Raise the Bar

Posted: 8/2003

Raise the Bar
How to Set Effective Quotas

By Gary Lawrence

For sales managers, the recurring challenge is how to set quotas that follow the business plan and motivate sales force. They wrestle with keeping the sales force engaged and striving to meet and exceed the sales goals set with the intent of creating a "culture of winners." Experience identifies six hallmarks of effective quota management:

1. The process systematically identifies pockets of opportunity. The sales force almost always is looking for that edge on the competition. Sales managers and marketing also should be scanning the horizon for new customer segments, new product applications and product variations to address new market segments. This information always should be taken into account when setting or adjusting quotas.

2. Sales managers and sellers jointly evaluate the unique aspects of local markets/accounts. Sellers, as the "feet on the street," give the company significant intelligence on competitors, impact of marketing programs and promotions, customer reactions to products, pricing and terms and general market conditions. This makes each territory/account list unique, and sales managers must take this into account in setting quotas.

3. Quotas are set at realistic attainable levels, consistent with prior performance and the business plan. In the perfect-world scenario, 90 percent of the sales force should reach the threshold of the distribution of expected performance and 60 percent to 70 percent should cluster around their quota. Sellers must feel the quotas they and their managers have agreed to are attainable. "Stretch" quotas can be realistic if the company is committed to new products, new applications and marketing programs that give sellers new ways to convert prospects and boost share with current customers.

4. Stars are rewarded for high performance, and non-performers are penalized by the incentive plan. Plans are designed intentionally to have accelerated payout levels for those whose performance exceeds quota, while those who do not achieve quota are paid less than target incentive. In particular, those who are below the minimum expected level of performance or threshold often receive no incentive pay for the measurement period.

5. The sales force understands the basis of quotas through a transparent quota-setting process. Using a bottom-up and top-down combined process involves the sellers in the process and helps them understand the process and need to have the final quotas add up to the business plan. When quotas "come from on high," first-level sales managers have the difficult chore of coercing buy-in from the sales force, and a considerable amount of selling time is spent in discussing the rationale for the assigned quotas.

6. Quotas are linked to territory/account plans. When this approach is used, even in a "fair share" quota-setting process, sellers see that management is taking into account both positive and negative changes in their territory or assigned accounts. After all, the sellers know best the variables, such as competitive activity, new competitors, pricing pressures, etc., that affect their future performance.

In the end it comes down to balancing quota-setting variables the sales force perceives as fair while meeting the company's business plan. Critical to success is allowing the time for one-on-one discussions between sales managers and sellers to reach understanding on quotas that take into account the market segment, competition, new products, planned marketing efforts, and training and development.

Gary Lawrence is a managing director of Peregrine Consulting Inc. and can be contacted at +1 770 399 6493 or glawrence@peregrineconsulting.net.

Is Quota Setting an Issue for Your Company?

Here are some common indications that quota setting is an issue in your company:

Wide or non-normal distribution of quota attainment

• Amount varies by industry

• Normally, 60 percent to 70 percent of the sales force

should be 1 5 percent of their assigned quota

Boom-year syndrome

•  Sales representatives manage the quota process through their sales behavior

•  Historical sales results indicate a poor sales year followed by a boom year

"Black box" syndrome

•  Lack of explanation creates doubt among the sales force

•  Without "buy-in" sellers typically do not perform well Disconnect from the business plan

•  Allocation variables inconsistent with local marketing considerations

•  National factors are not considered for territory quotas

"Road noise" about the quality of quotas from sales force