Setting the pace for your company's growth and profitability can be a tightrope of extending as far as possible, whilst also keeping teams happy and motivated without leaving money on the table.
A huge part of capacity planning comes down to setting appropriate quotas, which can be a powerful tool for both motivating & monitoring performance. Whether they are sales quotas, production quotas, or performance benchmarks, these metrics help provide clear targets and measurable goals. Setting quotas isn't quite as simple as picking a number out of thin air (or at least it shouldn't be, but it can sometimes feel like it...): To create realistic and achievable quotas, it requires careful consideration of various factors to ensure they are realistic, achievable, and contribute to the overall strategic vision of the organization.
Understanding Your Sales Landscape
Before setting sales quotas, it's key to have a firm understanding of your current market conditions. This includes areas like competition, demand for your product or service, economic conditions, and any industry-specific trends. Without considering all of this, you might end up with sales quotas that are either overly ambitious or excessively conservative, both of which can negatively affect your company's financial performance or team morale.
Another key consideration is your sales team's actual capabilities. This includes assessing your teams, technology, sales process efficiency, and other critical assets (things like content, marketing support, data accessibility). You don't want to set sales quotas that your team can't achieve due to operational constraints, especially if things like marketing lead volumes or SDR team resource falling considerably less than what would be needed to get to target. On the flip side, if your sales team has untapped capacity, setting your quotas too low could leave money on the table, albeit with a pretty happy sales team.
The Product Factor in Sales
Product Life Cycle and Sales Quotas
Every product has a life cycle, which typically includes introduction, growth, maturity, and decline stages. As your product moves through these phases, your sales quotas should reflect these changes. For instance, during the introduction and growth phases, aggressive sales quotas may be set to foster rapid market penetration. However, as your product reaches maturity and eventually enters the decline phase, it could be more appropriate to adjust your sales quotas to align with these changing market realities.
Product Portfolio Complexity
The diversity and complexity of your product portfolio can significantly influence your sales quotas. If your organization offers a wide range of products or services, it may be appropriate to set individual sales quotas for different product lines. This approach ensures each product's unique market position, pricing, and sales strategy are considered when setting quotas. It's also important to understand the technicality of what you're selling, especially as your offering broadens to potentially offer more, albeit at a higher complexity. In this instance you might not be able to simply increase deal sizes without also reducing deal capacity. We look at how you can mitigate this in this post where we look at the benefits of Sale Engineers / Technical Sales support.
Product Pricing Strategy
Product pricing strategy can also have substantial implications for your sales quota-setting process. If your business strategy involves premium pricing approaches, your sales quotas might be lower in terms of volume but higher in terms of revenue, but the trade off isn't always linear. On the other hand, if your strategy is based on competitive pricing, your volume sales quotas could be relatively high, while your revenue quotas may be lower.
Remember, sales quotas are not static, and they should evolve in line with your product development and pricing strategies. By aligning these elements, you can set sales quotas that accurately reflect your strategic goals and provide your sales team with clear, achievable targets.
The Human Factor in Sales
Sales Skills and Experience
When setting sales quotas, there's consideration for the skills and experience levels of your sales team, but when scaling it there needs to be careful scrutiny over the skill at point of hiring what is expected post-onboarding. New or less experienced salespeople may find high quotas daunting, leading to frustration and potentially high turnover which can quickly get in the way of progress. In contrast, seasoned sales team members might require challenging quotas to stay engaged and motivated. Striking a balance that pushes your team without overwhelming them is crucial but difficult.
Motivation and Morale
The impact of sales quotas on employee morale cannot be overstated. Unrealistic sales quotas can lead to high stress, burnout, and low job satisfaction, while achievable quotas can motivate and inspire team members to strive for excellence. Remember, sales quotas should be a tool to inspire your sales team towards greatness, not a hammer to pound them with, and no-one wants to work in a team where no-one hits target. Inability to hit target is fast becoming a red flag for hiring, and so quotas need to be set in a sensible range. If there's quotas are unattainable due to the volume of opportunity, you're diluting the opportunity too far.
Don't forget, quotas are primarily metric of how much opportunity you both provide and reasonably expect a sales rep to close. Any other approaches including "target coverage" are sure-fire ways to burn a sales team, and so should be avoided. The best way to understand what is attainable is through your capacity modelling, to ensure that everyone is being well utilised.
Regular Review and Adjustment of Sales Quotas
Lastly, setting sales quotas isn't a one-off activity. Regular review and adjustment of sales quotas is a necessary practice that ensures your targets continue to align with your strategic goals and the realities of your sales environment. Be prepared to make adjustments based on changing market conditions, shifts in sales strategies, and feedback from your sales team.
By considering these factors when setting sales quotas, you can ensure that your business is set to thrive and your sales team is motivated to excel. After all, the right sales quotas don't just measure performance—they drive it.
We believe that the science of quotas and capacity is far more complex that we really give it credit for, and that by understanding it at a deeper level and combining it with advanced approaches to planning, businesses can become more efficient and predictable.
At Clevenue we're changing the way people look at capacity planning, making the science of sales & and the formulas of revenue accessible to everyone, regardless of level or role.
Frequently Asked Questions (FAQs)
How often should sales quotas be reviewed and adjusted? Sales quotas should be reviewed regularly. Many businesses opt for a quarterly or semi-annual review. However, the frequency can depend on the nature of your business and how quickly conditions change in your industry.
How can I ensure that sales quotas are fair and unbiased? Transparency is key in your quota-setting process. Clearly communicate how sales quotas are set and what factors are considered. Provide regular feedback to your team and give them a voice in the process.
How do I handle a situation where sales quotas are consistently not being met? If sales quotas are consistently not being met, it's an indication that the quotas may be set too high or there might be underlying issues with resources, training, or motivation. Investigate the cause and make necessary adjustments.
What can I do if sales quotas are consistently being exceeded? If sales quotas are constantly being exceeded, it may be a sign that your quotas are set too low and not challenging your sales team enough. Review your sales environment and operational capabilities to set more ambitious targets.