By Clinton Gott and Ted Briggs
Quota Plans are Plentiful but Good Quota Setting Processes are Not
Quota based plans are very prevalent today and with good reason. Quotas allow for customizable plans taking into account the unique qualities and potential of each territory. They promote “fairness”, are easy to understand, and are relatively easy to administer.
However, the most common complaint that we hear when working with clients that use quotas is “we are not good at setting quotas” followed by “ can you help us set quotas better”. As sales compensation and sales effectiveness consultants, we at BSC most certainly can and do help our clients set better quotas by employing a tried and true process that includes both top-down and bottoms-up forecasting along with a mathematical approach to allocating national and regional forecasts to territories. A basic quota process methodology often looks like Exhibit 1.
That being said, we often encounter overly simplistic approaches to allocating quotas to individual territories such as the “peanut butter” method where the national goal or growth goal is equally spread out over all territories. Some augment this approach using a “chunky-style” peanut butter method (if you will) that includes territory size as a modifier for allocation (e.g., larger territories have to grow less as a percentage than smaller territories).
Quota Setting is a Direct By-product of Sales Planning
However, what these simplistic approaches ignore or gloss over is that quota setting is really just a by-product of good sales planning. The best methods for sales planning include taking into account both “internal” factors such as financial data and “external” data such as market opportunity and access. This type of approach allows each territory manager to take into account the key drivers of sales potential. That includes not only territory size but characteristics such as customer population density, competitive threats, access to customers, regional cultural norms, and regulatory differences, to name just a few.
The good news is that companies are already capturing data on most of these characteristics in the ubiquitous salesforce automation systems that have been increasingly deployed over the last few years. And even if at headquarters, some characteristics like customer access lack hard quantitative data, we can use these tools to get directionally accurate information from the people who should have the most insight, namely the territory representatives themselves.
Set Better Quotas and Improve Sales Planning
That is why we encourage our clients to use a Quota Setting Framework that utilizes both internal and external factors to set quotas (see Exhibit 2).
A simple such framework would involve picking the 3 or 4 factors that impact sales potential for each territory and for which you do not have hard data (such as sales volume) and have the territory reps and their managers rate each factor on a scale of 1 to 3. These ratings can be aggregated and translated into a growth or allocation factor for each territory that leads to better quotas that reflect a truer picture of territory potential. While not a perfect mathematical solution, these inputs can represent “the art” element in the art and science nature of quota setting.
Of key importance, these same factor ratings can then be used for more meaningful and impactful sale planning discussions between territory reps and their first line managers. These strategic and tactical coaching opportunities can have a great impact on overall sales results.
In summary, using a better quota setting process is really using a better overall sales planning process, which can help you to recognize the true value of a great sales incentive plan – increased sales performance!