Without goals, making progress is difficult. Goals give reps something to strive for. Goals also help them recognize when they are improving or struggling. Most reps are ambitious and self-driven. They thrive because of goals such as quotas. Quotas also help managers learn about their team’s productivity and continuously improve the sales process.
- Ensure commissions are fair
- Highlight successful & struggling reps
- Regulate the cost of commissions
- Reveal issues within the sales process
- Create sales benchmarks and goals
Setting quotas is an art. In practice, it’s difficult to define quotas which are attainable yet challenging. Many organizations spend significant time and effort setting quotas. While methods used to set quotas vary from organization to organization, the same traditional patterns are often used. Unfortunately, those traditional patterns do NOT involve reps. In this article, we explain why and how you can involve your reps to define quotas.
Traditional Ways To Set Quotas
The two traditional ways to define sales quotas are a/ top-down and b/ bottom-up.
With the top-down approach, the organization sets a goal for a given period (ex: quarter). The goal could be set by the Finance department, by analyzing historical sales, by analyzing trends, etc. Quotas are then assigned to reps or territories to support this overarching goal. Managers, in turn, are responsible for proposing goals based on the overall objective. In any case, it all starts with a stated goal. You then work backwards to assign individual goals to reps.
The bottom-up approach consists in identifying what each rep can deliver based on their own historical performance. In a perfect world, sales quotas should be challenging, yet realistic. The bottom-up approach helps you define quotas with are attainable (since they are based on historical rep performance). Attainable quotas help your team remain motivated! Unreasonable quotas hurt motivation and create all sorts of business planning issues because they are unrealistic.
Involving Your Reps
Above, we described two main ways to set quotas. Note that, with both approaches, management remains responsible for setting quotas. Even though the bottom up approach starts by analyzing what each rep can deliver, reps don’t have a say in how quotas are set. There are two main ways you can improve:
- Have your reps propose initial quotas
- Make quota setting a negotiation with your reps
Sometimes, analyzing historical sales performance isn’t enough to predict future performance. It may not account for seasonal variations, product challenges, planned vacations, etc. For example, a rep who trained other reps last quarter, and no longer has this responsibility, probably should strive for a higher quota. Having your reps propose initial quotas can help you learn how much they think they can sell next period (realistically).
Involving your reps also means you won’t receive as many complaints about “arbitrary quotas”. Often, reps resent quotas because they have no idea how they were set, or even who set them. Did the VP of sales set quotas? Or was it the Finance department? Or external investors? By involving reps in your quota-setting process, you increase their ownership of goals that they helped define.
Finally, involving reps during quota setting helps normalize goals. For example, if Eric proposes a quota of $100K, while Jane proposes a quota of $200K, it makes sense to ask Eric why his proposed quota is so much lower. This normalization effort becomes more meaningful when reviewing an entire team’s list of proposed quotas. You’ll quickly find out who is ambitious and who isn’t. The normalization process can also help you communicate goals which are consistent across the board.
How To Negotiate Quotas
Our recommendation is to use a back-and-forth negotiation process to set quotas. This involves receiving proposals from your reps, and making counter-proposals. Instead of just starting bottom up or top down, consider the following approach:
- Start with an overall goal across the organization
- Next quarter, the goal is $350K in sales (from Finance)
- Ask your reps to define their own initial goals
- Eric and Jane, what do you think you can close next quarter?
- Normalize goals using team discussions
- Eric, why is your quota half of Jane’s quota?
- Roll-up individual goals & compare with your overall goal
- Based on Eric and Jane’s own estimates, we should be able to close $300K in sales next quarter but we want to get to $350K.
- Counter rep proposals based on the difference
- Guys, based on your defined goals, we’d be in trouble and need another $50K in sale – can you propose some adjustments?
- Continue negotiating until you have alignment
- Eric, if you could increase your quota a bit, I’m ready to throw in a spiff if you reach 110% of your goal. I also asked our VP of Sales and he said that $325K in sales overall is OK with him so we’ll meet you in the middle.
That’s it! Your reps provided you with realistic estimates. You used team meetings to normalize quotas and correct for over / under-optimism. You then measured the overall business impact of rep-initiated quotas. Finally, you negotiated individual quotas with your reps based on the overall business impact. Your reps are happy that you asked for their feedback, and are motivated to reach goals they helped define. They understand how their own goals support the business, and how quotas were set.
Working with your reps to set meaningful quotas is just part of the equation. To truly motivate your reps, you must make sure your incentive program is transparent and accurate. Sales Cookie can help you deliver the motivation you need by automating your entire commission program and delivering clear goals to your reps.