What are sales quotas?
Sales quotas are time-sensitive targets to contribute toward an organization’s revenue.
Here’s how Gartner defines sales quota:
“A sales quota is the performance expectation that sellers must achieve during a set time period to earn their target incentive pay.”
Sales managers set sales quotas for their reps. In most cases, meeting or exceeding the sales quota leads to a performance bonus for the sales rep.
Sales quotas vs. sales goals: What’s the difference?
Sales quotas aren’t the same as sales goals. Instead, sales quotas are short-term targets to ensure that you hit your sales goals.
Here’s a quick comparison.
Sales quotas are metric-driven, time-sensitive targets set for a specific period.
Sales goals are long-term organizational targets to be achieved over a longer period of time.
Sales managers use revenue-impacting metrics to set the sales quota.
Meeting or exceeding the sales quota is crucial in achieving the sales goals.
Sales quotas are set for individuals.
Sales goals are at an organizational level.
Sales quota example: Increasing the sales of an upgraded product by 110 percent, as compared to the sales of the previous version.
Sales goal example: Improving sales for newer versions of products over time.
How to calculate sales quotas
Sales quotas should be aggressive, but realistic, and most of your team should be able to attain their quotas. Here’s how you can calculate realistic sales quotas for your sales reps.
Start by establishing a baseline for your team’s performance — the average number of deals closed multiplied by the average contract value.
It’s important to note that the baseline quota will change each quarter because of factors such as reps available, projected growth, average deal size, holidays and time off.
The next step is to understand each rep’s capabilities and past performance, rather than simply considering your organizational goals.
It would help if you looked at the average calls per day, follow-ups, average deal size, leads allocated and more to get a complete picture of the rep’s past performance and assess their capabilities.
Why is sales quota an important metric?
Sales quotas are benchmarks that help you gauge your sales team’s performance and track your organizational revenue goals.
They’re one of the best ways of understanding a salesperson’s performance and identifying ways to improve it.
What are the most common types of sales quota and how to calculate them?
Choosing a type of sales quota depends on the overall sales goal of your organization. You can set a sales quota for sales activities, volume, profits, revenue, personas, and more.
Here are the five most common sales quota types:
- Revenue quota
Sales revenue quota is based on the amount of revenue generated from sales over a period of time.
It’s ideal for slightly mature organizations that have mapped their product-market fit, ideal buyers, sales methodology and scripts and are ready to scale their operations.
- Profit quota
Profit quotas are set based on the profit margins you wish to achieve during a quarter. It’s ideal for organizations with high CAC (Customer Acquisition Cost) or for selling some products that have the potential of reaping higher margins.
Like revenue quota, profit quota works for mature sales organizations having reps familiar with the buyer personas and sales process.
- Forecast revenue quota
Forecast revenue quota is based on the projections of revenue that you wish to generate from the deals closed or upsells in the coming quarter.
If you use accurate forecasts from your intelligence and sales analytics tools, you'll be able to align your sales efforts in advance.
This approach works when you already have high-quality leads lined up or are launching a sought-after update that will generate enough upsells.
- Volume-based sales quota
Volume-based sales quotas are set to increase the number of deals closed for a certain quarter, regardless of the deal size. So, it’s ideal when your goal is to increase market penetration quickly by selling more.
- Activity sales quota
You consider each rep's activities — cold calls, follow-up calls and emails, and demos conducted. Then, depending on the activity level, you set quotas for the rep, while considering their past performance.
- Combination sales quota
You can combine sales quota types to make it easier for your sales team to meet its quotas. For example, you can set a profit quota in addition to a volume-based quota to ensure that your reps bring in more business by closing high-value deals.
What strategies can help you meet your sales quota effortlessly?
Salespeople in several organizations struggle with quota attainment when their leaders adopt a top-down approach to setting quotas, without taking into account the sales team’s history.
Top-down approaches look at a company's revenue needs and market trends and set quotas to meet those requirements. However, top-down approaches can lead to unrealistic quotas if they fail to factor in the sales team's past performance, seasonal fluctuations, availability of reps, and other such operational aspects.
Besides the approach, here are some more factors that can help you with sales quota attainment.
Collect the right data
Since sales quotas are estimated using the data from CRMs and sales analytics tools, it’s important to capture high-quality data.
Sales intelligence solutions act as a single source of truth for all business data in real-time by bringing together data from various sales and marketing tools. The AI-powered platforms can help sales managers sift through call recordings and transcripts using filters and keywords to find the insights they need quickly.
Improve lead quality
Marketing teams often focus on quantity rather than quality. Of course, the number of leads is important, but it’s the conversion rates that really matter. More qualified leads take less time to convert and bring in sizable revenue.
That’s why sales and marketing teams must be aligned and collaborate on the organization’s lead generation strategy. They should also eliminate data silos and enable easy data sharing to minimize data chaos, miscommunication and friction.
Optimize your call scripts and pitches
Keeping call scripts relevant by using the right keywords, addressing the core pain points, and handling competitor mentions and objections is crucial for them to be effective.
Besides optimizing call scripts, it’s equally important to understand how your salespeople deliver the script and convey the message to identify gaps in performance and help them improve.
That’s where a conversation intelligence software that automatically records and transcribes sales calls, assesses all relevant sales data points, and tracks AI-enabled metrics like talk-to-listen ratio or the likelihood of conversion during calls can help.
Understand why reps are unable to hit their quotas
Despite following the above strategies, it’s possible for reps to not hit their quotas. When that happens, a prudent approach is to conduct a root cause analysis to answer questions, such as:
- Why isn’t my team achieving their targets?
- Why aren’t they closing deals?
- Do they have the right information and insights to close deals?
Another approach is to ask ‘Why’ five times. Sakichi Toyoda, a Japanese industrialist and inventor, developed an iterative interrogative technique to ask ‘why’ five times to identify the core issue, ultimately arriving at the right solution.
Sales quotas play a crucial role in helping sales organizations meet their goals and contribute to revenue. However, hitting quotas is all about adopting a data-driven, bottoms-up approach to setting sales quotas. That’s where a revenue platform like Clari can be handy.
Interested in learning more?