If You Can’t Measure It You Can’t Manage It

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May 5, 2014
If You Can’t Measure It You Can’t Manage It

My best friend is the one who brings out the best in me…. Henry Ford

Hello and welcome, just spent a quality week in Sydney.. This week I am off to New Delhi and Frankfurt on different projects with Samsung. The key focus on all of the work is around sales productivity, effectiveness and performance.

Over the past few weeks we have discussed account planning and territory planning amongst other topics. Lets go further and try to understand why setting a sales quota is a good thing.

A quota, or sales goal, is a set amount of selling that a salesperson is expected to meet over a given time frame. Most companies set quotas for their salespeople, as a quota enables the salesperson and the management team to measure success.  It also allows management and the sales person to determine what commissions are due. You can’t argue with figures right!

at1While quotas are widespread in the sales industry, the form they take can vary considerably from company to company. A small business with a handful of salespeople and one or two products to sell will probably set a very simple quota, on the other hand, a large company with thousands of sales reps and many different products or services may set a very complex quota consisting of different targets for different products. In the case of a large company with offices spread out over a wide geographic area, goals for each office will probably differ based on their perceived potential.

Quarterly quotas are probably the most common. A quarterly period gives salespeople plenty of time to align their sales strategies to their goals and set a sales plan in motion.

So is quota setting an art or a science? Realistically effective quota setting is a combination of both art and science.  According to The Sales Leadership Forum 84% of sales organisations say poorly-set quotas put the motivation of the sales force at risk; 59% say that not fixing the quota setting process contributes to missed targets for the business, and one in three companies said high sales turnover was a potential consequence of poor quotas.
at2It is critical to make sure the quota setting process works correctly because it is so closely tied to both the motivation of the sales organization and to the attainment of the company’s objectives. Over the long term, a broken quota-setting process can erode the sales performance and put the business at a disadvantage. It can contribute to low morale, suspicion and derision of the management. It’s important that companies examine their quota setting process.

Setting and allocating quotas effectively will ensure sales compensation is motivational and helps sales management effectively align sales costs and revenue as well as increasing the predictability of the company meeting its business objectives and that benefits everyone.

Sales executives will usually set quotas based on historical data combined with their projections of how their industry will do in the near future. Unfortunately, even the best forecasting models can turn out to be far off from reality, especially when the marketplace goes through sudden and unexpected changes. For example, if a specific industry is rocked by a scandal or if technology makes a particular product obsolete, then the salespeople are not going to have much of a chance of meeting quotas that did not take those factors into consideration. In these cases, sales managers would be advised to adjust their commissions pay outs to relieve some of the sales team’s pain, assuming that the salespeople clearly put in their best efforts.

AT3As a rule of thumb, many sales experts say that a quota is fair if about 80% of the salespeople can meet it during most quota periods. If less than 80% of the sales team is meeting quota most of the time, the numbers should be adjusted down in the future.

If your entire Sales Team always meets or exceeds their quota, then they aren’t being challenged enough.

Til’ the next time…. Andrew

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