How Are You Setting Sales Quotas?

BY Kathy Crosett
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In most companies, at some point before the start of a new fiscal year, senior execs come up with targets. The targets are usually about updating or releasing new products, introducing new services, calculating how much this all will cost, and then determining how much sales need to increase as a result of these lofty plans. There’s often a disconnect between how these decisions are made and the word that comes down regarding unrealistic sales quotas for the coming year. Lee Salz has a few ideas about how companies can do a better job of setting quotas.

In a recent article for The Business Journals, Salz tackles the subject of sales quotas and offers several solutions to fix the broken sales quota setting practice. One of the most meaningful tips he offers is to reverse engineer the process. This tip is perfect for sales managers.

As a manager, you know exactly how the members on your team perform. You also should have a good idea of what it’s going to take to reach a specific sales target. One way to start this process is to check out the average value of a sale in your department. If your team members typically bring in a contract that’s worth $5,000 and a quota is being set for $50,000 for the year, each person will need to close 10 deals for the year. That number may not sound too difficult to achieve. But what is the average length of the sales cycle at your company? If it’s over a year, you need to take that into account when agreeing to a quota. Take a look at exactly what it takes, on average, to close a deal? Do your salespeople need to make 200 calls, set up 50 prospect meetings, and conduct 10 presentations to yield one contract?

The sales cycle varies widely by company, industry and product or service being sold. By studying the past activity of your team, you can put together a reasonable quota for the coming year – one that can support some type of increase over the previous year and also show your team members that you understand their work process and can set reasonable and achievable goals.

Read the rest of Salz’s tips here.