It’s Quota Setting Time – Beware of Irrational Exuberance!

In our line of work, we get to spend a lot of time with salespeople.  We hear the good, the not so good and everything in between.  One of the topics that always seems to fall in the “not so good” column is quotas.  There is never a shortage of strong opinions, but generally, the themes are a sense of unfairness, lack of achievability, and no transparency of the process.

We always like to dig deeper into these issues as in many cases the quotas directly impact the reps’ pay.  In our discussions, many of the salespeople volunteer detailed spreadsheets they have kept regarding their productivity in past years, major wins, number of accounts growing and declining, new products introduced each year – you name it!  The good ones really know their metrics and are not afraid to put forth their arguments against irrational numbers.

Common stories we hear include:

  • Revenue growth has been steady at 3-4% per year the past few years, but suddenly a rep receives a quota for the next year representing 15% or more growth, with no new products being launched, no new customer segments being targeted, and no explanation provided.
  • A “bluebird” sale landed in a particular year, with the expectation for the next year anticipating another one, thus slapping a percentage growth objective on an already likely inflated number.
  • Misalignments between field reps’ quotas and that of management/the company, with the end result that the majority of reps don’t make their quotas but the company hits its overall targets as do many of those in management (leading to the morale killing situation where management and leaders head on incentive trips with the vast majority of salespeople left behind!)

To that last point, in a recent Quota Practices Studies (performed by BSC and the WorldatWork), we found only half of the participants over-allocated quotas and usually no more than 5-10% levels. The over-allocation was generally held to just front line manager to sales rep but not at higher levels in the sales organization.  If you want the Executive Summary, e-mail us at info@bettersalescomp.com.

The implications of these situations are quite predictable:

  • Diminished morale, and salespeople just giving up because they have no confidence they can hit their number.
  • Swings in performance, with reps gaming the system, and looking at their incentive pay over a two year cycle, with a great year followed by a lousy year, which then gives them a lower quota the next year and a good payout again.
  • Diminished incentive payouts, leading to a higher number of salespeople keeping their eyes open for other opportunities and increased turnover and open territories for the organization.
  • Resentment and distrust of management and leadership, again potentially leading to turnover and business disruption.

When we talk to management and leadership about what we hear from the sales force, we often don’t get the best answers – “Wall Street is expecting 15%”, “We think we may have the new product out by the end of the year but it’s been delayed a few times”, or “We always have to grow by a double digit percentage, but you are right, the last few years the actual growth has been around 1-2%”.  We tend to believe the long term pains of over exuberant quota setting far outweigh any short term or perceived gains.  In fact, we’ve had two recent clients who over-allocated quotas by 15-20%. The results were both organizations consistently had only 30% of reps hitting goal while the organizations themselves still managed to meet overall objectives. Morale sank, turnover increased, and no amount of quota over-allocation could keep the organizations’ future results on track! The perceived overall near-term success could not be maintained, and each had to rebuild the sales organization and resulting growth engine.

So when you set or get that number for 2015, use some common sense, and ask the “why” and the