Sales quotas are targets given to each sales rep individually as well as for teams. Quotas can help measure performance, commission sales reps, and increase company revenue. Setting quotas is a lot more complex than just allotting targets to meet. It is based on sales volume, costs, profit, or other behaviours such as taking a number of appointments or calls. A quota can be deemed successful if about 80% or more of your team is able to achieve it.

When setting a quota, you must balance it with how well your team is performing and how hard they're working. The sales rep who makes the most sales gets paid the most, while the team who makes the most sales gets paid more. Based on how much of the quota has been met, sales commissions are paid out to the rep. 

What is a successful quota?

A sales quota that is 80% of the average market share is often what is most beneficial for a company’s health. Companies with smaller profit margins can benefit from such a quota as they tend to make more money when their teams meet the target. Quotas are considered successful when a rep is able to sell at least one out of every four leads to a prospect. Also, for sales rep teams, these numbers need to be set so they keep selling leads they receive and complete the tasks associated with them. The main reason people refuse to set up sales quotas is that it is sometimes seen as impossible to meet. This is completely false. 

Volume-based Sales Quota

This is the most common type of sales quota. A volume-based sales quota is based on the number of appointments that each rep can book. It is ideal for small businesses focusing on revenue growth. It is an easy quota to manage and can be effortlessly measured using common inventory or sales reports accessible in accounting software programs.

Profit-based Sales Quota

A profit-based quota can also be achieved by meeting or exceeding sales volume goals. You can set them up to reward specific sales reps for different achievements, such as generating the highest number of qualified leads or achieving certain sales goals. Make sure you are clear on how your sales reps will earn a certain percentage of their gross income, otherwise they may not meet their quotas. 

Activity-based Sales Quota

For a much more accurate way of setting sales quotas, try using an activity-based quota model. In an activity-based model, each rep has a specific goal that they can reach. Each goal will then be given a percentage of how close they get to reaching it. This model gives the team a clear idea of the performance of each rep, and the urgency to achieve the goals.

Cost-based Sales Quota

The cost-based sales quota is the least common type of quota. The objectives for the quota are usually money related, such as asking your sales reps to increase the amount of invoices they send to you. An additional benefit of this type of quota is that it can allow reps to earn more money when they’re able to sell more. Monetary quotas are a great way to reward high-performing sales reps for exceeding sales goals. These quotas could be achieved by forcing sales reps to achieve extremely low goals, or even sell at lower prices. Some companies assign a high commission percentage on all sales, as well as a bonus to the team when a certain number of invoices are sold.

How to set sales quotas that maximize performance?

Quotas should be set based on a regression. This helps sales reps work out their performance against the average performance of the company. It makes comparisons between reps less intense, and the averages change from month to month. It also keeps the objective of the quota realistic and achievable. Don’t be shocked to learn that 80% of your team will not achieve their quota of 20 appointments a day or calls a day. This means you should cut the quota by 20% for each week and month, reducing the demand on sales reps. It is also important to evaluate sales performance weekly and adjust quotas accordingly. You want to drive towards goals that are realistic for each sales rep. You don’t want to overwhelm your reps with targets that are impossible for them to achieve.

Conclusion

Sales quotas help sales managers to organize work and manage projects with sales reps. They are a great tool to motivate and lead your sales team. The strategy of setting sales quotas is still growing in popularity and businesses are finding that sales quotas help their sales team to perform and lead their sales teams to success.