What is a Sales Quota?
A sales quota is a predetermined volume of sales or earnings amount set by a company’s sales leadership team. These sales quotas are assigned by sales managers to an entire sales team or to specific representatives. There are many types of sales quotas.
Sales quotas allow a sales organization to encourage hunting for new audiences and enhance lead generation over a set period of time. Sales quotas allow a company’s management team to link remuneration to the revenue employees earn. Sales reps share in the profits if they reach a specified revenue level during a sales cycle.
Sales quotas and sales goals are not the same thing. A sales goal is usually an optimistic forecast based on previous results in the previous quarter or year. Forecasting is also involved in sales quotas, but these are usually set requirements connected to a sales representative’s payment structure. If a sales representative meets their sales performance quota in a specific time period, they are compensated for those sales efforts.
Examples and Types of Sales Quota
There are various types of Sales Quotas such as:
1. Revenue Quota
A revenue quota is a type of sales quota that is used to track total revenue against a given criterion. The Revenue Quota is the most basic sales quota, which is normally set for a quarter or a month. Sales reps must sell their products and services to generate a certain amount of income within a specified amount of time.
For example, each salesperson at an earphones company has a monthly revenue quota of $2,000 to meet. Manik has a list of new smartphone purchasers who may require new earbuds. He needs to sell earbuds to roughly 10 people to achieve his monthly quota, as his average sale is $200 per person. Vivek is employed in an electronics showroom. The majority of his customers are only interested in purchasing a single pair of earphones. His average transaction is $100 per customer, thus to reach his quota, he needs to close sales with at least 20 consumers.
2. Activity Quota
A sales quota based on activity is centered on the sales-oriented tasks that a salesperson must do during a specific time period. The sales staff is well-known for its ability to communicate. They have to communicate with customers for the majority of their work. This can range from making phone calls and sending emails to meeting with clients and completing paperwork. Establishing an activity quota ensures that the team will make a given number of calls to potential leads and/or submit a certain amount of emails to prospective customers. A representative’s responsibilities include acquiring new clients, concluding sales, and scheduling meetings. The goal of these events is to increase sales and track the sales reps’ efforts.
For instance, a cosmetics business has told its salesmen that they must make 15 phone calls every day to potential consumers. People that filled out a giveaway application at a local business exhibition are contacted by Steve. For every ten calls, this strategy resulted in one sale. Mike has a list of random names and phone numbers that he needs to call. For every 50 calls he makes, this method nets him about one sale. Steve and Mike have met their activity goal if they make at least 15 calls per day, regardless of how many sales they make.
3. Forecast Quota
Forecast quota is centered on the sales that a manager and his or her team are supposed to achieve in a given territory based on a prediction. This entails establishing a Quota based on previous results. You’ll need to know how old attempts worked, what results you’ve had in the past, how your market share has grown, and how your sales force has performed. Forecast quotas are often assigned based on prior performance after all of these criteria have been considered.
For example, a departmental store determines that its fourth-quarter net sales were $40,000. They established a $44,000 quota since they intend to boost revenues by 10% in the next quarter.
4. Volume-Based Quota
This sales quota is calculated based on the number of units sold and financial rewards received during a set period of time. It can be split down further to fit salespeople, product lines, branch offices, and locations, among other things. Reps are scheduled to close a particular number of agreements in a specified amount of time. This quota works a treat when your company’s market representation becomes a focus. This is perfect for both sales forecasting and rep activity monitoring.
Example: A console retailer has given salespeople the goal of selling 15 consoles per month. Jimmy works in the restored section of the company. He’s sold 15 consoles, with prices ranging from $200 to $500 each. Tara works in the display showroom and has a total of 15 closed transactions. The new consoles are priced between $500 and $1,000. Despite the fact that Tara made more money, she and Jimmy both met their volume quota by selling 15 items.
