Even as automation has increased and machine learning has allowed us to sort and digest more data than ever before, a lot of sales organizations have encountered a troubling trend: attainment numbers are lagging.
For many organizations, things appear great on the surface: sales are up across the board, and revenue continues to climb. However, it turns out that a few superstar sales reps are keeping the whole company afloat while most of your sales team is floundering. While it may seem like half or even most of your team simply isn’t cut out for sales, the real answer is often more complex and nuanced.
To address this growing problem and help you set your sales managers and sales reps up for success, we will discuss the fundamental best practices of good quota setting and walk you through a high-level view of the quota setting process.
Setting Good Quotas: Transparency, Simplicity, Flexibility & Clarity are Key
Setting quotas is both an art and a science. Though different organizations use different acronyms to quantify their quota setting process, all processes aim to answer three fundamental questions:
- What is my goal? For example, your goal might be to grow revenue by 15% this year or bring in ten new accounts per sales rep this quarter.
- What is my number? How many deals do you need to close to meet your overarching goal? For example, in order to grow your revenue by 15% this year, you may need to close ten new deals per week or to meet your goal of ten new accounts per person this quarter, each sales rep may need to make a certain number of cold calls each day because only a small percentage of those calls will turn into leads or closed deals.
- What are we going after? Which companies are most likely to buy your product? Are those the organizations you are targeting, and are your efforts effective?
Clarity, transparency, and simplicity are at the heart of any good quota setting strategy: You need to be able to quickly and easily explain to your reps how you calculated these quotas and show them why these goals are fair.
To do this, you must be able to:
- Clarify the quota setting process
- Show your reps how you arrived at each quota
- Explain what factors and assumptions contributed to that quota
Long-term success depends on sales reps being able to understand how their goals are determined, know that the quotas you are setting for them are fair and reachable, and have a plan for reaching those goals.
Factors such as your different baselines, different products that are included in any given quota, products that are excluded from this quota or that quota, and team, sub-team, and individual quota numbers appear to add clarity and drive different behaviors but often end up muddying the waters instead.
Metrics are a great tool when used effectively, but organizations need to keep in mind that the best metrics are the ones that serve to motivate sales reps, not confuse them. The more variables you add to the quota setting process or the quota numbers themselves, the less productive sales reps tend to be because there are simply too many factors to consider. This constant mental juggling siphons creative thought and energy away from your overarching goals, distracting your sales reps and impacting their performance.
Calculating Reasonable Ramp Time
Sales managers also need to consider ramp time, which refers to how much time it takes for a new sales rep to become fully productive after they are first hired, including things such as initial product training, sales, coaching, and on-boarding. To set fair ramp times, you need to consider what assumptions you are basing this calculation on and really dig deep to determine if those assumptions are valid or not.
Insufficient ramp time is a recipe for disaster, so taking the time to invest in a solid approach to ramping up new hires and giving them sufficient time to settle into the role will pay long-term dividends in the form of increased productivity and higher sales.
The Importance of Consistency & Communication When Making Assumptions
When making assumptions about quotas or ramp times, you need to codify these assumptions in a central repository. Every manager approaches sales slightly differently and brings their own views and experiences to the table. While this diversity is an asset, it can be a detriment if each sales manager is working from a different set of assumptions when calculating quotas and ramp time.
Why You Need a Flexible Approach
Even the best-laid plans occasionally encounter obstacles, so a good approach to quota setting includes at least some degree of flexibility and the ability to adjust to shifting circumstances. COVID-19 hit a lot of businesses hard, forcing many companies to re-assess their quota expectations and adjust their numbers to ensure their quotas remained realistic.
You need to have clear rules around flexibility and provide managers with guidance so they can determine when a flexible approach is warranted.
