The Ultimate Guide to Setting Sales Quotas

The Ultimate Guide to Sales Quotas

Ranee ZhangDec 29, 20225 mins
What is Sales Quota

The primary goal of many businesses is to deliver the best products or services to their customers and keep making profits and generating revenue for their business as they help customers solve their pain points.

This article is for you if you have yet to get the revenue your company set or want to hit a higher revenue level. You will learn what sales quota is, its importance, and how to calculate sales quotas for business sales and revenue growth. The business also needs a sales expert to act as a mentor for the sales team. 

When running any business, you need to track the business progress and revenue from the company. 

Keep track of how you generate revenue to optimize the best ways to grow your business and keep getting customers.

The article will also give tips on the best tools to help calculate sales quotas and how you can manage sales quotas to keep getting revenue for your brand.

What is Sales Quota

Sales quotas are the goals that sales leaders set for their business performance for a certain period. For instance, a business can make a financial goal in their sales quota to hit a profit of $30,000 within a month. The sales quota can be set in different ways, for example:

  • The number of products sold

  • How many new customers converted to your product or service

What is Different Between Sales Quota and Sales Goals

Sales goals generally focus on company sales and revenue growth within a given time range. The goals highlight the objectivity and business vision of growth within a set time limit. On the other hand, sales quotas are the sales team's activities each sales rep has to perform to meet those sales goals.

For example, if a business wants to make $20,000 in sales worthy in two months ( which is the sales goal)  from their business and offers products that sell at $500 each, they will need to make forty sales to meet that target.

The sales team will then plan and execute individual sales rep activities ( which are their sales quotas) to achieve the set goal of $20,000

These activities can include:

  • Running paid ads

  • Creating blog content that targets customer pain points.

  • Running social media marketing.

What is the Difference Between Sales Quota and Sales Target

The sales target is the collective target the entire sales team sets for their business sales and revenue growth. This can be the number of product sales of new customers the team has to perform to meet the set revenue.

The target outlines the general revenue the business needs to make within a given time. The sales quotas are the activities each sales rep has to perform to meet the business sales target.

For instance, a certain company's sales team can set a sales target of $15,000 worthy of sales in a month. The sales target will be how many products or services the entire sales team will sell to meet the 10,000 profit target in that month. 

In the above example, sales quotas will be the individual activities each sales rep will perform to contribute to the general target of $10,000 worthy of sales. The individual activities can include the number of email follow-ups each sales rep needs to send to target customers.

Sales Quota Agreement

You will not magically meet the sales quota without having a plan. The sales quota agreement helps maintain transparency in the working of the sales team towards meeting the sales quota.

The agreement helps structure how each department of the sales team will work and coordinate with the others to meet the sales quota in the set time. Here is an example of a sales quota agreement plan.

Source from HubSpot

What is the Importance of Sales Quota for Your Business?  

  • Visualize the sales plan. With sales quota, a brand can have a vision of achieving certain sales goals for its business plan. The sales quota gives the business a working plan to visualize the business's work in achieving the set goal.

Source from Convin

  • It gives clarity to the business working. The sales quota shows the steps the entire sales team needs to take to achieve the sales target. With the quota, each sales team member knows what they need to do to hit the set target, and that clarity makes it easy for the business working.

  • Helps understand the challenges with products or services. Once a sales quota is set, the sales team starts working on the strategy to get customers to engage and convert for the business. The strategy’s performance helps the team know how their target customer perceives their products based on how they meet the quota. The feedback generated by the sales team helps the business improve its products or services.

  • Great way to motivate the sales team. Alongside the sales quota, a brand creates a motivation plan to help the sales team meet the target. The more the sales team meets the target, the better incentives, and compensation they get.

  • Sales and expense control. You want to keep getting customers and selling your products or services as a business. With sales quota, you can plan and execute activities within your marketing budget to achieve the set goal for your business.

Types of Sales Quotas

Source from Salesmate

Activity Quota

This type of quota is mostly created for business development representatives. However, they require the sales team representatives to do some activities for the business marketing within the set time for the sales quota. The activities performed by the BDRs and SDRs help prepare leads for conversion. The activities include:

  • Setting meetings with potential customers.

  • Leading in demos for the business product or services.

  • Doing follow-up email campaigns.

Example of Activity Sales Quota

Mercy, who is a sales rep, has a sales quota set for three months, and to hit the goal for the quota, she has to make  125 phone calls, send 150  email follow-ups, and 50 demos to target customers. She then used the best tool to track down all the activities she would do within those three months.

Volume Quota

As the name suggests, these sales quotas are based on the number of conversions or units achieved for a certain sales goal within a set time. With this quota, the sales team can incentivize the sales reps to help them achieve the set target for the business within the sales quota.