5. Profit Quota
It’s critical to steer your sales team in the right path. Profit quotas could be able to assist you in achieving this goal. Profit Quota is quite similar to Revenue Quota where revenue is replaced with profit as a criterion. A profit-based quota is established for sales representatives, requiring them to generate a certain amount of profit for the company by selling products or services for a specific price. When your business has many target markets and price points, Profit Quota is perfect.
For example, you reward an individual sales rep to sell high-quality, high-margin face cream in order to fulfill a quarterly profit target of $5,000.
6. Expense Quota
The sales manager frequently uses this strategy as a cost-cutting measure. You’ll need to give a specific budget for each sales agent when it comes to spending quota. This budget is a percentage of the region’s desired sales volume, and the sales rep’s spending must be limited to that amount. Cost containment is achieved by limiting the budget to a set percentage of sales.
Expense Quota Example: You allocate a 10% of sales expense quota to each representative as a budget for miscellaneous expenses.
7. Combination Quota
Combination Quota, as the title suggests, is a method of closing sales by combining many sales parameters. A mix of sales metrics aids in the development of sales professionals’ diverse talents. Managers are able to develop their own combination, framework, and improve the Sales Department’s productivity.
For instance, a driving school has set a number of quotas for its workers to meet. Each day, Jackson will have to phone ten people who have submitted information to the school’s website. He also has to sell ten safety gadgets every week. In June, he expects to make $1,000 in revenue from the sale of gear and accessories. As a result, he has a quota that includes both sales volume and activity.
Sales Quota Best Practices
1. Set Realistic Sales Quotas
Minimum sales targets must be attainable while remaining hard enough to motivate and push your sales force. If the goal is set too low, a salesperson may underperform for the rest of the week, month, quarter, or year. There is a possibility that sales reps may feel hopeless if a sales quota is set too high. As a result, they may slow down and quit trying to meet it. You’re putting your team up for failure if you set your quota without taking seasonality or prior rep performance into account. Similarly, don’t change your quota based on an unexpected renewal or a deal that is larger than usual. If one rep or market frequently exceeds their quota, determine what is behind their success and change their quota rather than adjusting someone else’s.
2. Use Technology to Manage Sales Quotas
Isn’t keeping track of how well your salesmen hit their quotas a pain? As more businesses turn to cutting-edge technology to gain a competitive advantage, sales commission software is becoming incredibly valuable. Small and large enterprises have recognized numerous benefits of sales commissions software. It may create and build complex compensation schemes and commission structures. The software compares and models strategies, giving you an idea of how effective your sales commission plan is. By advising quotas and commission rates, AI is utilized to improve sales performance. Given the amazing progress in sales procedures and aligned technology, sales professionals have little room for complaint.
3. Quotas should be Built Together
Quotas should not be imposed by leadership after a few behind-closed-doors meetings. Instead, salespeople should talk about what they’re seeing and encountering in their various territories, as well as who has the finest perspective on past analysis and market dynamics. Along the way, quotas should promote favourable actions. While hitting quota is the primary objective, salespeople should not be encouraged to use shortcuts in order to achieve it. Consider the following scenario. If the quota is based on increasing sales from current clients, salespeople will be pushed to develop strong customer connections, which will enhance the likelihood of repeat purchases. On the other hand, if the quota is based on business from new clients, efforts put in by the salespeople will help in expanding the customer base. This essentially means that quota setting is supposed to be in line with your organization’s goal.
Setting quotas is a difficult process that necessitates strong intellect and a thorough understanding of your organization. Before you create a sales quota for your salespeople to satisfy the basic demands of your business, you must first determine your organization’s level of performance, business goals, and structure. The most basic kinds of sales quotas are used by most businesses to increase sales. You can choose from a variety of choices to create the ideal sales quota plan for your outstanding sales team. However, you must ensure that the quotas are challenging but realistic, otherwise you risk demotivating your workforce and producing excessive attrition. It’s critical to choose the right quota. You can only expect outstanding results from your team if your objectives are met.
Most companies use the basic types of sales quota to increase their sales. You get several options to choose from and devise the perfect sales quota plan for your phenomenal sales team.