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What is a Sales Quota?
A sales quota is a minimum sales target that a salesperson is assigned to achieve in the stipulated time period. They may be assigned to the sales team or any units of the sales firm and the targets are mostly quantitative that may be a specific number of sales close, number of new customers.
In other words, sales quotas are the quantitative sales objectives that a sales organization assigns to its sales organizational units. The sales organization units may be sales districts, sales personnel, sales teams, middlemen such as agents, wholesalers, and retailers.
Significant information is acquired from sales forecasts, market research, sales potentials, and other forecasts in order to exercise sales management duty and make the quota system effective. These are thoroughly examined, and a trade-off is determined.
The management then employs its expertise in soundly administrating quotas, based on its extensive management understanding. Quotas can be an excellent tool for directing and controlling sales operations in a systematic and cost-efficient manner if used correctly.
Sales quotas are fundamentally time-sensitive and are promised to get better compensation when they are reached. The time period is set for weekly, monthly, or even yearly but differ from company to company and sales objectives and ability of the company to its salespeople.
Objectives of Using Sales Quota
A sales manager is the one that is primarily involved in the use of sales quotas. The primary objectives of using sales quota are to exercise effective control over the performance of sales personnel. The sales manager, in a broader sense, wants to achieve the following objectives.
Measuring Territorial Sales Performance
By administrating sales quotas soundly, the sales manager wants to measure the sales performance of each sales unit of the organization. Here, is how:
- By setting standards of the performance (high, medium, low).
- By comparing the quotas assigned and the achievement of each unit.
- Finding out strengths and weaknesses of such comparison.
- And, if variations in terms of medium and lower achievement are found, the assigned quotas are reanalyzed and reinforced.
Obtaining Tighter Sales and Sales Expense Control
A well-set up quota proves to be a device for tighter sales and sales control. The sales manager wants to serve these two qualitative objectives very effectively. How?
- By reimbursing sales expenses only up to a certain percentage of sales volume.
- By expressing the expense quotas as a percentage of sales.
- Sometimes, by limiting expenses quotas to profit percentage of sales.
Motivating Desired Performance
Through well-set quotas, the sales management wants to motivate sales personnel and achieve their best to the levels assigned. Here, is how?
- Making Quotas Attainable.
- Recognizing sales personnel achievement.
- Using past experiences and if needed to boost some sales personnel motivation increasing quota so that they can show their extra skill and talent.
Using Sales Quotas in Connection with Sales Contests
Sales contests among sales personnel are one of the major devices for inspiring and motivating them. Sales companies use sales quotas to interlink sales contests. Here, is how?
- Making sales personnel feel they have more or less an equal chance of winning sales contests.
- Announcing awards on the percentage of quota fulfillment to develop the denominator “common denominator” feature.
- Making adjustments for differences among territories and sales personnel.
- Making provision of “special quotas” to stimulate special effort of salespeople that raise them above-average performance.
Importance of Sales Quota
A well-set up sales quota can contribute a lot to the sales management/company and sales organizational units/salespeople. Let us look, at the different ways they get benefited from these quotas.
Importance/Benefits to Sales Managers
Assessing Sales Performance of Organization Unit: Sales managers can quickly assess the strengths and weaknesses of each sales organization unit by assessing salespeople’s performance through allocated sales quotas. By discovering performance variations, sales managers might redesign/reset sales quotas.
Sales and Sales Expense Control: When establishing sales quotas, the setter takes into account a variety of elements, including the number and location of sales organization units, their sales strengths, sales transaction trends, and so on.
Sales managers get at the stage of determining sales quotas after a thorough examination of these criteria. Sales managers keep a close eye on sales expenditures after they’ve been assigned. As a result, they are able to meet sales objectives while maintaining the projected level of sales expenses.
Overall Sales Increase: Because of two primary reasons, sales managers in charge of overall sales growth succeed through well-defined sales quotas issued to sales organization units. The first is that sales quotas inspire high-value salespeople since quotas are set based on their capacity, talents, inventiveness, experience, and other factors.
The second point is that sales quotas are related to sales competitions. This enhances salespeople’s morale and encourages them to win sales competitions to improve their personal financial situation.
Importance/Benefits to Sales Organization Units/Sales Personnel
Enhancement of Individual Sales District/Territory Image: Sales districts/territories are evaluated based on their sales success, as previously stated. Their advantages and disadvantages are also identified.
High-performing sales districts are admired not only by sales managers but also by the rest of the company. This improves their pre-sales image in comparison to those who perform poorly or who fail to fulfill even their set sales goals.
Incentives and Motivation to Individual Salesperson: Individual salespeople and middlemen are given incentives based on well-matched sales quotas. It is no to hesitate to state that such quotas are only possible if these sales organizations’ strong performance is combined with a rewarding and sales recognizing system implemented by sales management.
The high-caliber sales unit will be motivated if this incentive system is used. This means people advance in their careers, earning more money and gaining not only recognition but also advancement.
Career advancement in the sense that some of these sales organization units may be promoted as sales in-charge, sales coordinator, sales monitor, and even a sales consultant at some point in the future.
Balance Between Time, Effort, and Performance of Individual Salespersons and Middlemen: When determining sales quotas for sales organization units, the manager analyzes which sales organization can reach a specific sales quota in the shortest amount of time while exerting the most amount of effort.
This planning is done by examining the strengths of particular sales organizations in these three primary areas. Their sales organization’s units can effortlessly balance their time, effort, and performance as a result of this. Setting sales quotas is almost unavoidably an ongoing activity. When a sales quota is successfully created for the first time, instant resets are assigned.
As a result, these sales organizations strive to improve their competence and talents over time by practicing under sales quotas. Finally, they are comfortable meeting their assigned/reassigned sales quotas.
Principles of Sales Quota Setting
While setting sales quotas for salespeople a sales manager should consider the principles or guidelines designed to make it more result-driven. The sales manager should follow these 7 following principles of sales quota setting.
- The sales quota should be specific and attainable in the stipulated time period.
- The sales quotas should be matching with the sales organization units (salespeople, intermediaries).
- Sales quotas should be cost-effective.
- Sales quotas should reflect the proper market information.
- Incentive providing and motivation oriented.
- Oriented to increase sales (volume and profit).
- And, should be re-enforceable.
How To Make Sales Quota Effective?
In this course, the main objective of the sales manager is to set a sales quota at the same time ensuring they must be effective to meet sales objectives.
Salespeople are the main tools since they are the ones who assume the responsibility of achieving sales quotas. A manager should consider the matches between his sales quotas goals and the effectiveness of his salespeople. In addition, the following idea may be remembered to make sales quota more effective.
- Quotas must match with the salespeople.
- The sales manager should have quality skills to set appropriate sales plans and quotas.
- Quotas should match the objectives of the firm and its resources.
- Quotas should be specific and possible to attain by the efforts of sales organizational units.
- Should have the quality to meet customers’ needs and satisfy them.
- Should have a proper place to get rewarded and motivated to salespeople.
- Quotas should be continuously improving to best meet the new trends and practices.
Summing Up… A sales quota hence is a targeted quantitative sales goal that a salesperson is assigned by the sales manager to accomplish which is packed by motivation, rewards, compensation, and other benefits which need to be achieved in the required period of time.