In any sales job, you always hear of managers getting obsessed with sales quotas. These benchmarks or financial goals drive sales teams to perform their best, closing the most deals and raking in the most sales.
If you’re unfamiliar with sales quotas–or you have a basic knowledge but want to delve deeper into the ins and outs–we’ve put together this helpful guide just for you.
Ahead, we’ll define sales quotas, review the different types of quotas, share the benefits of setting sales goals, and tell you how to do the same. With quotas, you can motivate your sales team to do their best!
Understanding Sales Quotas – How Are They Different From Sales Targets or Sales Goals?
First, let’s begin with the definition.
What is a sales quota?
A sales quota is a goal for sales reps to aspire toward in a specific period. For example, a manager might request that a sales team sell 100 items in 30 days or 1,000 items in a quarter.
The sales leader or manager establishes sales quotas while the sales team carries out the instructions and closes as many deals as possible.
A good sales leader will set realistic quotas that their reps can achieve, as this improves morale for everyone.
Speaking of morale, it’s tied closely to quotas. If a rep can meet the quota or exceed it, they’re usually generously compensated in the form of a bonus. That can be a financial bonus or another type of reward like a gift card.
A quota is not a sales target, by the way. A sales target is for the whole team to aspire toward and achieve, whereas quotas are individualized. Sales leaders will assign quotas based on what they know a sales rep can reasonably do, and past sales accomplishments establish that.
Sales quotas also diverge from sales goals, although it’s easy to confuse the two.
A sales goal is longer-term, whereas quotas are often shorter-term. The two interrelate, as smashing quotas will push a company closer to its sales goal.
For instance, if the company wants to increase revenue by 15% for the calendar year, achieving a quota over the next quarter will certainly do that.
The 6 Types of Sales Quotas
Not every type of sales quota is the same. Next, let’s go over the six types you’ll see in your day-to-day sales job. Depending on your role, you might even get to do these types of quotas yourself!
Revenue Sale Quota
The first type is a revenue quota. This revenue-based financial goal requires salespeople to contribute individually to a company’s overall revenue over an established period, usually monthly or quarterly.
One of the biggest advantages of revenue sales quotas is that you can customize the quota to your company’s current needs. You can also break down larger sales goals over a long period, such as several quarters or a year, into smaller monthly sales goals.
If you’ve heard of sales forecasting, a forecast quota works in a similar fashion. Your company will review its historical data and use that as a gauge to set the sales quota for the next period.
Companies traditionally use forecast quotas regionally, so if yours is a worldwide company, different regions will achieve various sales goals.
Next, there’s the combination quota, which is reserved for the top salespeople. These multi-pronged quotas include more than one type of quota, like a profit quota (more on that to come in just a moment) and a revenue quota.
Although a combination quota is more complex than the other quota types because it has several goals in one, a sales manager will often break down a combination quota into more reasonable and shorter-term goals to keep sales reps on track.
As promised, let’s talk about profit quotas. As the name implies, a profit quota uses gross profit as the basis. This gross profit isn’t usually calculated for the entire company but instead by individual salespersons, specific products or services, or even entire sales teams.
If you’re assigned a gross profit quota, to get the quota, your sales manager would subtract the cost of goods sold by the selling expenses. A gross margin quota is the cost of goods subtracted from the company’s revenue.
A sales team could also have a volume quota, which is based on either how much sales revenue the team makes for a month or quarter (or another time period) or how many items they sell.
The goal of volume quotas is to push sales reps to sell, sell, sell.
The last type of sales quota is an activity quota, which requires sales teams to achieve activities such as calling, emailing, discussing product specs, or setting up meetings. The reps must do X activities in a specific period.
The Benefits of Having Sales Quotas
Setting sales targets through quotas is important for a company of any size. Let’s take a closer look at the advantages.
Motivates sales teams
Like any job, a salesperson performs best when they have clear-cut goals and the drive to achieve them. Sales quotas introduce those goals and inspire the rep to perform their best.
When all members of the sales team feel equally inspired and motivated, this levels up the team’s performance!
Introduces accountability for sales reps
Of course, quotas are about more than how a team of salespeople performs but each individual sales rep as well.
As we recently discussed in our article about sales reporting, accountability is a great motivator. When each salesperson on a team knows their individual performance is being studied and compared against others, this creates in them the need to do better.
Those reps that undersell won’t want to get called out on that again, so they’ll strive to sell more. They’ll also worry about losing their job if they continue to underperform, which also motivates them.
The salespeople who sell well but are in the middle of the pack will want to rise to the top. If you offer excellent incentives for meeting quota, that will also drive this group of salespeople.
The top-selling sales reps will want to maintain their spot so they can continue reaping all the rewards, so they won’t let up one iota.
Master the art of sales lead management with our expert guide – explore best practices and strategies now!
Drives more revenue
When you inspire salespeople to do their best, your company begins consistently meeting revenue goals for the month, the quarter, the year, and beyond. Your company will have a healthy bottom line, and you could possibly expand your sales team to increase revenue further!
Improves the selling strategy
Quotas may be merely numbers at the end of the day, but no sales manager produces those numbers from thin air. They’re based on past data and a review of what kinds of selling strategies work for your salespeople and which don’t.
