic and Time-Specific.

Selling by Objectives: - in this method, the sales manager starts to frame the selling
strategy for their respective units. Here sales units could be state, district, zone,
area etc. Selling by objective is achieved in two ways:-

a) Organization of the Sales Job.

b) Defining annual objectives in important areas.

Organization of the Sales Job: - A sales manager must keep in mind four key
areas in which responsibility can be assigned for every salesperson. They are
[Territory Management, Account Management, Call Management and Self
Management].

1. Territory Management: - a geographical area assigned to a salesperson.

Sales managers form territories to be covered by salespersons. It involves
study of similar competitors, potential of customers, expenses, development
of leads and prospects.

2. Account Management: - this involves management of each

customer/account based on his potential. The BCG method of classifying
customers/accounts into (Stars, Cash Cows, Problem child and Dogs) is
followed here.

3. Call Management: - the call norms. i.e:- the approach or methodology of a

salesperson is seen here. The nature of the account is taken into
consideration here. The Sales Manger must ensure that :-

Is the salesperson applying adequate selling techniques during presentation?

Is he making repetitive mistakes

Is he knowledgeable enough to respond to customer queries

Has he anticipated the objections

Is he knowledgeable enough to explain the complexity of the product?

4. Self-Management:- though the salesperson is seen as the foundation block of

the sales organization, his performance decides the fate of the organization. Issues
like dress. Style of the salesperson is seen here. Communication skills, memory,
logical speaking skills are also discussed here.

Defining annual Objectives: - There are 3 kinds of objectives for the future period
that can be set by a sales Manager for a sales person. The objectives are

a. Regular and Recurring objectives : - all regular objectives which are required
to be performed by a sales person on a routine basis. This is the minimum set of
tasks, which must be completed. Achieving this leads to satisfactory results.
b. Problem-Solving objectives : - solving any kinds of problems or challenges
faced by the sales team in the regular course of the job. Completing this leads to
excellent performance.

c. Creative objectives : - thinking out of the box and achieving deadlines and
solving problems in unconventional ways. Completing these results in superior
performance evaluation.

Individual Goal setting form

Procedure for setting a Sales Quota: - there are three ways.

a) Schedule Planning: In this phase, the sales manager spends time with the
sales persons. New recruits usually adopt this method. All doubts regarding
the nature of their job, incentives, compensation etc are discussed here. It is
similar to an orientation program where any clarifications are answered.

b) Conferencing with Salespersons-[Discussions involving territory, account,

call management and self-management]. All three classes of objectives
should also be covered.

c) The final step is to prepare a written summary of the goals agreed upon.
This serves as a document of understanding for all purposes.

Types of Sales Quota

1. Sales Volume Quota. : - The annual quota is set for the year and is broken
into specific times like quarters, months and weeks. This is called break down
approach. Once annual target is known, he can plan his targets for different
periods. In many cases, these are not on specific times as they maybe varying.
The salesperson can fix the sales quotas based on the total product line, the
existing product lines, new product lines or territories.
Organizations can make sales forecasts based on the above 3 units, which is easier
for them to establish the sales quota. The sales volume quota is of 3 kinds: -
monetary sales volume quota, unit sales volume quota and points sales
volume quota.

Organizations selling a broad product line set sales volume quota in monetary
terms rather than in terms of units of product.

The second method is quota setting by volumes. This method is used in 2

situations:-

a) When the prices of products are expected to fluctuate considerably during

the quota period.

b) When companies with a narrow product line sell at a price that fluctuates
little during the quota period.

The Third method is the setting up of sales volume quota in terms of points.
Organizations use sales volume expressed in points, into which money or unit
sales or both can be converted as desired by the sales manager.

Sales budget quota :- are set for various units by the organization in order to
control expenses.(expense quota) , net profits (profit quota).The main
intention of setting a budget quota is to make clear to the salespeople that they
know that responsibilities of a job are not only getting the sales volume but also
getting sales volume. It means that the cost to acquire customers should be less
than the revenue generated from those new customers.

The expense quota ensures that the salespeople limit their expenses in line with
the sales volume and control cost to acquire customers.

The profit quota can be set on gross margin or on net profits. Firms set profit
quota along with the sales volume quota as profits are necessary for surviving and
excelling in business.

Sales Activity Quota: - the activity of a salesperson has direct influence on the
sales of the organization. The salesperson is not always involved in sales realization.
Here the quota can be fixed on the activity a salesperson has to perform, rather
than the outcome. In addition to the direct sales activity, the salesperson is
expected to do some non-selling activity and the quota can be a mix of those
activities. Activities quota set objectives for job-related duties, which help the
salespeople in achieving their performance targets.

Combination quota: - many organizations use a combination of the above quotas. It

is used to control sales force performance based on selling and non-selling
activities. E.g.:- achieving a sales target of 1000 units along with developing 20 new
key accounts, identifying 100 prospects and bringing back 50 lost customers.
Methods of setting Sales Quota

Quotas are based on Sales Forecasts and Potential: - companies set quotas based
on sales forecasts and sales potential of the market and the territory. Organizations
forecast the total sales or volume for the entire market, which is broken into
territories and later to individual salespersons.

Quotas based on Forecast: - this is usually followed by small companies, which

establish quota based on their past performance in geographical areas without
regard to the sales potential.

Quotas based on Past sales or experience: - some companies are not in a position to
estimate the sales in advance for the total market. In such situations, companies
collect sales data of the previous years, average them out for each geographic
territory and add a random percentage for next years quota.

Quotas based on executive judgment: - this method is followed when there is little
or no information available about the market. In such cases, managers have to
realty on experience for making future predictions. Analyzing facts, figures for
different markets and then deciding to set the quota for the territory, salespersons
and intermediaries.

Quotas bases on salespeople judgment.

Quotas based on Compensation.