Example of Volume Sales Quota

John, a sales rep for a shoe company, has to sell at least 120 shoes within the set time for his quota of two months. To meet the target, he must sell at least 120 shoes within two months, and if he makes more sales than the set target, he gets bonus compensation in addition to the commission he gets for selling each shoe.

Profit Quota

This quota motivates the sales rep to make gross profits or margin for the revenue. The sales rep considers the expenses and the cost of the goods sold. To attain the profit quota, you subtract the cost of the goods sold from the overall revenue.

Example of Profit Sales Quota

John and Andrew are both sales reps for a shoe company. John sells his shoes to wealthy customers, and in the process, he sells fewer shoes at a high price. On the other hand, Andrew sells his shoes to local unwealthy customers. They both will have different amounts of profit quotas. 

Combination Quota

As the name suggests, this involves combining two quotas to provide a strategic roadmap to attain the general set sales quota easily.

Example of Combination Quota

Andrew’s sales quota includes the activity and profit quotas. To meet his target for a given month, he must make 30 phone calls, 20 demos, send 50 follow-up emails and make $3000 worth of sales for the business.

Forecast Quota

Based on a set location and unique market, a sales rep can forecast the sales of a business based on the region and the historical performance of the sales in a specific region.

Example of Forecast Sales Quota

Jonathan and Andrew are both sales reps for a shoe company. Jonathan sells within  New york, while Andrew sells in Australia. In a month, Jonathan can make $2500 in sales; if he wants to increase the sales by 15%, he will make $2875.

On the other hand, if Andrew makes $1500 worth of sales in Australia for the shoes, he will have to adjust the sales based on the historical performance of selling shoes in that region.

Revenue Sales

This is set such that for a given period, the sales team should bring a certain amount of revenue from their sales for the business. You can use different strategies to ensure you hit that set goal, like motivating sales reps with incentives and commissions for their sales.

Example of Revenue Sales Quota

Andrew, a sales rep, should meet a sales quota of $3000 per month for selling shoes. He needs to sell 12 shoes for $250 each. If the revenue is broken down into products, and Andrew sells expensive shoes at $500 each, he just needs to sell six shoes to meet his revenue goal.

How to Calculate a Sale Quota

Establish your baseline

You need a baseline for your sales rep when calculating your sales quota. That’s the lower limit you want your team to perform based on the sales quota.

Since you don’t want to set quotas that you will not achieve, work on the historical data, and average the sales team's performance based on the revenue they brought to the business for the last year.

For example, if you made $300,000 last year, you can divide the revenue by 12 to get a rough estimate for the monthly revenue from the sales team. Then adjust and plan your quotas based on that figure.

Start from the bottom up

You don’t want to set sales quotas your team will not achieve. Don’t set your quotas then work down to your sales reps. It will be difficult to attain those goals since you don’t know if the team can hit the set target.

You can use the bottom-up approach. First, consider the potential of your sales reps and the entire team. You can track down the history of their performance so you can know their potential based on the revenue they have been getting over time. 

When business managers approach sales quotas from that angle, the sales team is more likely to hit the targets set for their sales.

Set activity goal

Once you have established the sales team capability and set the baseline for your sales quotas, it’s time to set the activities the sales reps need to do to attain the goal. 

A set roadmap for the activities a sales rep needs to do makes working towards the quota easy. Hear what Kevin Miller says about setting goals and a clear plan.

Source from Kevin Miller

Knowing what you need to do in advance helps you prepare for the activities and work effectively to achieve the target for activities you need to perform, such as sending cold emails and demos and scheduling phone calls with leads.

What is The Sale Quota Formula 

Having the best formula to calculate your sales quotas can be very effective in running your business and helping the sales team hit their set sales target. 

Here is a formula that your business can use to calculate the sales quota for your business products or services sales.Source from HubSpot

What are Sales Quota Calculators 

With sales quota calculators, you can have a rough figure estimate of what you want to achieve for your business sales goals for a specific set time. Here are some sales quota calculators you can use.

Yesware Quota Calculator

With the Yesware calculator, you can use two approaches to calculate the sales quota for your business.

  • The top-down approach

This is mostly used for a business under pressure to grow and expand its operations. This approach is based more on the business's expectation over the reality of attaining it.

Source from Yesware

When businesses miss meeting the set sales quotas, they can resolve to add more sales reps or remove those who aren’t performing but often, this doesn’t result in better results for the set goals.

  • The bottom-up approach

Calculating the sales quota starts with knowing what your sales team can do for the business. You analyze their historical performance results from the past year or six months.

Source from Yesware

Panalysis Sales or Conversion Target Calculator

This sale quota calculator takes into consideration factors like:

  • Your annual target for your revenue

  • The average monthly visitors to your business

  • Average value per sale

  • Monthly growth goals

With this calculator. Your sales team can have a rough idea of their sales quota.