Filtering out the less effective sales strategies leaves your company with only the methods that lead to more sales. This will enable the salespeople to do a better job and help increase company revenue.
How To Set a Sales Quota
Remember, the biggest enemy of a sales quota is unrealistic expectations. It may sound good to bloat a quota number, but salespeople will fall behind on their goals, revenue won’t live up to projections, and everyone will feel disappointed.
That’s why it’s important to understand what it takes to set an attainable sales quota. Without further ado, let’s go over the steps.
Step 1 – Choose between bottom-up or top-down
Sales managers will use a bottom-up or top-down approach for creating a sales quota.
A bottom-down approach relies on historical selling data to determine what a sales team’s future performance should be. This approach also accounts for the number of reps on the team and how much the top reps versus middle-level reps perform.
You might dole out different quotas for newer versus more seasoned salespeople to ensure everyone gets just enough responsibility doled out to them.
The top-down approach selects a quota not based on historical data but on revenue goals. This type of approach takes into account far less how each salesperson performs and instead considers the number of reps on the team.
For example, if you had four reps, they’d each have the same quota.
Step 2 – Determine your baseline
You should also set a baseline when determining quotas, which is the least amount of money a salesperson can make.
Baseline projections change according to how much revenue your company brings in. You shouldn’t guess at a baseline or make up a number but use historical data to guide you.
Calculate your company’s revenue over the last year and then divide it by 12. If your sales team has monthly quotas, that number is your baseline.
You can tweak the baseline according to factors such as seasonal sales (if they’re lower at some points of the year and higher during others), vacation and sick time for the reps, the number of reps, and how many territories your company has.
A baseline quota can change monthly or quarterly. It may be higher than the last quota if your company sells well or lower than the last quarter when sales decrease.
Step 3 – Calculate the quota
With your baseline decided, it’s next time to determine your sales goals for this month or period, as you’ll use that number to calculate the sales quota.
You can use the same math calculation as mentioned above–taking your total sales for the last year and dividing them by 12 to determine the monthly quota–and tweak it according to region, seasonal changes, number of sales members, and other related factors.
Make sure to include your projected revenue growth.
Step 4 – Relay the quota to your sales team
Now that you have your sales quota, it’s time to meet your sales reps and share this information with them.
If your company has a monthly quota, it’s best to let the reps know with advance notice (ideally before the first of the month) so they can wrap up other projects and begin preparing for a month of selling.
Step 5 – Monitor progress
Once the month or quarter gets underway, your sales team will enter a review period. This review period is an ongoing process where you monitor the progress of your salespeople to gauge how well each performs.
If the entire team is underperforming, don’t delay to ask why. Perhaps you offered unclear instructions, assigned beginner reps more complex accounts, or even set the sales goal unreasonably high.
No matter the reason, it’s never too late to fix performance issues, especially if you’re trying to meet sales goals for a quarter.
Even if you have monthly quotas, if you can turn things around and have a better second half of the month than the first, that still counts for something. Leaving problems to continue for the rest of the month to fix them for next month costs your company sales.
What if your salespeople perform exceptionally well and come close to surpassing the sales goal sooner than anticipated? No rule says your quota has to remain one concrete number for the entire sales period.
You might raise the quota once it becomes clear your reps will achieve it, doubling or even tripling the original quota number based on performance.
More Handy Sales Quota Tips
Before we wrap up, we put together a handy selection of tips for helping your salespeople meet sales goals for every month or quarter!
Look for bottlenecks
Does your sales funnel have any bottlenecks? If your company regularly produces sales reports, you can quickly answer that question.
When leads and customers cannot swiftly move through the sales funnel, this, in turn, impedes how well your salespeople can do at their jobs. You must always be on the lookout for bottlenecks and have remedies ready to ameliorate them to enable your sales team to do their best work.
Reward top salespeople
The satisfaction of selling alone won’t keep your top sales reps doing good work. As we mentioned earlier, you must reward them for a job well done.
You can select the reward, but make sure it’s commensurate with the amount of work your salespeople are putting in. It’s insulting to only offer pizza delivery for lunch when your sales reps put in long hours for a month or more.
Everyone on the team will hear about the reward, not only those receiving it. If you don’t compensate your salespeople fairly, it will reduce everyone’s incentive to meet sales goals.
Ask for feedback
As a sales manager, you should also request feedback from your sales reps when you have the opportunity. Ask them what they think about the quotas you’re setting and any changes you may make to the quotas as the month or quarter continues.
Quiz your salespeople on whether they think the quotas are realistic, if they struggle with the quotas, and if so, what you and the company could change to make meeting the quotas more attainable.
Prepare to hear different things from your various sales reps. You likely can’t implement everyone’s feedback depending on the size of your team, so keep an ear out for the most common threads.
Those are the ones you want to focus on, as doing so will keep your salespeople part of the team longer.
A sales quota is a benchmark for a sales team to meet. Most quotas are monthly or quarterly to give the salespeople ample time to research a lead, devise a suitable communication method, sell to them, and close the deal.
Quotas should be responsive to the needs of your salespeople. If you set high quotas every month, it looks great on paper, but it won’t look so great when your sales reps consistently underdeliver.
We hope this guide helps you set sales quotas your team can achieve so you can take your company to new heights!