Setting a sales quota is probably the most stressful thing you have to do in sales.
Let me rephrase this quickly. This doesn’t necessarily mean it’s the hardest thing, it just means that it causes the most stress (besides maybe closing of a deal).
Underperforming is a fear we all have, so I decided to do something about it and set you free of the fear you shouldn’t have in the first place.
The terms such as sales quota have been thrown around making people nervous without any apparent reason. That’s where all the stigma comes from, and today we’re going to dissect it and see how to successfully set a sales quota.
Besides that, we’re going to take a look at some of the best tips and tricks out there for you when setting a sales quota and answer some questions like “What is sales quota and its types?”, and many more.
Now that you know what to expect and what we’re going to cover in this article, let’s dive right in and see what I’ve prepared for you!
Sales Quota And Its Types
Like with almost everything in sales, there are different types of quotas and every single one of those types is, in a way, significantly different from the rest of them.
That’s why it seems to me that it’s important to tell you about sales quotas and the types there are, so you have a better understanding of what I’m going to talk about in the rest of this article.
Before I jump in and start talking about different types of sales quotas, let’s take a look at the sales quota definition in order to better understand the article you’re about to read.
A sales quota is the performance expectation that sellers must achieve during a set time period to earn their target incentive pay.
As you can see, the definition is quite simple, but the work that is mandatory to set a quota and reach it is what’s most important here.
Let’s get down to business and see what types of sales quotas we’re going to talk about today.
But, before I jump into every type of quota individually, I’ve listed them for your convenience, so you know in which order I’ll be talking about types of quota.
- Sales Volume Quota
- Profit Quotas
- Expense Quotas
- Activity Quotas
Now that you know which quotas I’m going to tell you about today, let’s talk about what is sales quota and its types?
Sales Volume Quota
This type of sales quota is always set for a given year. This is important since quotas can be set for a month, a four-month period, half a year, or a year.
A volume quota is a sales quota that rewards sales reps for the number of deals or qualified leads they generate, regardless of the deal size. This is one of the more “laid-back” quotas since it doesn’t require much to be reached.
Now, you might have noticed that it says deals OR qualified leads they generate, and that’s not the same thing.
Deals are what sales reps are looking for, and that’s the ultimate goal of sales, but being the most important thing doesn’t mean that it’s the only important thing in sales.
Qualified leads are quite important since they can easily be turned into deals and that’s something that is also very important. There wouldn’t be deals without qualified leads, and that’s why this type of sales quota also looks at the number of qualified leads in a year.
This quota should be set depending on the number of deals your company usually gets in a year plus a percent of growth that you’d like to reach. So, if we put it in a mathematical way, it will look like this:
Yearly sales + % Of Desired Growth = Sales Volume Quota
Profit Quota
As the name says, this quota is purely focused on the profit sales reps make. At the same time, this means that this quota is purely focused on the closed deals that are made since those are the only ones that bring in profit and revenue.
It can be set on longer or shorter periods of time, but most of the time it’s set for a period of 4 or 6 months or a year.
This is a simple quota of how much a salesperson or a sales rep should bring in in a limited time frame by selling what your company is offering.
Being the quota that’s mostly focused on money, it’s the most stressful quota of them all, and you should be careful when setting it. Realism is the most important here since you can’t set a goal or a quota that can’t be reached with current resources.
This type of quota can be set for every sales rep individually, or it can be set to be the same for everyone. You should keep in mind the price of the product or service you’re selling, the capacity of your salesmen, and the current market developments.
If the demand for what you’re selling is low, it means you should lower your profit quota to match, fit, and realistically depict the situation of the market.
Expense Quota
On the completely opposite side of the spectrum from profit quota is the expense quota, and as the name says, it’s the quota of the expenses your salespeople are going to make.
Sales, like any other job, requires resources in order to function. You have to keep in mind how much it costs to be in sales and put it on paper. In those simple words, you can find the definition of expense quota.
Setting this quota for smaller time periods such as 3 or 4 months (maximum of 6 months) is smart since expenses are likely to change, for better or for worse, and you need to be ready for that.
If your sales reps spend less money than you set for the expense quota that’s an amazing reason for fixing your expense quota, but if they’re spending more, you also need to fix it and adapt it to the current expenses.
It should always be your goal to have fewer expenses, but you have to keep in mind that if your company grows, your expenses will also grow. If you see an increase in monthly or yearly revenue, don’t be afraid to set a higher expense quota to increase the growth of your company!
Activity Quota
An activity quota is a minimum level of sales-oriented actions that must be met by a salesperson during a given time period. This isn’t related to profit or the loss of it, but it’s a matter of the activity of your sales reps and what they’re doing in order to reach other quotas you’ve set.
For example, if you raise the activity quota, you should expect an increase in the profit quota as well, since activity almost always leads to more profit and revenue.
This is the most essential quota you can set since it dictates how much your sales reps need to work in order to reach the desired outcome.
Activity quota is probably the hardest one to set since you can’t set it in a precise manner where you can put a fixed number of calls, emails, or any kind of contact for that matter for your sales reps to do.
This type of quota is set loosely but it needs to be followed and reached nonetheless.
Setting The Quotas
Now that you know what’s important for setting these 4 most important types of sales quotas, let’s take a look at some of the most important universal aspects of setting sales quotas.
First of all, you have to understand that quotas aren’t something that can be reached with great precision.
For example, if you set a quota of X and one of your salespeople reaches a result of X – 1% you shouldn’t look at that as a failure regardless of them not technically reaching the quota you set, especially if you’re talking about the activity quota.
On the other end of that spectrum, if we also assume that you set a quota of X and one of your salespeople reaches a result of X + 3% that doesn’t mean that you should automatically set a higher quota.
That brings me to the most important thing when setting a sales quota – Monitoring.
If you monitor the work of your sales department, you’ll clearly see what quotas you should set. If you have a steady stream of growth over the past few quarters, half-year periods, or years, that means that your quotas should rise a little.
If you see stagnation, you should probably keep the quotas as they are or slightly decrease them for a short period of time to see what will happen.
In case your results drop along with the quotas, you should raise them since it means that your sales department needs more resources in order to bring in better results.
The Easiest Guide To Setting Sales Quotas
Setting a sales quota is always stressful. That’s why I’ve made it my mission to make it easier for all of you.
I hope that after looking at the four most popular sales quotas, you have a better understanding of how and when to set them in order to get the best results possible.
You should also keep in mind that statistics, data, and intel that you’ve gathered about the sales of your company in the past play a major role and are the key determinant when setting a new quota, regardless of what quota we’re talking about.
In addition to that, you should speak to your sales reps, keep an eye on the market, and be proactive in your work.
The market sets all the playing rules and you are forced to abide by them and play by them, so don’t lose track of those rules.
If the demand is low, you shouldn’t boost your quotas, but if the demand is high and you’re meeting your quotas 50% faster than you should, that’s a good reason to raise the quotas.
All-in-all, you now have all the knowledge that you need to successfully set your quotas and watch the profits rise!