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Thinking Creatively about Strategy and Compensation
Three Quota Setting Mistakes to Avoid in 2014
Every year we do a survey of the top sales compensation challenges companies face. And every year – consistently – quota setting is the number one problem.
You could argue that quotas aren’t even part of the compensation plan. In fact, we set quotas after the plan is complete. But quotas are really the linchpin between the compensation plan and performance. You could have a very effective compensation plan, but if you don’t have effective quotas, it can derail the entire plan.
Below are three common mistakes to avoid as your plan for next year: Read more here.
Rapid Insight: Sales Compensation and Quotas
A Better Way to Set Quotas
Too many companies set quotas based on last year’s sales. It’s the wrong way, and we hear it all the time:
“How else would we set quotas if we didn’t just take historic results and project ahead 10%? Can we improve how we do it?”
The answer is yes, and it’s crucial to do so. Quota setting must be a cross-functional process, and sales reps need to see a clear connection between their pay and their performance.
Cross-functional cooperation. Ironically, quota setting is very often controlled by those with the least visibility to the market: for example, the finance team, the folks who love the science of it but don’t know the market and customer. The goal comes down from on high, from the top of the organization, driven by investor expectations or senior management requirements. It then cascades through the organization – an often inequitable division of the pain. Read more here.
Doing Away With Quotas?
Ah, quotas. Can’t make people like them, can’t achieve goals without them. Or can you?
We recently spoke to a sales executive who told this story: “Several years ago our sales force for one of our business lines was cut from 25 reps to 15, but the quota went up. The sales leader was bold, and he had some bold leadership traits. He walked in to the meeting and said, ‘I’m doing away with quotas. Read more here.
Quota Setting: Historic Based vs. Market Based
Effective quota setting is a combination of art and science. While too many companies set quotas based on historical information, quotas based on the real market potential is a much better approach. Consider the following:
1. Flat Quotas. Flat quotas are usually used when companies have unconstrained market environments. You might have wide open markets where reps could go anywhere in the country; or the markets have unconstrained potential and the reps have relatively equal capability. In this situation it could make sense to set flat quotas; for example everybody gets a $5 million number.
2. Historic Quotas. For better or for worse, most organizations use historic quotas: they take what people achieved last year and add a projected increase. The risk is that history does not necessarily represent the future potential of the business. Read more here.
Chapter 6: A Quota Quandary: Setting Equitable and Profitable Sales Goals
Below is an excerpt from our book, What Your CEO Needs to Know About Sales Compensation. Chapter 6 is devoted to the perpetual problem of setting effective quotas.
I pulled into the parking lot of an office building in suburban Maryland, just outside of Washington D.C. It was a brisk autumn day but the environment inside the offices was anything but cool. Over the course of the next three hours, I sat with Jim, a senior sales executive of a leading health insurance company, locked down in his office discussing the quota process and how “unfair” it was to the sales organization. As he ignited yet another cigarette in an already smoke-filled room, I mused about the contradiction of his habit with his line of business and listened as he talked about “the number,” “the quota,” and “the goal.” His business unit had done well this year, and some of his reps had done extremely well. As we worked to set quotas for the next fiscal year, he talked about how he and his team were being penalized for their great performance. “You know Mark, we knock it out of the park and what kind of reward do we get? A bigger quota next year.” I had heard this before in more than a few organizations.
Email Collette Parker at email@example.com to request the rest of the chapter.
To Cap or Not to Cap?
While uncapping incentives may boost motivation and morale, there are valid reasons why capping is a better move for the organization in the long run.
Want to start a spirited debate about incentives? Asking whether a sales compensation plan should be capped is a surefire way to take the attention away from any other undesirable topic.
A cap is an upper limit on incentive earnings. If a cap is set at $500,000, for example, salespeople cannot earn any more, no matter how well they perform against their quota. Using a cap usually creates a perception of limitations from the salesperson’s perspective while mitigating risk for the company. Read more of the Talent Management article.
The Quota Action Plan: Four Weeks to Improved Quotas
Bad quotas ruin great sales comp plans.The Quota Audit and Action Plan helps organizations identify the major challenges in quota setting and quota allocation.
Conducted by seasoned experts from SalesGlobe who have worked with hundreds of sales organizations in competitive markets across industries, The Quota Action Plan focuses on the following types of questions, customized to your organization:
Are our quota issues related to quota levels, performance, or sales compensation?
How effective is our quota process and how can we improve it?
How should we consider historic information, market opportunity, rep capability?
Should we vary the processes by market? What are the performance benchmarks?
How should we handle multiple crediting and overlay or team quotas?
How can we incorporate bottom-up information with top-down requirements?
The Quota Action Plan is conducted within an accelerated four week timeframe and delivers the following results to your team:
- Identification of the top opportunities to improve quota performance.
- Quick hits for immediate improvement.
- Recommended actions to take in each major quota discipline including process, roles, methodology, and data.
- Impact anticipated from each major improvement opportunity.
- Roadmap to address each opportunity including steps, accountabilities, and timing.
For more information or to conduct this Action Plan for your organization, please call Carrie Ward at CWard@SalesGlobe.com or visit SalesGlobe.com
SalesGlobe helps companies connect their sales strategies to the bottom line. We provide a range of services that improve sales strategy, sales compensation, and sales training. We offer management consulting, team coaching and operational outsourcing.
Mark Donnolo, our managing partner, has written two books on Sales Innovation (The Innovative Sale) and Sales Motivation (What Your CEO Needs to Know About Sales Compensation). Both are available on Amazon or Barnes&Noble.com, or to request a sample chapter email Collette Parker at firstname.lastname@example.org.
To learn more, visit SalesGlobe.