What do dinner rolls, an umbrella, and sales quotas have in common? While this may sound like a bad joke, these are all afterthoughts. We don’t think about these things until we realize we need them.
Most of us can survive getting a little wet and (even benefit from) missing some bread. But leaving quota-setting to the last minute can have serious consequences.
We've spent the last couple of months helping clients gear up for the new year with new sales processes, revamped incentive plans, and robust training. Everyone is ready for a new year and a new start. Almost.
Ironically, now is the time our phones start to ring for the most common afterthought in sales… setting sales quotas.
Each year we're amazed at the amount of time and money invested to make sales teams more insightful, efficient, and successful. However, the one thing a rep cares the most about is “the number." And this is usually the one thing that gets the least amount of leadership attention.
Here are the three top things sales and sales ops leaders need to consider - proactively - when setting sales quotas and those ever-important sales goals:
1. Stay on Planet Earth. Make the goals realistic. Yes, a stretch goal is important, but we also need to remember that 50% to 70% of your sales organization should hit their goal.
In a recent Brevet Group survey, over half said their teams’ goal was a flat percent increase over the prior year. This “wash, rinse, repeat” methodology uses no logic. And worse, it is actually demotivating to your sales organization. While a flat allocation or percent increase over the prior year is the easiest and quickest approach, it’s not the best.
Sales leaders will always have to balance the top line goal with the individual targets. The trick is how to allocate the top line goal. How should it represent each rep's and/or each territory’s potential, market opportunity, industry growth measures, and existing business?
2. Avoid the Yo-Yo. A flat percent quota-setting process also leads to the most complex results. A percent growth is not universal across products, territories, or resources.
If the sales person blows it out one year, the temptation is to “bank” the money since he knows he won't likely get the same results the following year. On the flip side, we've seen sales folks hold back on year-end sales to pad their number for the following year.
Sandbagging techniques not only impact the pipeline and overall goal, but also the sales culture. To avoid the “yo-yo” effect, it's important to customize the sales goal to the person and their territory/book.
3. Follow-through with Your Process. Through the years, we've collaborated with clients on designing some innovative goal-based compensation plans. We typical have endless conversations to ensure the plan is right: Does it align with the sales strategy and roles? Are there realistic and motivating measures? Do the models ensure the plan will reward the right behaviors?
Then the other shoe falls.
Sales goals are based on prior year performance or pure randomness. This results in an ineffective sales compensation plan because of the #1 and #2 reasons above. We spend quite a bit of time mid-year trying to fix the plan when the issue is really the goal setting process.
From Afterthought to Forethought
Setting realistic, attainable (yet stretch) goals takes time. We recommend that the sales allocation process start at the beginning of Q4. If done correctly, it will take many iterations and a lot of time. It’s also a process that can't be done in a silo. Organizations that do it right involve cross-functional teams, implement top down and bottom up strategies, and gain the input from their sales managers.
Unless you have a crystal ball or are just really lucky, there's no silver bullet to setting sales quotas. However, we've learned a lot through the years on what to do (and what not to do). Contact us to learn more about how high-performing sales teams are managing their quota setting.
About The Author
Carrie is an experienced consultant specializing in sales analytics, organizational design, and sales process optimization. She is the co-author of The Sales Compensation Handbook as well as numerous sales research studies.