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. Give your sales team something to aim for; discover the 6 types of sales quotas that help sales teams win more deals below.
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What is a Sales Quota?
A sales quota refers to the financial goal (often time-bound) that an individual sales rep, sales team or even region must reach in any given specific period, usually one month or quarter. Sales quotas are set mainly by sales leaders and are measured in numerous ways, such as profit, sales or activities. Overall, the better the sales quota attainment, the better the performance bonus for the rep or team.
What’s the importance of setting Sales Quotas?
While sales quotas help to aid sales forecasting and monitor overall rep activity, they’re also responsible for keeping sales reps motivated to reach a certain level of activity. As a result, they 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?
In general, 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?
Again, 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 state how many sales your team needs to make of a particular product or service to reach their 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
One of the most common sales quota types is based on revenue. The revenue sales quota expects sales reps to sell enough products or services to earn a specific amount of revenue for that given 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.
Overall, revenue sales quotas can refer to net revenue, especially in cases where prices are flexible and upselling is typical or expected. 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
Volume sales quotas are often set for sales teams to achieve over a year. More so, 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 whilst also holding the entire sales team accountable for good attainment.
3. Profit-Based Quota
A profit-based sales quota encourages sales reps to earn a certain amount of revenue by selling a certain amount of products or services. 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 instance, a typical combination quota may include an activity quota, profit quota 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 need to 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 to make a certain number of calls or book a certain number of meetings per month or quarter.
How to calculate a Sales Quota for your sales team
Are sales teams not meeting their quota 80% of the time? Then there may be something wrong with their current sales quotas – and you’ll need to fix it. Luckily, we’ve provided a three-step guide to creating realistic sales quotas for your reps below:
Step 1: Establish a baseline
The first step in calculating any sales quota is to determine your baseline. The baseline is your organisation’s minimum standard of performance and relays how much your sales team needs to earn to meet the basic needs of your business.
To do so, 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 quotaBaseline Sales Quota Formula
Step 2: Start from the bottom up or the top down
When creating sales quotas for your team, there are two primary approaches you can opt to use: the top-down and the bottom-up approach. The top-down approach is where companies set a goal for the quarter or period and then assign sales quotas to support this goal. A bottom-up approach concerns looking at what each rep can earn by examining historical data and then creating quotas founded on those numbers.
Step 3. Set Activity 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.
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:
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.
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 rep and understand that they are no longer financially rewarded for closing more business.
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