What is a Sales Quota and How Do You Set It?

A sales quota is a goal that a worker, sales team, or a company’s whole sales department must reach within a specific time.

You can calculate sales quota in several different ways:

• Amount of money to be made.
• Number of units sold.
• Number of new accounts to be opened.

A sales quota aims to provide salespeople with a measurable objective to aid in assessing the performance and effectiveness of their activity.

Therefore, a sales quota is a significant factor in achieving sales.

But what about for the wider business? How important is a sales quota?

Sales quotas are essential to business, affecting the company’s short-term and long-term operations and strategies.

Ready to learn more about the basics of sales quotas?

This blog will investigate sales quotas and how salespeople can set them independently.

Scroll 👇 for more!

Understanding sales quota

There are different types of sales quotas that everyone must understand. Quotas encourage performance, set a standard for success, and measure people’s productivity. 

Some factors, such as referrals, fuel salespeople to reach their quotas. A 2021 Sales Insight Lab study found that recommendations can help salespeople get new customers and meet their sales goals in a big way. In fact, 47% of the best salespeople always ask for recommendations.

Sales quotas are all about numbers and measurable goals. Some of these are:

Revenue target

A revenue target is the amount of money a salesperson, team, or company wants to make in a certain amount of time. 

One of the most basic ways to measure how well sales efforts work is to determine how much money they bring in. 

These goals are usually expressed in terms of money. You can set revenue targets for different lengths, like weekly, monthly, quarterly, or yearly.

Volume target

A volume target is the exact number of goods or services a salesperson, team, or organisation wants to sell in a certain amount of time. 

Unlike revenue goals, which focus on how much money was made from sales, volume goals determine how many items were sold.

You can set volume targets to be daily, weekly, monthly, quarterly, or yearly. 

The time element in sales quotas

The time aspect in a sales quota is based on the exact amount of time a salesperson, team, or company has to reach specific sales goals.

The time range can differ depending on the business model and industry. B2B sales deals often have much longer sales cycles than other sectors.

Standard time frames include:

• Daily: Some fast-paced sales environments, like retail stores or call centres, may set daily goals to ensure employees always do their best. 
• Weekly: Weekly targets are less common, but they can work well for businesses with shorter sales cycles or that often need to monitor the market to make changes.
• Monthly: This is the usual time frame for sales quotas, especially in industries where sales cycles aren’t long or short. Monthly quotas strike a mix between giving salespeople enough time to close deals and letting them know how they’re doing regularly.

Geography and territory in sales quotas

In a sales quota, geography or territory means the exact geographical area or region that a salesperson, team, or distributor is responsible for selling in. 

In many industries, it’s usual for sales representatives to be assigned specific territories so that the whole market is covered and there’s no overlap between accounts.

Moreover, there are vital aspects of geography or territory in sales quotas. These are:

• Defined boundaries: The borders of each region are clear. Depending on the size of the business and the goods or services being sold, these can be as small as a single neighbourhood or as big as a whole country.
• Sales potential: Territories should be considered and given out based on how much money they could bring in. This means considering the number of possible customers, their buying power, and the market demand in each area. 
• Balanced allocation: The best way to divide territories is so that each sales rep has an equal chance of making their quota, considering each region’s sales potential and difficulties. 
• Accountability: Salespeople are responsible for all sales efforts in their assigned territory. This makes it clear who is accountable for what.
• Avoidance of conflict: By clearly defining territories, businesses can avoid problems that happen when two or more salespeople talk to the same prospect or try to do the same thing at the same time.
• Customised approach: When salespeople know what makes a territory unique, they can change their approach, strategies, and messages to reach the local audience better. 

Product or service in sales quotas

In a sales quota, product or service means the specific things or services a salesperson or team expects to sell. These could be electronics, cars, groceries, or services like consulting, software subscriptions, or banking services.

It’s important to remember that there are crucial aspects to product or service in sales quota, which are the following:

• Defined scope: Most of the time, salespeople are given a list of goods or services they are responsible for. This list usually matches their areas of expertise, customer group, or market needs. 
• Variable targets: Sales targets vary for each product or service, depending on the profit margins, market demand, strategic importance, or inventory levels.
• Multi-product quotas: In some cases, salespeople are in charge of selling more than one product or service. They may have different quotas for each or a single target that they can meet differently.
• Special campaigns or promotions: There may be temporary sales goals for new or seasonal goods or a market opportunity that only lasts for a limited time.

Types of sales quotas

There are different sales targets, each with pros, cons, and best-use cases.

Here are some common sales quotas:

• Revenue quotas: These targets are based on how much money a salesperson, team, or department should make in a certain amount of time.
• Volume quotas: This quota is based on how many units of a product or service are sold rather than how much money they bring in.
• Profit quotas: These are based on the profit made from sales, with the costs of the goods or services sold considered.
• Activity quotas: These targets are based on specific sales activities, like the number of customer calls, proposals sent, or demos given.

