It’s that time of the year when numbers become important. You begin to search for good news on your leaderboard. While your sales team has sold enough units to register a strong financial performance, most of your reps are faltering at meeting one goal: their sales quotas.
You wonder if you should spare the managers and SDRs on your team this quarter. Or should you come down strongly because the same story has been on repeat for a few quarters now?
If your sales organization has been consistently failing to achieve sales quotas, then today’s article has you covered. You’ll learn the importance of setting challenging (but attainable) sales quotas, their types, methods of setting them, and strategies you can use to ensure they are met. Let’s begin by looking at the basics of sales quotas.
Introduction to sales quotas: What are they, and why do you need to set them?
Let’s begin with defining sales quotas, establish why you need to care about them, and identify top objectives for setting them.
What is a sales quota?
A sales quota is a sales goal restricted for a given period, generally ranging from a month to a quarter. It’s set by the company leadership for a product line, a specific region, a sales team, or an individual rep. Achieving sales quota generally means that salespeople receive some kind of financial reward on top of their usual commissions.
Why are sales quotas important?
Sales quotas not only help in assessing the health of your sales team, but they are also important because:
- You can become more profitable: Sales quotas facilitate data-driven decision making that, on average, can make your company 5% more productive and 6% more profitable than your competitors.
- Motivate your employees: If the sales quotas you set for your sales reps are challenging yet attainable, then it will motivate them to perform at their best. Setting proper stretch goals can create a lot of momentum and energy in your organization.
Three main objectives of sales quota goal setting
Here are the three main objectives for setting sales quota for your reps and managers.
1. Evaluate the performance of your sales team
In their sales performance report, CSO Insights found that sales organizations were hitting their revenue goals (moving from 88.9% to 93.9% in the last year). However, it wasn’t because of their sales performance.
The quota attainment numbers hovered around 54.3% (only a slight increase from 53.0% last year). As per Seleste Lunsford, the Chief Research Officer of CSO Insights: “...most organizations reported that they were making their overall numbers because the economy was good.”
But sales metrics like conversion rates, quota attainment, and win rates were faltering. In a healthy economy, your revenue goals might get met even without an annual improvement performance of your sales team. Sales quotas let you dissect how your reps are really performing.
2. Improving sales productivity
Your sales reps aren’t machines that can dial numbers for 12 hours every day and function on little sleep. If you identify poor sales performance, you need to re-evaluate your sales process and rethink your sales quota numbers.
Appropriate compensation for beating sales quota will incentivize your reps to work at the peak of their energies and hit their numbers. It’s important to remain realistic so that your sales reps and managers don’t get burnt out.
3. Increasing your sales
By setting quotas and spotting the top-performing team members who meet them, you can set benchmarks. You can also identify the sales techniques that are working and try to replicate them across your sales organization.
Close CRM offers you real-time leaderboards based on any metric. So you can evaluate the individual performance of your sales reps and how the entire team is faring.
Instead of looking at the overall numbers, sales quotas allow you to identify the bottlenecks, transform your sales organization, and thereby increase your sales.
Five types of sales quotas to establish for your sales team
Now that you’ve had the skinny on sales quotas let’s look at their five different types. Remember that every sales organization has varied issues, so quota that will work for you will be based on what you need to improve in your team.
1. Revenue/profit quota
One of the most common types of quotas is based on the revenue that the sales team is expected to generate in a specified time frame. Your reps can reverse engineer the number of product units or subscriptions they need to sell to earn these revenue numbers.
If a company sells products or services with different profit margins, then this quota could also be based on the gross revenue generated from the performance of a sales organization. This is called profit quota. And it makes both the top-line numbers and the associated cost of selling as important. However, it incentivizes your sales staff to sell items with higher profit margins.
2. Activity quota
If you want to ensure that your reps are well supported for closing business by other team members that aren’t directly involved in selling, then you can use activity quotas. It might make more sense for companies with long sales cycles.
As evident by its name, it incentivizes sales reps to perform sales activities like scheduling meetings, making phone calls, and sending follow up emails (which you can easily automate with the email sequences feature we've built into our sales CRM, or do manually with our follow-up reminders).
You can extend it to activities that don’t directly translate into sales but ensure that your reps enhance their sales outreach. For example, you can schedule specific times in your calendar to perform certain sales tasks in Close. This will make it easier for you and your team to predict the number of people you can reach any given week.
3. Volume quota
Under this quota, you can motivate your sales reps to sell as many product units as possible in a specified period (generally a year). Depending on the kind of business, it could also be registering as many users or generating as much revenue as possible.
If you’re a venture-funded startup focused on top-line revenue growth, then volume quota might be ideal for your sales organization.
4. Forecast quota
Based on the historical sales data of specific territories, the past performance of your sales team and reps, and your expected business growth, you can also set a forecast quota. It’s the financial goal that your sales team member or territory needs to hit in a specified period (generally a month or a quarter).
