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Why does your company use sales quota's, are they effective or do they just cause more strife with the sales team?

We are considering implementing a sales quota system. I'm concerned as I've heard many negative comments regarding quota systems; the targets are unrealistic, people just "game" the system, we lost to many well trained sales reps because of the quota system, it's a paper chase. I don't need to implement a system that may in fact take consume more time that could be better spent focused on sales!

Answers

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

The more relevant questions are, how do you budget/forecast? what does your variance analysis look like at the end of the month/year? how are you making sure that you hit or exceed your budget/forecast?

The quota system is just a way to ensure hitting or exceeding your financial goals and placing responsibility for the top line numbers.

But to answer your question,....DATA AND MORE DATA. The quota system is best achieved with data (historical and realistic projections) support, company financial goals and the necessary resources it is willing to throw at it. It should start from the top (which includes your top sales executive) and lots of feedback from the bottom. I would start with what your historical numbers and what your data/projections are telling you.

It is hard to game the system when the performance (+ or - ) does not match the data. And lastly, don't treat the quota as set in stone. Allow negative performance to be supported/justified by data and be ready to adjust up when needed. Remember, projections are more wrong than right.....but continually strive to get it right.

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Hi Anon ,

When you say "We are considering implementing a sales quota system" who exactly is "we"?
* If the CFO's office initiated this, what is the perspective of the CEO, CMO, COO?
* Why is the question in play for starters? If a quota system is the answer, what is the real question? Are your sales flat, is sales rep turnover high, is your sales pipeline bulging in the wrong places, are conversion rates too low, bad debts from new accounts too high? etc.

Mark Matheny
Title: VP - FInancial Planning and Analysis
Company: Novolex (formerly Hilex Poly)
(VP - FInancial Planning and Analysis, Novolex (formerly Hilex Poly)) |

As with any measurement system, it is important to make sure the plan design drivers the desired results. I heard a business guru once say that what gets measurement doesn't just get managed, it also gets manipulated I have seen a quota system where the sales team would stop pursuing sales in a given period because they had reached their quota and wanted to "bank" some for the next. Meanwhile, the company had capacity to fill and could have improved cash flows by making the sales. Uncapping any reward is one possible solution. Also, the sales department should not be setting the goals in a vacuum. It should be a joint development based on the input from Ops, Finance, etc. that takes into account the companies goals.

That said, a well management quota system can help drive improvement.

Anonymous
(CFO) |

Thank you all for your feedback. As I expected, there are many negatives about implementing a quota system. Len, asked a great question as to why a quota system is even in play. It seems are sales team has gotten complacent in aggressively pursuing new business. Two years ago the comm structure was changed to pay more for new business and less for retention. We've provided more training on products and sales techniques. Quota's were are next option to be considered.

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Hi Anon
If that's the reason for looking at quotas, has your company looked at assessing the sales organization holistically? Quotas are a tool, but what is the right marketing & sales strategy and are the right org structures, people, skills, processes and technology in place?

Message me if you want to chat more
Regards
Len

Sajan Sadhwani, CPA CMA
Title: C2C Specialist
Company: Ernst & Young
(C2C Specialist, Ernst & Young) |

Based on your further information it would seem that you have some further issues in the organization.

Typically retaining clients is more profitable than trying to gain new clients. If your commissions structure rewards new business then at its very worst, salespeople may game the structure by loosing clients then gaining them back. Its unlikely as once customers are lost then they can be hard to win back.

In your situation I would prescribe better communication. Has anyone done exit interviews on the lost salespeople? Doing this you might find the real reason that your salespeople have left.

With respect to quotas as with other things much depend on how its communicated. What are the consequences of not meeting quotas? Some firms have a policy of stacked rankings and eliminating all those below a certain level irrespective of other factors.

Len is correct in that you need to ask, "Why are you doing this? What is the purpose?" I would also like to add that you should consider using exit interviews to find out why sales reps are leaving. Ultimately, at this time its a guess that the answer probably has to do with communication but that is a guess.

Todd Boney
Title: Chief Financial Officer
Company: Xceleration Partners
LinkedIn Profile
(Chief Financial Officer, Xceleration Partners) |

Don't see how you can run a sales organization without sales quotas - can you imagine not having a revenue target in your budget? Your salespeople won't leave because you impose a sales quota - it's standard in almost all sales organizations. If they're leaving, it's for other reasons.

With a sales quota, which can vary based upon a rep's book of business or their territory, you're able to align sales goals and economic results. For example, if a rep attains 80% of quota, what percentage of on-target earnings should they be entitled to? In my last two companies, the economics were set so that a sales rep who attained 80% of quota, attained only 50% of their variable comp. Economics ramped to 100% of variable at 100% of quota by paying a higher commission rate north of 80% and by paying quota attainment and other bonuses.

If you're trying to encourage new customer acquisition, rather than paying directly a higher commission, consider paying a bonus for adding a certain number of new customers. For example, you might expect each sales rep to add 3 new customers per year, each with a minimum spend or contract value. Pay a "bounty" of X dollars for reps adding 4-6 customers and a bounty of 2.5 X dollars for more than 6. This way you're encouraging the right behavior but not directly telling the sales reps that existing customers are less important.

Consider paying quota attainment and other bonus components in the 1st quarter of the following year. It's a great retention strategy - they're more likely to stick around to get all their money and if they leave for a new job in or after the first quarter, it's harder for them to make the move since they won't be able to realize a full year's worth of variable comp.

Reps aren't going to push sales into the next year if they're above quota - sales reps live for today - there is tomorrow for most sales reps. The more likely deferral source can be sales management since they know you expect their sales quotas to grow every year.

Timothy Beal
Title: CFO
Company: TriCerat, Inc.
(CFO, TriCerat, Inc.) |

Thanks for your comments Todd. I like the idea of "new" customer acquisition bonuses to focus the reps on what the real end game is. It's also another vehicle for them to increase their total compensation rather than a "take-away" from a quote system.

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