Growing businesses aim to expand their sales volume and income with an active sales team. Many business managers set sales quotas for their sales teams for this reason. So, what are sales quotas?
What Is Sales Quota?
A sales quota is the specific proportion of revenue or sales the business management assigns its staff to achieve a particular target. These quotas are the standards for both B2C and B2B sales’ performance measurements. Quotas serve as criteria for evaluation, performance improvement, and testing. When a sales team member exceeds the quota, they receive extra payment. Usually, sales quotas are determined weekly, monthly, or annual. It’s used by businesses to optimize the sales force, evaluate the performance of sales personnel and encourage them to achieve targets.
How to Set Sales Quotas
Sales predictions, budgets, and quotas are terms related to each other. Primarily, it’s necessary to predict company sales under certain marketing conditions to reach sales quotas over a certain period. Later, sales budgets should be planned to realize these predictions and profits. Lastly, it should be determined how much sales volume and profit contribution can be achieved from each sales region. To accomplish this, managers should set numerical targets for each sales territory or salesperson. These numerical targets set the sales quotas.
This process can also work in reverse, which means it can be an inductive process such as sales quota, sales budget, and sales forecast. A sales quota is a value calculated depending on many parameters. However, you can implement this simple formula to set a sales quota for your business easily:
Baseline sales quota = Average number of closed won deals per month
How Should An Effective Sales Quota Be Set?
One of the first things to consider when creating a sales quota is the targets. Goals should be determined according to the qualities of the sales team, the current situation, and the expectations of the business in a realistic way. For instance, sales representatives should achieve their sales quotas. At this point, setting a high quota might be struggling and demotivating for the representatives. Small steps strategy can be implemented for the sales quota. First, you can start with a small quota, so the representatives can evaluate themselves and work more motivated for the next goal.
Another critical point in setting quotas is timing. This way, representatives can predict when they can achieve their goals and arrange their work accordingly. Creating an unbalanced quota in terms of time can negatively affect the work process.
What Are the Advantages of Sales Quotas for Businesses?
Determining sales quotas facilitates the work of marketing and sales professionals and managers. Besides, determining sales quotas provides these advantages:
1) Helps Evaluate the Performances of Salespeople
Sales quotas should be determined by considering the environmental conditions and workload of the employees. This way, it might be a critical metric for evaluating salespeople so that they can see their current situation and show more ambitious working potential for the next sale. It’s also essential for managers to take action to increase motivation.
2) Encourages Sales People to Achieve Business Goals
Qualified and realistic sales quotas motivate employees to work. Each employee knows that they should exceed their own quota. Commissions can be given to salespeople who exceed sales quotas. Such reward systems allow salespeople to increase their efforts to reach their targets.
3) Provides Efficient Feedback for Businesses
Businesses can receive feedback by accomplishing the target quota. For instance, salespeople can evaluate which product category they should pay attention to in case of product variety. This way, employees won’t spend unnecessary effort and time on other categories. Therefore, companies and regions can increase their income and sales rates.
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