In the highly competitive sales world, achieving consistent revenue growth is critical. But it’s also undoubtedly challenging. That’s why setting realistic sales quotas can be a powerful tool for charting the course for success by providing a clear target for sales teams. Yet, many leaders are still setting aggressive or unrealistic sales quotas, leading to demotivation and burnout among sales reps. In this article, we’ll explore six realistic sales quotas to help sales teams win more deals and achieve sustainable revenue growth in a way that inspires reps to do more:
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What is a Sales Quota?
A sales quota is a specific target or financial goal for sales representatives or a sales team to achieve within a certain period.
The quota is usually based on a revenue or sales volume target and is used to measure the performance of sales reps or teams.
Sales quotas are set mainly by sales leaders and are measured in numerous ways, such as profit, sales or activities.
Meeting or exceeding the quota is often tied to incentives or bonuses and helps drive revenue growth for the company.
The Importance of Setting Effective Sales Quotas
While sales quotas aid sales forecasting and monitor overall rep activity, they’re also responsible for keeping sales reps motivated to reach a certain level of activity.
Balancing motivation with achieving goals is hard. But it’s even harder to make progress without setting a clearly defined goal. That’s because standards give us something to strive for and help us recognise when we’re improving.
As such, sales quotas assist sales managers and leaders in ensuring that all compensation plans and commissions are fair and effective by creating achievable goals and benchmarks.
This approach helps to reveal weaknesses in your sales pipeline while simultaneously highlighting your successful sales reps so that you can replicate their sales techniques and strategies.
Sales Quotas vs Sales Goals: What’s the difference?
Sales quotas and sales goals may look the same on the offset, but they’re not.
That’s because sales quotas are a series of actions set to help salespeople achieve a specific revenue goal. In comparison, sales goals are long-term strategic plans to expand the company’s revenue.
Sales Quotas vs Sales Targets: What’s the difference?
Another sales metric that’s often mistaken for sales quotas, sales targets are used to define targets for teams rather than individual salespeople.
The sales target will usually states how many sales your team needs to make of a particular product or service to reach its revenue goals in a specific period. As a result, sales targets help sellers to break down and condense their sales goals and quotas into attainable bite-sized sections.
6 Types of Sales Quotas That Help Sales Teams Win MORE Deals
Are you looking for a sales quota structure that helps your team win more deals? You’re in the right place. Here are the six most common types of sales quotas:
1. Revenue Sales Quota
As you’ve probably guessed, revenue sales quotas are based on a revenue goal for a month, quarter or year. A revenue-based quota incentives reps to sell a certain dollar amount for that period.
Smaller companies often set this type of sales quota for the month or quarter, whereas larger companies with longer sales cycles will set annual revenue sales quotas.
On the offset, while this is a simple type of sales quota, you can customise it to suit the needs of your company and sales team.
However, if your company’s products have a range of different profit margins, you might use profit quotas instead of focusing on revenue quotas.
That’s because profit quotas incentivise reps to spend time selling items that yield a higher profit.
2. Volume Quota
A volume sales quota rewards sales reps for the number of deals or qualified leads they generate, regardless of deal size.
Volume sales quotas are often set for sales teams to achieve over a year.
Depending on the nature of the business, managers may decide to break the volume quota down into regions, products, or sometimes by the sales professional.
This type of sales quota helps incentivise reps to achieve a specific goal while holding the entire sales team accountable for good attainment.
3. Profit-Based Quota
A profit-based sales quota is based on the gross profit margin of the products or services sold.
This type of sales quota incentives reps to sell higher profit items and reduce discounts.
As a result, this type of sales quota works well for companies with several target markets and price points to consider.
4. Combination Quota
Exactly as it sounds, combination quotas are just that – a combination of different sales quotas.
That’s because some sales professionals may have more than one quota.
For example, a typical combination quota may include an activity, profit, and volume quota.
As a result, the type of sales quota set-up provides sales reps with small, achievable milestones alongside a sales roadmap for success, making them more likely to attain their quota.
5. Forecast Quota
A forecast quota is based on the number of sales that sales territories or teams must achieve in any given period.
Forecast quotas companies decipher the influences on their revenues, where they come from and how these affect the company.
Overall, a forecast quota is calculated based on the historical performance and the revenue goal it must reach.
6. Activity Quota
Activity sales quotas are based on a sales rep’s sales activity and include activities that are part of the sales process but not directly responsible for translating into sales.
For example, you could task your sales reps with making a certain number of calls or booking a certain number of meetings per month or quarter.
How to Set a Winning Sales Quota for Your Sales Team
Setting a winning sales quota for your sales team is critical for ensuring that your team stays motivated, focused, and productive. Here are some steps you can follow to set a winning sales quota for your sales team:
Step 1: Establish a Baseline
The first step in setting any sales quota is to determine your baseline.
The baseline is your organisation’s minimum standard of performance. It also relays how much your sales team needs to earn to meet the basic needs of your business.
To calculate your baseline, you can either take the amount of revenue your sales team closed in the last 12 months and divide it by 12 to understand precisely how much revenue the sales team must collectively acquire per month.
Want to calculate your sales organisation’s sales quota baseline? Use the helpful formula below:
Average number of closed-won deals (per month) x Average contract value = Baseline sales quota
Baseline Sales Quota Formula
Step 2: Define Sales Objectives
The next step in setting a sales quota is to define your sales objectives. This could include revenue targets, new customer acquisition targets, or product-specific sales targets.
Step 3: Consider Individual Strengths
Each salesperson on your team has different strengths and weaknesses. Take these into account when setting sales quotas.
For example, if one salesperson is particularly good at closing deals, you might set a higher quota for them than for a salesperson who excels at lead generation.
Step 4: Set Attainable Goals
Now you have a baseline, it’s time to set activity goals to provide sales reps with a sales roadmap to keep them on course to success.
Remember to include information about how many demos, calls or emails they need to use to meet their sales quota.
Step 5. Monitor Progress & Adjust as Needed
If your team consistently exceeds their quota, you may need to increase the sales quota to keep them motivated.
On the other hand, if the team is consistently missing their quota, you may need to adjust the quota downward or provide additional support and training.
Helpful Sales Quota Calculators
Calculating sales quotas can be long, complex and time-consuming. Take back the time in your busy day, and use one of these recommended sales quota calculators for ease:
Yesware Quota Calculator
This handy sales quota calculator allows you to calculate sales quotas with either a top-down or bottom-up approach. Once you input the required data, Yesware will provide you with a sales quota number.
Calculator Soup’s Profit Goal Calculator
An excellent tool for calculating profit-based sales quotas – just input your sales team’s average monthly sales, profits, variable costs, and fixed costs to calculate your sales quota or goal amount.
Common Sales Quota Mistakes
You know what you should be doing to create and set sales quotas, but what should every sales leader avoid? Find out below.
Setting Unrealistic Quotas
One of sales managers’ and leaders’ most significant mistakes is setting unrealistic and unattainable sales quotas.
While you want your team to reach for the stars, if you do this, all you’re doing is setting your hard-working reps up for failure and, ultimately, a lack of motivation and drive.
Similarly, leaders can’t change or adjust sales quotas during the given period as it will demoralise sales reps and stall revenue growth. If you decide to change your sales quotas, ensure you only do so after gathering at least three months of data to support your decision.
Applying Commission Caps
If you apply commission caps to your sales reps’ quotas, it will limit the amount of commission they earn – and in turn, can cause demoralisation.
When you do this, your sales rep will hit their commission cap and understand that they are no longer financially rewarded for closing more business.
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