Sales quotas can be a double-edged sword.
When used right, it motivates your sales teams, drives them to deliver their absolute best and incentivizes growth. But, in the wrong hands, it’s dangerous and can push your team over to the dark side.
Gather ‘round, folks. It’s time for another edition of sales stories.
In late 2016, news outlets reported that Wells Fargo & Company employees had created two million banking and credit card accounts for customers without their knowledge and consent.
When investigations were underway on the Wells Fargo fraud, another shocking bit of news surfaced - the employees of these companies claimed that the sales quotas of Wells Fargo were grossly unrealistic, forcing employees with no other option but to resort to fraud.
The company had a predatory sales environment and hyper-aggressive sales quotas. Employees who didn’t meet the quotas were either demoted or risked losing their jobs, which was taking a toll on their mental and emotional well-being.
This scandal serves as a cautionary tale to all companies that rely on sales quotas to drive growth and revenue. While sales quotas are crucial to achieving goals and track the team’s performance, they can lead to trouble when they are unrealistic or aggressive.
This guide sheds light on the nitty-gritty of setting healthy sales quotas that keep your sales teams productive and motivated.
What is a sales quota?
A sales quota is a target set by sales managers for each sales rep for a specific period of time, usually for a quarter. It can be:
- Revenue quota: Say, reaching $10,000 of sales in a quarter
- Number quota: Like a target of selling 100 product units in a quarter
- Combination quota: A mix of the number of products sold and revenue quotas
Sales rep compensation figures usually depend on how much of the sales quota was achieved within the specific time.
Five costly mistakes to avoid while setting sales quotas
If you’re new to quota setting, make sure to avoid these costly errors that can prevent you and your team from reaching sales targets.
Avoid the rear-view mirror trap
If you have ever taken a driving lesson, you would have heard the saying, “You cannot drive by looking at the rear-view mirror. You’ve got to see what’s ahead”. The same applies to sales quotas too.
Creating sales targets based on your past data alone could lead to costly mistakes. For example, as we are all aware, the holiday season is one of the busiest times of the year for consumer brands. If your sales organization doubled sales in November and December, it’s unrealistic to expect the same numbers in January or February.
Often sales reps feel anxious and demotivated when they see an increase in their quota after a good month or quarter. Moreover, some sales managers do a yearly analysis instead to account for monthly fluctuations. This method can backfire when there’s an economic downturn or other unexpected factors come into play.
To avoid this, sales managers need to look at both market forecasts and historical data while setting sales quotas. This is where technology comes to your aid.
Tools like a CRM and a conversation intelligence platform help you identify the potential for the upcoming quarter instead of just relying on past performance. You can see how many potential clients you have in the sales pipeline, helping you set realistic and achievable quotas without demoralizing your sales force.
The “punishing your best sales reps” syndrome
If your rockstar sales agents constantly hit their quota, it might be tempting to raise the bar higher without considering the consequences.
Constantly raising the bar without considering other factors at play makes your top performers feel cheated. They begin to feel that they are penalized for being good at their jobs. Consequently, they may call it quits, or worse, they might begin to underperform.
The “demoralizing your team” mistake
A sales quota set too high or aggressive is not motivating, rather it has the opposite effect on your team. Reps can easily spot when you give them unrealistic quotas, making them feel discouraged from the get-go.
As a result, they lose their fighting spirit, making it harder for them to put in their best efforts. They adopt the attitude, “Why should I work hard when I know that it’s practically impossible to achieve my targets?” A devil-may-care attitude becomes your team's motto when you push them towards unrealistic goals.
Dangling the proverbial carrot and stick
Sales managers use two common tactics to get their sales reps to hit their quotas:
- The carrot - Rewarding exceptional performance with monetary incentives (like commissions) or other non-financial incentives like a promotion or workplace awards.
- Or the stick - Pressuring salespeople to work harder by humiliating or threatening them with a punishment like a demotion or a pay cut.
There’s a ton of scientific research out there that concludes why both these methods do more harm than good. Stress and money are quota killers.
The motivation to do better must come from within. Extrinsic sales incentives foster a culture of cut-throat competition where sales reps do everything possible to achieve their sales quotas - by hook or by crook. This is what happened in the Wells Fargo scandal, which caused their sales team to behave unethically to meet their numbers.
