Methods and Problems of Setting Sales Quotas

Wednesday, November 5, 2014

Indian Institute of Tourism and Travel Management



•Sales Quota is the sales goal set for a product

line, company division or sales representative. It

helps the managers to define and stimulate sales

effort. Sales quota is the minimum sales goal for a

set time span.

•Generally sales quotas are set slightly higher

than the estimated sales so as to stretch the sales

force effort.

•Sales quotas are developed through the study of

annual territory marketing plan. In this the plan

for developing new accounts and expanding

existing accounts is given by the representatives.



Methods of Setting Sales Quota

• Flat Quotas

• Historic Quotas

• Market Potential Quotas

•Account Planning Quotas

• Full Time Equivalent Quotas



Flat Quotas

This method sets flat targets across the entire

sales team. It is company-centric and simple, but

it may create a “free ride” for representatives in

high-potential territories or impossible targets for

those in low-potential territories. Companies use

this methodology when little data is available and

a cost-of-sale approach is in place. It is most

common in transactional environments with

shorter sales cycles.



Historic Quotas

The assumption here is that history predicts the

future. Salespeople could deliberately reach a

certain point in their compensation plan where

they’re comfortable with the income. Historic

quotas are fairly good for early stage markets, or

for markets with high potential. But, it’s

important to protect salespeople in particularly

competitive or saturated markets.



Market Potential Quotas

This method is simple and use specific

information to understand the market. You can

combine this with a historic process and use

market opportunities as a modifier, or you can use

an approach like this completely on its own. It

typically creates equitable objectives and is easy

to administer. It can work well for organizations

that have accurate market data and in markets

with considerable uncertainty.



Account Planning Quotas

This method evaluates account opportunity and

assigns the corresponding target to the

representative that owns it. It is most effective for

territories or regions with a small number of large

accounts per representative. Account planning can

be difficult in organizations with a large number

of accounts in which the potential for sales

opportunities is unknown.



Fulltime Equivalent Quotas

Count how many full time equivalent people are

working in your business. Multiply that number

by your breakeven point per person. This gives

you a guesstimate of your breakeven point. Add a

profit target to determine your measurable goal.



Problems of Setting Sales Quota

• Improving Company Profits

• Incentives to Sales Force

• Lack of Formal Process

• Lack of Clarity and Coordination

• Limited Monitoring and Inventory



Insight into Setting & Administration of Sales Quotas

•Set realistic quotas

•Understand problems in setting quotas

•Ensure salespeople understand quotas

•By allowing salespeople to participate in theprocess

•By continuous feedback to salespeople on theirperformance compared to quotas

•Have flexibility in administering quotas

•Use monthly or quarterly quotas for incentives andannual quotas for performance evaluation

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Methods and Problems of Setting Sales Quotas

Business