Salespeople, how tired are you of hearing "Coffee's for closers?" If your answer is "very," I've got to apologize now, because I'm about to get a little "Glengarry Glen Ross" on you.
This 1992 classic has become a rite of passage for every salesperson. In the film, Alec Baldwin's straight-talking sales manager arrives at a small business to motivate the sales team. The top two salespeople at the end of the week will be given access to promising Glengarry leads while the others will be fired.
For sales managers, "Glengarry Glen Ross" is a cautionary tale. Motivating your sales team isn't about taking the coffee from their lips, it's about setting realistic quotas tailored to each rep, the type of product or service they're selling, and the market they're selling to.
So, how do you avoid driving your reps to stage a burglary to steal the best leads? Here's everything you need to know about setting successful sales quotas.
In sales, a quota is the financial goal individual or team sellers must reach by the end of a specific time period, usually one month or one quarter. Quotas are set by sales leadership and attainment of quota generally results in a performance bonus.
The difference between sales quotas and sales goals
Are sales quotas and sales goals the same thing? Not so fast. Sales quotas are often part of a series of actions set to help salespeople achieve a certain goal.
For example, if JVN Skates sets a company-wide goal to increase revenue by 25% in 2019, the sales leadership would identify how many sales they need to close in 2019 to meet that revenue goal.
Then, they would calculate how many deals their salespeople need to close per quarter to contribute to that goal. The financial value of those deals would be the salesperson’s quota.
A salesperson’s quota is often directly tied to their compensation plan, including commission and bonuses.
Different types of sales quotas
There’s not just one way to measure quota. Smaller companies selling a single product with a static price often set quotas around how many units (i.e., 28 pairs of skates) a salesperson must sell every month.
Larger companies selling multi-tiered products or services might have a more nuanced quota structure where the salesperson’s is held to the overall value of the deals they need to close (i.e., $4500/month).
But quota structure doesn't end there. Here are the five most common types of quotas and examples of each.
1. Activity Quota
An activity quota requires salespeople -- usually BDRs or SDRs -- to complete a set number of activities during a period of time, usually one month or quarter. Activities usually include phone calls, follow-up emails, scheduling meetings, and leading demos.
This type of quota is usually assigned to BDRs or SDRs who are part of a larger selling team and aren’t responsible for closing actual business. An activity quota ensures they’re contributing to the sales organization and providing valuable help to the reps they support.
Activity Sales Quota Example: Sales rep Jonathan has a quota of 45 phone calls/month, 84 follow-up emails, and 12 demos each month. These activities are tracked in his CRM and his sales manager can easily see how he's tracking to meet his quota.
2. Volume Quota
Reps with volume-based quotas are goaled on the number of units they sell or the total revenue they generate during a specific time period. Salespeople with volume quotas are incentivized to sell as many units as they can.
Volume Sales Quota Example: Jonathan, with JVN Skates, has a quota to sell 75 pairs of skates each month. He must sell at least 75 pairs to meet his quota. He likely receives commission on each pair of skates he sells and receives a bonus when he reaches his quota.
3. Profit Quota
This type of quota is based on the gross profit or margin of a dedicated sales team, product/service grouping, or salesperson.
If you’re held to a gross margin quota, your number would be calculated by subtracting the cost of goods you sell from the overall revenue. A gross profit quota is calculated by subtracting selling expenses and the cost of goods sold from the final revenue number.
Profit Sales Quota Example: Jonathan sells skates to professional skaters. He sells fewer skates at a higher cost than his sales colleague Antoni, who sells a larger volume of cheaper skates to recreational skating rinks. Jonathan and Antoni would both have profit quotas of different amounts.
4. Combination Quota
Some salespeople may have more than one quota. A combination quota might include an activity quota and a profit quota. A combination strategy gives reps a roadmap to success and provides smaller milestones to make their quota more easily attainable.
Combination Sales Quota Example: Jonathan's quota includes several activity quotas and a profit quota. He must make 50 calls every month, lead 15 skate demos, and close $2500-worth of business adjusted for selling expenses and the cost of the skates.
5. Forecast Quota
Forecast quotas are generally assigned to specific sales territories or teams. A forecast quota is calculated based on historical performance of a region and the revenue goal it must hit.
Forecast Sales Quota Example: Let's say Jonathan is the pacific northwest territory rep for JVN Skates and traditionally closes $7500 in sales during Q4. If his goal is to increase Q4 revenue by 25% this year, his quota would be $9400 for the quarter.
If Bobby, the rep who's responsible for the southwest sales region, historically closes approximately $4500 in Q4 revenue, he might have an adjusted quota based on his unique market.
How to calculate a realistic sales quota
A commonly referred to rule of thumb is that 80% of your sales team should be able to meet their quota most of the time. If that’s not the case, consider that your sales quota might not be realistic and recalculate based on more attainable goals. Here’s how to set a realistic sales quota for your salespeople.