Avoid the “top-down” approach
There’s more to defining sales quotas than taking old metrics, adding a specific percentage increase, dividing it equally among your sales reps and calling it a day.
Not all sales reps are the same. Each agent comes with varying experience, expertise, abilities, territories, and products. The “top-down” or “peanut-butter” approach is where sales quotas are evenly spread among all sales staff, without any consideration for their individual circumstances.
For example, let’s say that you have two salespeople handling different territories. Salesperson A has a longer sales cycle because your products are new to that area, and you’re just breaking ground. On the other hand, Salesperson B works in a territory where you’re the number one brand and already have an established clientele.
From this scenario, it’s evident that Salesperson B is positioned to outsell Salesperson A. The top-down approach doesn’t consider these differences and assigns both of them the same goals. Don’t you think that’s unfair to Salesperson A?
This is where individual sales quotas come into the picture. Individualized quotas are customized to reflect the challenges and strengths of each sales rep and their sales journey. It helps you create more accurate allocations that motivate your employees instead of making them feel deflated or discouraged.
How to set sales quotas that drive growth?
Despite the challenges, sales quotas are an absolute must.
Without quotas, your reps wouldn’t have goals to shoot for - and you’d have no way of knowing whether your company is on the right track to achieve your long-term sales goals and business objectives.
The key is in creating activity-based quotas using a bottom-up methodology.
This section provides you with the two best sales goal-setting strategies to steer you in the right direction.
#1: Use activity-based goal setting
Earlier, it was common for sales managers to set goals based on financial targets. If every rep were selling the same product, they would be required to sell a specific number of units every month. On the other hand, if they handled different products, they were expected to reach sales worth a particular amount.
However, giving them a fixed number to hit every month can be stress-inducing. A better approach is to go for an activity quota, as it works on the concept of “small wins.”
Achieving small quantifiable goals motivates a person to work towards a larger overall plan. On the other hand, if the rep feels that the target is too daunting, they are likely to feel defeated and demotivated, even before they begin.
With activity-based quotas, your sales team can divide their overall monthly targets into smaller chunks. This helps to boost sales productivity without making reps feel overwhelmed.
In the past, sales leaders shied away from using activity-based quotas because it was a daunting task that became difficult to track. Also, sales reps found it too tedious to manually note how many phone calls they make in a day, the number of follow-up emails, and keeping track of the stages they have covered on the buying journey of a prospect.
Thanks to conversation intelligence tools like Wingman, tracking all these crucial details is easier than ever before. You can now keep tabs on each interaction with a potential client and get automated, critical insights right at your fingertips. This helps sales leaders and managers see precisely how each sales rep is doing. You can then step in to provide struggling team members with timely guidance and motivation if you see them lagging.
#2: Implement a bottom-up approach
Like we said before, top-down quotas tend to be overambitious and demotivating. A better and more efficient approach is the bottom-up methodology. Here, the sales manager analyzes each rep's historical performance and capabilities and compares them with the available market opportunities. The manager then sets realistic sales quotas for each agent or team, using the available data insights.
This approach considers various parameters, including:
- Average deal size
- Lead-to-close ratio
- Number of qualified leads
- Market potential
- Rep activity
- Rep’s performance etc.
Tracking all this might seem like hard work, but you can get crucial sales data instantly when you implement modern sales tools like conversation intelligence platforms.
A conversation intelligence platform records, transcribes, analyzes, and monitors the performance of each employee and rep in real-time. The best part - it’s all automated, and your team isn’t loaded with any extra work. It makes it easy for sales managers to identify the top and bottom performers and adjust sales milestones accordingly and provide timely, personalized sales coaching.
Consistent reporting by a conversation intelligence platform helps you stay on top of your sales performance and provides you with actionable insights for improvement.
Finally, don’t lose sight of your sales quotas
The worst thing you can do with a sales quota is “set it and forget it.” Sales quotas aren’t meant to be visited just once a quarter. They need to be analyzed regularly to check if you’re on track. They’re achievable targets that help you hit your overall business goals.
Harness the power of modern sales tools like Wingman to empower your sales team to reach their sales quotas without stressing over it. Wingman helps you take stock of your daily sales activities, ensuring that your team enjoys every small win with the right support from sales leaders and managers.
After all, your sales team’s successive small wins have the potential to grow into a giant leap of success for your business. Contact us today to find out more about Wingman and learn how you can use it to hit your big-ticket sales goals without missing the mark.