Not only does this decrease morale, it also makes sales forecasting extremely difficult.
So are quotas necessary for success? Or are they actually holding sales organizations back?
A World Without Quotas
In my first sales role, I didn’t have a quota. I was working at a young tech startup whose typical customers were investment bankers and hedge fund analysts.
The company hired salespeople who weren’t specialized in selling but knew the product and the audience very well -- often because they came from the finance world.
Our primary role was driving new business, but we also acted like product managers. We’d take feedback from our prospects and relay it to the technical team.
A pretty big portion of our comp was variable and paid MBO-style. Management by Objective (MBO) plans reward salespeople for hitting their goals, rather than their sales targets.
For example, if you’re launching a new product, you might reward every salesperson on the team if the business manages to sell that solution to 10 tier-one accounts in the first three months post-launch.
At my company, each sales manager decided how to pay out the variable comp. That means they’d look at the overall team performance and decide what percentage to give everyone.
The experiment was interesting but poorly executed. There was too much potential bias.
But the most surprising part? Not having quotas didn’t hurt our performance. We grew the company really quickly and sold a lot of business because we wanted to build something together. We were all rallying behind a common goal.
Next, we moved to a team-based compensation model. One quarter of our comp was based on our team’s performance. And people started performing worse.
Once they saw how compensation was calculated -- and that they could game it -- they felt like they could slack off. After all, if you know your team is already going to hit, are you really going to stay in the office late every night trying to sell?
That led us to a plan where the majority of comp was based on individual performance. When we were responsible for our own success, our results picked back up.
However, we weren’t selling more than we had in the no-quota world. We were selling roughly the same.
This experience proves to me that not having a quota can work.
The pros of quotas
Quotas drive salespeople to perform. There’s a real concern that without quotas, reps might sit back and not actually do their job.
This system can also put reps at ease. They don’t have to worry about whether they’re working enough or performing at the right level, because they can simply look at their results and know exactly where they stand compared to their peers and how far they are from target.
Quotas give salespeople something to beat, which speaks to the classic competitive personality that the profession tends to attract.
This system also recognizes the reps who go above and beyond. If a salesperson overachieves, the business gets more money, and so does she.
Finally, quotas make it straightforward to see your ROI. You put X in, you get Y amount. Simple.
The cons of quotas
Do reps actually need the reward of a quota to sell? In Drive: The Surprising Truth About What Motivates Us, Daniel Pink discusses intrinsic versus extrinsic motivators. He shows that the idea of being successful is often a better motivator than getting paid.
In fact, a meta-analysis of 92 quantitative studies involving 15,000 people shows the link between salary and job satisfaction is very weak. That means fulfillment at work is largely unrelated to how much money you’re making.
Another meta-analysis found that rewarding people for doing a task actually decreases their desire to do it out of enjoyment or curiosity or for personal growth or education.
For every standard deviation increase in reward, their intrinsic motivation dropped by 25%.
And when they know in advance how much extra money they’ll make -- like a sales commission -- their intrinsic motivation dropped by a startling 36%.
Quotas can also be difficult to set. Maybe you have little (or zero) information about your target market, territories, or how much one person can be expected to sell. An arbitrary quota might demotivate your salespeople.
Additionally, objectives change more quickly than your comp plan. A traditional plan is fixed for at least a year, but the business goals and strategy are constantly shifting. There’s a real danger your comp plan becomes misaligned with your company’s direction.
Quotas also disincentive reps from doing anything but selling. If you have a big new hire class, and you want your veteran salespeople to spend two weeks training them, do you take away quota for that time?
What about the time you’d like them to spend talking to the product team, giving direction to Marketing, going to sales training, and so forth? Having a quota means salespeople may see these activities as a distraction, rather than a normal element of their job.
Quotas are a part of almost every sales organization -- and anecdotally, they don’t seem to be going away anytime soon. (In fact, a study found high-performing sales organizations are more likely to hold reps accountable to their revenue targets and aggressively raise those targets year-over-year.)
But they’re not a perfect system. As my experience proves, there are some situations where traditional quotas can be less productive. If you’re a sales leader, it’s worth thinking about eliminating or modifying quotas.
Originally published Oct 11, 2017 7:30:00 AM, updated October 10 2017