Establish Your Baseline
A baseline is your sales organization’s minimum standard of performance. It’s important to establish a realistic baseline to understand how much business reps need to close to meet the basic needs of your business.
To establish a baseline, look at the revenue your sales team closed over the last 12 months. Divide that number by 12 to understand how much your team must bring in every month.
From there, adjust that number to account for territories, reps, and seasonal fluctuations. If your east coast territory has less market opportunity than your west coast territory, sales managers should adjust each team’s baseline quota accordingly. Your baseline quota will also likely be different per quarter.
If Q4 brings seasonal highs for JVN Skates, rep baseline quota’s in Q4 would likely be higher than those in the Q2 late spring/early summer season when skate orders are down.
Finally, account for forecasted growth. While you never want to set unrealistic sales quotas, it’s important to ensure they’re growing with your business. If your executive team forecasts 15% growth in Q3, adjust quotas accordingly.
Start from the Bottom Up
Top-down quota setting is when sales leaders set quotas based on growth goals over their salespeople’s abilities.
The danger with a top-down approach to quotas is it gives less weight to a sales team’s historic data and proven abilities. It's almost entirely driven by where the company board or executive team would like to be and less by realistic and healthy expectations of the sales team.
A top-down approach starts with a quota and works its way down to what’s necessary to achieve that number.
Ideally, sales teams take a bottom-up approach to setting quotas. Sales managers start by looking at historic data showing what their reps are capable of generating and calculates a quota based on those results.
Set Activity Goals
Once you’ve calculated a baseline quota and adjusted it for seasonality, rep ability, and growth goals, set activity goals.
While you may or may not tie activities to a formal quota of their own, it’s helpful for reps to have a roadmap showing them approximately how many calls, emails, and demos they need to conduct in order to meet their quota.
Platforms like HubSpot Sales Hub allow sales managers to track sales activities and performance, so you can easily see which reps are your top performers and the type and number of activities they’re taking to close business.
Sales Quota Template
Your sales quota should be unique to your business, and it should evolve with your market and business goals. To help, click here for a downloadable sales plan template to help you set goals, calculate quotas, define an action plan, and more.
A simple formula for sales quotas is:
Average number of closed won deals per month x average contract value = Baseline sales quota
Your sales quota should include a rep’s base salary, average number of leads, number or target activities (i.e., 15 calls/day and 20 follow-up emails/day), target incentive pay, target total compensation, and any extra bonuses available.
This calculator is best for giving reps an idea of what their quota should be. It takes a broader approach asking for your annual revenue target, average monthly visitors/leads, monthly conversion/close rate, average deal size, and monthly growth goals.
This customizable calculator allows reps to calculate the number of calls, connects, meetings, demos, proposals, and closed won deals they need to win every day, week, and month in order to hit their quota.
If you already have a quota defined for your reps, this can be helpful.
If you set your quota without considering seasonality or historical rep performance, you're setting your team up for failure.
Similarly, don't adjust quota based on an unexpected renewal or larger than average deal. Raising rep quotas because of a great month can demoralize high-performing reps and stall growth.
Before raising quotas, make sure you have at least three months of data to support the decision -- and that it's not just coming from one rep and their specific territory.
If you have one rep or territory consistently beating their number, identify what their success is due to and consider adjusting their quota instead of everyone's quota.
2. Stress due to unrealistic quota
The fastest way to see your sales team stress out and burn out is by setting unrealistic quotas. As a sales manager, it's your job to know your team's limits and make that argument to your executives when they push for a more top-down approach to quotas.
The average tenure of SDRs has seen a 50% decline from an average of 2.5 years in 2010 to 1.5 years in 2018. Sales is already a volatile profession. Retain top-tier employees by ensuring their quotas are realistic and they have the support to meet and exceed their goals regularly.
3. Commission caps
Commission caps limit the amount of commission a salesperson can earn. When a rep has hit their commission cap, they are not financially rewarded for closing more business. This de-incentivizes reps to push the limits and close more business.
SaaStr founder and sales pro Jason Lemkin says there's no good reason to cap commission, "At least, not until you are at $20-$30 million ARR or more, and maybe much higher."
He continues, "If you cap this too early, you are limiting your revenue per lead."
In the final scene of "Glengarry Glen Ross," the salespeople scatter and face the various consequences of their actions from the previous night. But one salesperson heads back to the office. Why? To make his usual sales calls.
At the end of the day, salespeople have the same goal: to move deals forward and close business that will benefit the customer and the salesperson. Stay focused on setting realistic sales quotas and tune out the rest of the noise for your team.
Originally published Mar 28, 2019 8:30:00 AM, updated March 28 2019