Calculator Soup Profit Goal Calculator

This calculator helps with profit-based sales quotas. You can consider things like:

  • Your business sales goals for a given time

  • Variable costs

  • Fixed costs

Source from Calculator Soup

Best Practices for Managing Sales Quotas

 Use Historical Data

This is based on the performance of your business over some time. Having run a business for some time, you know how much your sales rep can bring into the business. Then you set your sales quotas based on their past performance in the business. 

For example, if you have 5 sales reps and each brings an average of $3000- $5000 worthy of sales, you can set your sales quota within that range. It is unrealistic to demand $10000-$15000 worthy of sales because the team will not be able to achieve that goal.

Set Realistic Quotas

Give your sales team a sales quota that is realistic and achievable. Don’t pressure them to achieve a certain sales goal if you know they can’t attain that goal.

For example, if your sales team has been making an average of $10000 in sales monthly, setting unrealistic goals like $50,000 worth of sales will even demoralize the employees.

Have goals that you know your sales team can achieve. On the other hand, don’t set goals too simple to achieve; you will kill their zeal and morale to hit the sales goals.

CRM systems

You need to monitor the whole process of your business sales and marketing. Having a great CRM tool can help you monitor the progression of your sales team. You will know if you need to fix something and how to do that to ensure the sales team achieves the sales quotas.

For example, you can use tools like Hubspot to track the operation of your sales team as they work towards hitting the sales goal. You can also set motivation targets between the individual sales reps to motivate them so they can hit the target faster.

Don’t set Commission Caps

As you engage the sales team to work on your sales quotas, don't limit the amount a sales rep can earn for a given time. Setting commission caps limit the potential the sales reps put in the business when working on hitting the set goals. 

For example, if you set a commission cap of $1500 for sales rep, they will be demoralized as some wants to keep working hard to get more commissions. If you limit what they get, they lose the morale to give the best of the business and drive more sales.

Tips for Sales Quotas

 Quotas should match sales activities

Your sales quotas must be aligned to the selling activities your team is performing to hit the sales goal for the business. For example, you don’t want to set quotas for marketing your business if that is not part of the activities your sales team will be doing.

Quotas should be built together, not handed down

Your sales rep needs to be there when the sales quotas are set. Their voice should be included in the process as they’re the ones who will be working to ensure the target is achieved. The sales rep will also know from the start how the structure of the sales quotas will be and be prepared to work with it from the start. Have a great team meeting agenda as you all work to create sales quotas for the business.

Don’t set the sales quotas too high

The overall goal of sales quotas, apart from increasing the business growth, is to motivate the sales team to keep delivering the best and grow the business. If the sales quotas are too high and the team fails to achieve them, it can demoralize the team and even affect the business growth.

Don’t only rely on past marketing data

The market keeps changing, and new trends emerge year after year. As you set your sales quotas, use the historical data but don’t entirely depend on it. Create space to accommodate the changes in the economy, consumer trends in using your products or services, and their purchase patterns.

Set enough time to plan work on the sales quotas

Sales quotas are a serious part of the business as it determines the growth potential of the business. The teams involved should have humble time to plan, strategize and set achievable sales quotas. You should have at least two months to work on the sales quotas, considering all the other elements you need to make the sales goals achievable once the sales quotas are set.

Include both the top-bottom approach and bottom-up approach strategies

The above approaches have pros and cons when setting sales quotas. When in the planning process of the sales quotas, you should include elements of both approaches in the business.

For example, the bottom-up approach uses historical data and bases the sales quota on the precious performance of the sales rep. On the other hand, the top-bottom approach uses predictions that they think the business can hit for the sales quotas.

Set a Sales Quota Like a Pro Now

As you run your business, you want to keep generating revenue and grow your brand. Having a strategic plan for achieving your business revenue goals is essential for the success of each business.

That’s where sales quotas come in. You need to have well-planned and achievable sales goals to help you convert more target customers and grow your sales and revenue.

This ultimate guide will give you all the insights you need to plan, execute and run your sales quotas for your business. Then use the tips to develop great roadmap objectives for your sales quotas.

 Also, use the right tools to monitor your sales progress and motivate your sales reps to help them reach the set sales target in your quotas. 

When setting the sales quotas, ensure you don’t punish your sales teams by setting a high sales quota that the team can achieve.

If you have been running your business without an organized system to grow your sales revenue, ensure you set sales quotas to guide you in the process and help you achieve the revenue goals you want for your business within the time you will set.

Ranee Zhang

Ranee is the Head of Growth of Airgram and has rich experience in the SaaS field. She developed a passion for writing as a young girl and believed the written word could unlock doors as well as the imagination.

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