Consider Your Sales Cycle When Adjusting Quotas
Every team’s quotas will adjust over time in response to factors such as market fluctuations or organizational realignments, but you need to make sure your managers are giving your sales team enough time to adjust accordingly. Many organizations like to change their sales goals every quarter, but you need to ensure you are giving your team enough time to ramp up to meet those new goals. Continually adjusting your quota and moving the goalposts can make it difficult for sales reps to meet their new targets, causing frustration and hindering productivity.
If you are going to shift sales goals every three months, make sure that is clearly communicated to your sales reps and give them as much of a heads-up as you can so they can prepare themselves appropriately.
Salary vs Commission: How Compensation Models Impact the Sales Process
Most sales operations and strategy employees are compensated on a salary basis, while most sales reps are compensated using a commissions model that calculates take-home pay based on how well quotas were met. As such, to sales reps, quotas are more than just a motivational tool: they directly impact how much money a sales rep earns each month.
Because quotas are so critical to the commission compensation model, sales reps, in particular, are very emotionally invested in ensuring their quotas have been fairly calculated and are attainable because missed quotas mean less money in their pockets. Simple, clearly explainable goals motivate sales reps to get out there and do what they do best, whereas too many variables can leave them feeling like they aren’t really in control, which is incredibly stressful when being in control and being able to meet your quotas determine how much you are going to get paid.
Clarity and transparency are vital: if a sales rep isn’t able to figure out how much they will be paid at the end of the month, or they feel their supervisors are setting unfair or unrealistic quotas, or they feel like they aren’t in control of how much money they earn, their performance will suffer dramatically and may push them to seek positions elsewhere.
Quota Setting: Guide & Best Practices
Evaluate Each Team’s Performance & Update Accordingly
There is an old saying in sales that rings true: If too many people are beating their sales quotas, your numbers are probably too low, and if too few people are meeting their sales quotas, then your numbers are probably too high. To account for this, you should consider evaluating each team’s numbers regularly (such as every quarter) and adjusting your quotas up or down accordingly.
Your Budget Needs to Keep Pace with Your Expectations
Typically, sales quotas are set from the top-down, with the finance team, CFO, or CEO determining revenue goals and allocating budget accordingly. The goal is to meet your quota (maximizing revenue) without spending more than you have to (minimizing costs), and the relationship between these two factors needs to be taken into account.
If you are dramatically increasing your quotas but not adjusting your budget upwards to accommodate that or are shrinking your budget while asking your sales reps to do more, you are not likely going to be able to meet those increased targets.
Change Your Perspective
Too many organizations continue to view sales as an expense, not an investment. Sales is inherently volatile, so you are likely to experience a lot of fluctuation on a week-by-week, month-by-month, or even quarter-by-quarter basis. Sales is a long-term game, so you can’t focus on short-term returns, especially if you are currently growing your business or developing new markets. Just like ramp-up time for new salespeople, breaking into new markets takes time, sometimes years.
It’s critical that you keep your long-term goals in mind when setting short-term quotas and look at the returns you can expect a year or even several years out, particularly when you are investing in a new market, launching a new product or service, or making other large changes to your goals. Factors such as whether you are dealing with a new market, mature market, or overly saturated market also need to be carefully considered when developing your long-term sales strategy and short-term quotas.
Goals Need to Be Clearly Identified & Documented
Once you have your numbers, it is vital that you identify the strategic initiatives you are trying to drive, write them down, and codify what steps you are going to take to try and achieve these targets. Writing down both your overarching goal and your plan is critical to ensure everyone is on the same page.
The Quota Setting Process: A Quick Guide
The quota setting process can be broken down into five broad steps:
- Determine your goal
- Evaluate your capacity
- Determine territories and account allocation
- Evaluate your product mix
- Assess your market penetration
Determine Your Goal
Once you have your top-down number from the executive team or your finance department, you will need to break that number down into your various business units or groups and figure out your sales strategy as well as team and individual quotas. You will also need to evaluate the current market you are targeting (developing, saturated, etc.) and factor that information in when codifying your goal.
