Learn About Sales Quotas

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A quota, or sales goal, is a set amount of selling that a salesperson is expected to meet over a given time frame. Nearly all companies set quotas for their salespeople, as a quota both ensures that a salesperson knows what is expected of him and is the easiest way to determine what commissions are due for that salesperson.

Quotas Vary Greatly From Company to Company

While quotas are widespread in the sales industry, the form they take can vary quite a bit from company to company.

A small business with a handful of salespeople and one or two products to sell will probably set a very simple quota – for example, the goal might be for each salesperson to sell $100,000 worth of products per calendar quarter.

On the other hand, a large company with thousands of sales reps and many different products or services may set a very complex quota consisting of different targets for different products – 100 units of product A, 50 units of service B, $1,000 worth of add-on services such as warranties, and so on.

Goals Differ Based on Perceived Potential

In the case of a large company with offices spread out over a wide geographic area, goals for each office will probably differ based on their perceived potential. In other words, an office that traditionally makes a lot of sales and has lots of market potential will have higher goals for its salespeople than one in an area with few potential customers.

Quotas may be set for time periods ranging from weekly to yearly, but quarterly quotas are probably the most common. A quarterly period gives salespeople plenty of time to align their sales strategies to their goals and set a sales plan in motion. Quarterly quotas also help companies take product seasonality into consideration.

If a particular product sells much better in summer than in winter, then the company can have a higher quota in Q3 than it does in Q4 and make more revenue without putting too much strain on the sales team.

Quotas Set Based On Historical Data

Sales executives will usually set quotas based on historical data combined with their projections of how their industry will do in the near future. Unfortunately, even the best forecasting models can turn out to be far off from reality, especially when the marketplace goes through sudden and unexpected changes.

For example, if a specific industry is rocked by a scandal or if technology makes a particular product obsolete, then the salespeople are not going to have much of a chance of meeting quotas that did not take those factors into consideration. In these cases, sales managers would be advised to adjust their commission payouts to relieve some of the sales team's pain, assuming that the salespeople clearly put in their best efforts.

Commissions Usually Tied to Quotas

Commissions are usually tied to quotas in some fashion. Sometimes it's a simple correlation, such as a commissions structure that pays out 5% for every unit sold under quota and 10% after the salesperson meets his quota.

In other cases, companies might set up commissions based on complicated mathematical calculations that factor in the salesperson's performance in selling many different products.

Generally speaking, tying sales commissions to the amount of revenue that a salesperson brings in is a good way to fairly compensate the salesperson while keeping that compensation in line with how much money the company made from his efforts.

As a rule of thumb, many sales experts say that a quota is fair if about 80% of the salespeople can meet it during most quota periods. If less than 80% of the sales team is meeting quota most of the time, the numbers should be adjusted down in the future – but if the entire team always meets or exceeds their quota, then they aren't being challenged enough.