Are your quota setting tactics holding you back?

The annual planning process begins, and sales executives and managers discuss sales revenue plans, go-to-market strategies, expense budgets, and new product offerings. Yet many leave their sales team members in the same territories or customer assignment without reviewing and updating their quotas from the previous year? There will be some anecdotal changes, but not enough of a review is completed.

Often the reason is that it is easier to modify the quota of previous years and for some others they do not know how to do it. There is a lot of work modifying the quotas and then communicating the changes to the sales team. One or all may find objections, and the last thing sales managers want to do is disrupt their sales teams or have their top players look for other jobs.

Historically, many companies use an equal increase in their fees based on expected top-line revenue growth.

The problem with this type of quota establishment is that you increase expenses unnecessarily, penalize good salespeople, do not recognize the work they have previously put in to cultivate a territory or clients. Poorly designed quotas are a recipe for disaster and should be taken seriously.

Setting quotas and KPIs is one of the most important parts of the planning process, and it takes time to get it right.

There are 5 reasons why you should review your sales quota:

1. The company’s strategy has changed

Changes in the company’s sales strategy will be made based on market conditions, new products coming to market, mergers and acquisitions, expansion into new regions, and many other factors.

It usually happens when a new CEO is hired or there is a change in the more senior executive team. They are looking to make their mark on the business by heading in new directions. Today’s CEOs seek expansion and extension of the company’s existing strategy and are often a bit more restrained in how much change to the strategy will be made.

Taking the last few years, the quota and the KPIs will not support you with the changes that are being made in the strategy. You will be setting up the sales team to be on the wrong track from the start.

2. Your market has matured

Competition is fierce there, and it doesn’t take long for many players to bring a market to maturity. Once the market is mature, it becomes a process of taking market share from competitors, with lower profitability and tougher battles for sellers. Transferring quota will in most cases penalize team members as the high days of big sales are over, and now you are dismantling competitors’ control over some customers.

3. New products under or over recognized

As new products are added to the companies offering, there is a sense of excitement about the endless opportunities in the customer base. Salespeople are often asked to declare the potential of their customers, and with their eyes sparkling at the thought of new conversations ahead, they can miss the point entirely.

Suppose the total available market share (TAM) is not clearly understood and the consumption rates by customers. In that case, you could be faced with paying excessively high salaries in some areas and no compensation in others in lower-quality territories.

Understanding TAM and having marketing validate the numbers is an important factor in setting quotas. The correct profiling of clients, analysis of potential clients and consumption rates will directly affect the established quota number. If you get those numbers wrong, you could have a riot on your hands.

4. Customer requirements are changing

In changing economic climates, markets are changing, the customer base is changing, and innovation may have provided customers with news about how to do business that indirectly affects their sales.

A company that supplies lubricants and sealants to a manufacturing company receives a sudden drop in orders. The manufacturer has purchased a line of new CNC machines that no longer require its products.

A scenario like this happens all the time in different industries in different ways. Information technology is one of the biggest impacts on customer demands.

If your business isn’t close enough to customers (although all businesses report that they are), there can be slowness and damage as they move away from your offering.

5. Fresh eyes

The planning process is what happens in all businesses that have growth on their agenda. Restarting each year and looking at the company’s strategy with fresh eyes is imperative. What did you learn from last year’s planning process? Is there anything that needs more refinement? Are you considering all the changes that will affect the sales team?

The planning process should be reduced to establishing quotas and KPIs as a road map for the success of your sales team. As a sales manager, your role is to ensure the roadmap gets them where they are, rewarding artists and providing a great customer experience.

For sales managers, the key is not to fear the change of adjusting Quotas and KPIs; be confident in your roadmap and show the team how and why.

If you’re looking to review your quotas and KPIs, we can walk you through a workshop to help you be successful with your company and team.