Hate the idea of dealing with spreadsheets and just generally not a numbers person? That's no excuse to avoid discipline in forecasting. We've made it easy for you to get started with our free sales forecasting templates.
5. Combination quota
Many organizations prefer using a combination of different quotas. For instance, a sales manager can set a volume quota on the top of an activity quota. So reps need to make a certain number of calls every week while closing a certain number of deals.
It’s a great way to provide smaller milestones to make your team achieve their quotas. Your sales reps are hence focused on quality as well as quantity in their sales process. But don’t combine lots of different quotas as it will confuse your sales team and the sales reps will lose focus of what’s important.
Four methods of setting sales quotas to meet your sales goals
Do you follow the approach of adding 10% to your last year’s goal for setting your sales quotas? Then you’re not doing it right. Here are four methods for setting sales quota. You can use the one that fits your organization, depending on the market and the types of your accounts.
Method 1: Past performance
If you feel your last year’s performance can predict the future, then you can rely on the past performance method. It calls for taking your sales numbers from last year as the base and increasing them by a certain percentage (dependent on the market conditions, competition, and the like).
Once the sales leader makes an estimate, it’s divided into sales quotas for every division, team, and individual reps. For markets with high potential, the past performance method is a great fit. However, it isn’t the best in saturated and competitive markets.
Method 2: Market-opportunity
Under this method, you can combine historical info with characteristics of the market. You start with the opportunity existent in an account and use a larger predictive model to estimate the potential in a territory. For instance, if you’re selling software to government agencies, then the headcount of the organization might correlate with the potential revenue you can make.
Method 3: Top management downward
Guesswork isn’t ideal in sales. However, sometimes it makes sense for the top management to estimate the total sales for the next year (especially during new business development situations). Executives calculate numbers based on market conditions, financial goals, and the projected growth of the company.
Image source: Salesbenchmarkindex.com
They are then broken down by sales managers for individual reps based on their gut feelings and mathematics.
In this method, it’s important to not let internal politics and overambitious goals dictate the quotas assignment. Collaborate and get insights from your front-line sales managers and SDRs to get an understanding of the promising territories as well as realistic quota numbers based on their selling abilities.
Method 4: Bottom-up
The bottom-up approach starts with the historical performance of every sales rep. Once you know the reasonable number of deals your sales organization can close, you can consider the new sales quota at the upper bound of the ability of your sales reps.
Close CRM provides you an overview of the sales activities, so sales managers know the typical closing rates of their reps, and they can forecast the quota for the coming period based on it.
Look interesting? Start using Close today for free with our 14 day trial.
You can also combine the above methods to arrive at the final overall sales quota estimates. Remember though: come up with achievable and reasonable numbers that keep your sales organization as well as the management happy.
What to do when you’re not making quota?
The 2019 Sales Performance by CSO Insights found that:
- merely 29.9% of the revenue came from new accounts,
- and only 47.3% of forecasted deals were closed.
The consistent substandard performance calls for the attention of sales leaders. If you’re in the same boat, here are a few strategies you can experiment with to ensure your sales reps consistently hit their sales quotas.
Generate more qualified leads
For the last four years of the CSO survey, improving lead generation has been a top objective of sales leaders. Yet “inability to generate enough qualified leads” was also cited as the second biggest challenge. The reason probably is that salespeople are still generating the majority of the leads.
The survey goes further to establish poor alignment between sales and marketing. Indeed, even the definition of a lead is mostly not agreed between the two departments.
Sales and marketing need to agree on a process for nurturing their leads. Their goals should be in sync, and the communication between them should be consistent. I’ve already written and talked about the importance of sales and marketing getting their shit together.
Pro tip: If you don’t have enough leads to call right now, then a quick executable tactic you can begin with is cold emailing. It’s still effective in initiating conversations with prospective customers. Here are our proven cold email templates you can get started with.
Speak to more prospects
Cold calling more prospects is a no brainer for generating more leads and closing more deals. Indeed a well-optimized workflow paired with powerful features of Close CRM (like our built-in predictive dialer) can help you make 300+ calls every day.
However, what if you’re dialing as many numbers as possible but not actually speaking to more prospects? There’s a limited amount of numbers you can dial every day, so you also need to focus on reaching more people.
To move through large lead sets, start leveraging sales automation for your team. It ensures that your reps spend more time on activities that actually help close deals, rather than administrative busywork. With our built in sales dialers, you get to engage with real people through calls that get answered instead of dialing and waiting for prospects to pick up.
Improve your sales call script
It’s one thing to get on more cold calls and reach more people, but unless your reps are prepared, their conversion rates will be low. I’m sure your reps must already be using a sales call script to structure their pitches and polish their process. If you aren’t, then here’s a free template that you can use to get started.
If your reps are already using call scripts, I want to remind you that they need to be managed, maintained, and updated. So ask your sales reps to get back to the drawing board and integrate the changes in your product and the market in their call scripts.