Each type of sales quota is best for different situations and goals, and businesses often use more than one type simultaneously to measure sales success. A sales playbook that contains strategies and scripts can help sales agents achieve their quotas.

The important thing is to choose the type or mix of types that fits best with your organisation’s goals, your sales process, and the product or service you sell. 

Understanding the basics of sales quotas is one thing, but learning the importance of setting them is vital.

Importance of sales quotas

Sales quotas are essential for a business because they help align individual and team success with its goals.

Here are a few of the most essential reasons why sales goals are paramount:

• Performance evaluation: Quotas provide a standard way to measure how well a sales team is doing.
• Goal alignment: Sales quotas give salespeople concrete goals to reach, turning high-level company goals into measurable goals for each employee.
• Sales force motivation: Quotas can motivate people if tied to sales incentives like bonuses or raises.
• Accountability: Quotas set expectations for sales success and hold people accountable.

Now that you know why sales quotas are important, let’s find out how to set them 👇

How to set realistic sales quotas

Setting realistic sales goals is essential for keeping your sales team motivated and ensuring their goals align with your business’s goals. Unrealistic targets can hurt morale and cause people to leave their jobs, among other problems.

Here’s a guide to setting reasonable and useful sales goals:

1. Conduct market research

• Market size: Look at the general scope of the market or the size of the segments you want to reach.
• Competition: Know who you’re up against and how that might affect your sales.
• Economic indicators: Consider how the economy might affect the amount a customer can spend.

2. Analyse historical sales data

• Historical data: Look at how sales have been done in the past; find trends and patterns.
• Team skill level: Figure out how good your sales team is. Are they new and untested, or do they have experience? 
• Resource availability: Consider the marketing help, sales tools, and other resources your team can access. Adding additional support, such as appointment setters, could make meeting ambitious sales quotas more manageable.

3. Consider business objectives and strategy

• Clarify goals: Know what your business goals are in general. Is the goal to increase, enter new markets, keep customers, or make money?
• Timeframe: Figure out how long it will take to reach these quarterly, semi-annually, or yearly goals.

4. Consult the sales team

• Consultation: Talk to your sales team about quota standards; get their feedback and listen to their ideas.
• Realistic expectations: Salespeople often know best what they’re capable of. Morale and drive depend on them accepting their sales quotas.

While setting a sales quota looks relatively easy, there are common pitfalls in quota-setting that only some people who took up an online finance degree can anticipate.

Common pitfalls in sales quota setting

Setting sales quotas is a tricky act of finding the right balance. Using quotas correctly can inspire your sales team and push them to do their best work. 

Korn Ferry’s 2020–2021 Sales Performance Study shows that only 53% of salespeople meet or beat their goals. Most companies aim to meet 70% of their sales goals, which makes this a big problem for sales efficiency.

However, some usual mistakes can make sales quotas less useful. Here are a few things to look out for:

Unrealistic targets

Setting too high expectations can mean your sales team will struggle to reach their goals. This can lower confidence and cause people to work less hard/work elsewhere.

Lack of flexibility

Failure to change quotas in response to unplanned events, such as changes in the market, supply chain problems, or people changes, can lead to big problems. 

Never set unrealistic and unfair sales team quotas.

Ignoring market conditions

This means putting together quotas without considering market trends, seasonality, or economic factors. 

This can lead to either too easy or too hard to meet quotas, which won’t give your salespeople the right direction or motivation.

Monitoring and adjusting sales quotas

Ensuring that your sales team meets short and long-term company goals requires keeping an eye on and adjusting sales quotas. 

For example, if you run a small business with a limited budget, one of the most effective ideas is to make good use of CRM software for small businesses: keep track of all customer data, analyse it wisely and adjust sales quotes to match your customers’ needs.

Here’s a guide to help you track and change quotas effectively:

Regular reviews

• Frequency: Depending on your sales cycle, do daily, weekly, or monthly check-ins to compare success to goals.
• Key metrics: Look at key performance indicators (KPIs) like income made, volume sold, customer retention rates, and others that align with your business goals.

Document changes

• Keeping records: Write down all changes to targets, why they were made, and what you expect to happen.
• Performance reviews: Evaluate your team’s performance to identify trends, areas to improve, and places where they do a great job.

Mid-course corrections

• Flexible quotas: Be ready to change your sales quotas if market conditions, product demand, or team success shift in ways you didn’t expect.
• Approval process: Make sure there’s a straightforward way to change quotas and a clear way to decide who needs to accept the changes.

Sales quotas: the last word

Take it from us - sales quotas are hard work.

That said, they shouldn’t stop you from being motivated to achieve your goals. One thing is never to forget the formula for setting sales quotas:

There may be pitfalls in setting quotas, such as unrealistic targets, lack of flexibility, or ignoring market conditions. Still, you can always combat them through proper monitoring and adjustment of sales quotas.

Every seller wants to move deals forward and close deals that are good for both the customer and the salesperson. Keep your team’s focus on realistic sales quotas and tune out the noise!