Evaluate Your Capacity
Now that you have your overarching goal as well as individual quotas, you need to evaluate your capacity. You need to ensure you have enough sales reps available to meet your goals while also ensuring you don’t have more sales reps than you require.
You will also need to account for experience, as obviously more experienced salespeople are going to be better able to handle more accounts or higher-value accounts than new salespeople.
Most companies rely on the traditional approach to capacity planning, which is calculated using:
- The number of sales reps you have
- The number of hours each sales rep is available to work in a given week
- How many weeks each sales rep works per year
- Each sales rep’s individual closing ratio
- Each sales rep’s selling time (calculated as a percentage of their total hours worked)
However, this traditional approach rests on a lot of inaccurate assumptions and fails to take into account factors such as individual sales experience as well as territory and account allocation.
Not all territories are the same: some are more affluent, some are larger, some have more urban populations, etc., and each of these factors needs to be taken into account when assigning territories. The same goes for accounts: while it’s obvious that some accounts are more profitable than others, things like future growth should also be accounted for.
Some accounts may have specific needs that are best met by specific sales reps (for example, a healthcare provider would benefit from a sales rep who has experience in the healthcare system or has previously worked with a lot of healthcare providers). This leads into the next point, which is determining how your territories and accounts are going to be divided amongst your sales reps.
Determine Territories & Account Allocation
Now that you have enough sales reps to handle all of your accounts and territories, you need to determine how those territories and accounts are going to be divided up. Not all territories are equal, so sales rep experience, as well as things like local knowledge or industry or vertical-specific knowledge (such as the healthcare example above), should be factored in.
CRM data is also notoriously dirty, so you need to ensure you have a process in place to make sure you don’t have any unassigned accounts or underserved or missed territories.
Evaluate Your Product Mix
Not all products and services are equally easy to sell, and some may sell better than others. As such, you should be regularly evaluating your product mix to ensure that you are focusing on products that are selling best and digging into the root cause of floundering products or services.
Your product mix should also be considered when assigning sales territories and accounts since some sales reps may have more experience than others with particular products or groups of products.
Though more established companies can look to historical data to determine which products are likely to be successful, start-ups don’t have the luxury of past experience. As such, it is critical for sales managers and other decision-makers to listen to their sales reps to find out what products appear to be selling well and which are lagging behind as well as what strategies tend to work best for selling which products and which products remain popular among which verticals or industries.
Assess Your Market Penetration
Market penetration also impacts whether or not your sales quotas are realistic since obviously selling in a well-established, non-saturated market is easier than breaking into a new market or trying to stand out in an overly saturated market. Once again, established companies have a leg up over start-ups, who are launching new products and don’t yet have market penetration.
How Can Fullcast Help?
Good quotas depend on a lot of factors, but even the best thought-out strategy can fail if you don’t have the tools you need to get the job done. Fullcast’s platform allows you to quickly and easily get the information you need to set realistic quotas and support your sales reps and managers.
- Model what-if scenarios so you can review the impact of alternate strategies and gain valuable insight into your market
- Codify your best practices so you can rest assured that all of your sales managers and sales reps are on the same page.
For Sales Managers
- Self-serve means no more waiting, so you can quickly add and make changes to accounts, territories, coverage models, and quotas and stay agile.
- Quickly and easily set up territories and quotas for new hires so they can hit the ground running.
- Quickly and easily model the impact of changes, including territory moves, role changes, and quota changes on KPIs, without having to wade through piles of dense spreadsheets.
- Track productivity and performance at an individual, team, territory, or product level.
For Sales Strategists
- Quickly and easily build complex territory and segmentation models using our AI-powered engine.
- Design selling roles and coverage models easily, and push those models to Salesforce with a single click.
- Setup and collaborate on quota planning across your entire organization and evaluate MBOs and KSOs from a territory, team, or product perspective.
- Evaluate your workforce plan by building out your proposed organizational chart and easily comparing your current and future states.
Are you ready to take your quota planning to the next level? Book your Fullcast demo today!