Involve your whole sales team to share their successes and insights from calls to come up with new creative ideas. Up-to-date scripts can substantially elevate the overall effectiveness of your sales team! You can also check out the sales call checklists I’ve created for reviewing the performance of your junior reps here and senior reps here.
Improve objection handling skills
Your reps will mostly end up with difficult prospects that tell you they are not interested in buying right now. Or they will object on your price, your features, and the like. This is also good news as you got a prospect interested enough to engage with you (they could have always turned a blind eye!)
From there, it’s about training your reps to learn more about the needs of their leads. You want your SDRs to remain attentive on their calls so that they can later communicate the value of your product in a better way.
It starts with creating an objection management document listing all the common objections that your reps have run into in your industry. Alongside they will write down short answers, get feedback on them from ten or more people, and then learn the responses after modification.
I’ve shared 40+ examples, tactics, and rebuttals on overcoming sales objections here that your sales team can use to upgrade their selling game and ensure their sales conversations move forward.
Don’t let prospects go MIA
Many deals are lost because the prospect goes silent, and the sales rep gives up engaging after two to three re-engaging attempts. There are various reasons a lead might go dark, including a change of leadership, loss of budget for the project, and a more fitting competitor.
For where you already had a decent conversation, you should follow up to gain context of the situation and share updates about your product. Make sure to follow up like the best sales teams in the world do. Sometimes it might even take 41 emails and voicemails to close a deal!
Stay on top of the sales pipeline
More opportunities in your sales pipeline lead to more revenue for your company every month. They help you get some context of the current deals, better understand the performance of your SDRs, know the sales forecasts that are off, and manage the expectations of your team.
In Close, you can use the Opportunities page to get an overview of the active deals during the week. Here’s the information you see on it.
- Number of opportunities
- Total value of deals
- Expected value
- Value of individual deals
- Confidence level
- Expected close date
You can click on a specific lead to get detailed information about the deal’s value, current challenges, and the like. However, I don’t recommend you to blindly rely on sales pipeline metrics, as they don’t provide any context.
We conduct sales pipeline review meetings every Monday at Close. And we recommend you do the same so that everyone on your team is on top of current obstacles and can brainstorm potential solutions.
Weekly meetings are also a great opportunity to clean up your pipeline and ensure that your data is up to date, coach your SDRs/managers, and share action items so that your team remains focused on meeting their sales quota.
Six sales quota templates, resources, and example to get your process started
Now that you’re equipped with all the necessary information on setting realistic sales quotas, it’s time to put the knowledge into action. Here are a few templates, resources, and an example for you.
Business analytics tool, Klipfolio, has compiled all the KPIs for sales teams. The above example shows sales quota attainment: the time it takes for a sales quota to be achieved.
How it will help you: You can get a basic introduction along with a practical example of sales quota attainment.
As a sales leader, it’s useful to know what’s coming down the pipeline and forecast your sales for a quarter. These compiled templates by us help dissect what your business will look like in the future.
How it will help you: There are 23+ templates in Word Doc, Excel, PDF, and Google Sheets formats with their best features. Any sales team with any kind of business can quickly get started with them.
The above excel sheet shows your top-performing sales reps and breaks down how they fared every quarter.
How it will help you: If you’re using Excel to maintain your sales dashboard, then this process of creating a clustered column chart will prove useful for quickly setting sales quotas.
The report card is based on a chapter from the book What Your CEO Needs to Know About Sales Compensation. It will help the C-suite create effective compensation for your sales team.
How it will help you: You can get a quick rundown of how your sales compensation plan fares by filling the card yourself and requesting each of your team members to do the same. You can then compare your results and decide the potential actions.
Whether you want to take a bottom-up or top-down approach, Yesware has created an easy quota calculator to crunch the numbers for you.
How it will help you: You can input the required data in their XLSX file to quickly find the quotas for every territory.
6. Volume Sales Quota Example
Mark is a sales rep for a SaaS company and has a sales quota to sell 50 subscriptions every month. While the pay structure might vary, he’s likely receiving a commission for every subscription he sells and a bonus on reaching his quota.
How it will help you: If you’re a SaaS that’s exclusively focused on achieving top-line numbers in a specific period, then you can take inspiration from the above example.
You can also explore the sales dashboard templates we’ve compiled here. Following the instructions in the article, you can design one that prioritizes sales quotas!
If you only look at your top-line revenue numbers, then the purpose of sales quota might not become apparent. However, if you delve deeper into comparing the actual deals your reps and managers closed vs. the forecasted business at the beginning of the year, you’ll understand its importance.
In this article, you learned about the various types of sales quotas, methods of setting one with templates, and strategies you can experiment with if you’re not meeting your quota.
As a sales leader, now you have all the resources to evaluate your sales systems, fix bottlenecks, and set your team up for success!
If you're looking to build and scale a winning sales team and process, we highly recommend grabbing our new book: The 2020 Startup Sales Playbook. It features the best sales tips and tactics around!