7 minute read

Sales Leaders: Are You Setting Realistic Sales Quotas?

September 28, 2022

quotas, reporting, sales

Unrealistic sales quotas lead to demotivated reps, a poor customer experience, and potential legal liability. Here’s how sales leaders can set healthy, realistic quotas for their sales teams.

$3 billion dollars.

That’s how much Wells Fargo paid after admitting to long-term, wide-scale fraud within its ranks.

Sales reps from Wells Fargo were put under unrealistic pressure to meet their sales target. This resulted in many sales reps opening secret savings and checking accounts for customers without their knowledge or approval.

The sales team would use their own contact details on forms to hide the fraudulent activity from customers.

The reps would move money from existing accounts into new ones, and set the PIN number of those ghost accounts to “0000” for easier control.

Such scandals aren’t new. Other banks, like Standard Bank, have been outed for the same fraud, with their staff targeting old workers and high school students.

Performance pressure crosses industries, too. The famous VW emissions scandal was caused in part by engineers realizing they couldn’t hit emissions targets for US diesel cars through “permissible means.”

It’s clear that not setting a realistic quota can lead to irreparable damage to consumer trust and company brands. So why do sales managers keep doing it?

It boils down to a combination of:

Limited knowledge of sales quota incentives on compensation
Top-down performance pressures on sales leaders
Sales process flaws that hamper long-term growth
Inability to manage executive expectations

In this piece, we’ll outline different types of sales quotas and show how sales leaders can avoid setting unrealistic quotas and create a sales goal every sales representative is proud to strive for.

6 sales quota types

Sales quotas determine sales compensation plans, and quota agreements provide transparency and accountability within the sales organization. However, not all sales quotas are equal.

Some revenue quota arrangements are straightforward – make a sale to get a specific commission. Others may be nuanced, requiring sales reps to sell [x] units and reach [y]% in profit margins.

We can divide sales quotas into six types:

Sales activity quota
Sales volume quota
Profit quota
Forecast quota
Revenue sales quota
Combination quota

Let’s dig into each one.

#1 Sales activity quota

“Make [x] calls and send [y] emails within [z] period.”

Activity quotas focus on input activity to influence output metrics, and you can track these metrics in your CRM.

Done wrong, they incentivize sales teams to rack up low-quality leads to pad their activity metrics.

#2 Sales volume quota

“Sell [x] units each [period] and get a commission on each unit; plus receive a bonus on meeting quota.”

Volume quotas help the company push more product, but may hamper the customer experience as your sales force ignores customer fit just to try and sell as much as they can.

#3 Profit quota

“The cost of each unit is $x; your profit is based on sales profit margin over $x.”

With profit quotas, reps move to sell products more expensively for them to make more money.

This can lead to price-gouging and non-competitive pricing against competitors.

#4 Forecast quota

“Sell [x]% over your QoQ or YoY target.”

With forecast quotas, you’re asking an account executive or sales rep to sell more units this period than they did last period (e.g., sell more in July than June) or at the same time last year (e.g., sell more units this holiday season than last year’s holiday season).

This model works for solutions experiencing strong market growth (e.g., remote hiring HR solutions in the face of a pandemic).

However, they work less for solutions dealing with seasonal demand, experiencing waning demand, or getting into new markets.

#5 Revenue sales quota

“Sell $x worth of product in this [period].”

Revenue quotas simply work with a top-line number and let reps reach it in different ways.

Sales reps might sell more products at a slightly lower price, aiming to make [x] calls and send [y] emails per day.

Again, watch out for perverse incentives where sales reps aim to hit a number as quickly as they can, no matter the effects on the customer experience.

#6 Combination quota

“Sell enough [x] at $y margin to hit $x in total revenue.”

A combination quota involves two or more sales requirements and can tamp down the worst of each incentive on a sales employee.

Sales management: Is your quota realistic?

As a sales leader, it’s important to set realistic sales goals to keep your team motivated, prevent burnout, and encourage the right sales activity. But how do you go about that?

Below is a list of best practices to consider for quota management.

Do’s & Don’ts of setting sales quotas

Don't	Do
Set unrealistic top-down quotas	Establish a revenue baseline before setting a quota goal: How do we perform in [x] territory? How has [x] product performed historically? How does rep [x] perform against rep [y]? Which activities contribute most to revenue?
Let flukes or seasonal performance affect the quota setting process	Account for seasonal or waning demand by asking: What does our standard sales performance look like over [x] months? Which months do we perform best in? What’s the market outlook of this solution? Can we explain any revenue spikes with one-off PR campaigns? How do we replicate such success consistently?
Cap sales commissions — this disincentivizes sales effort from reps	Uncap your quotas and let each sales rep shoot for the moon — their success fuels yours
Set vague or high-level activity goals and leave sales reps to manage execution	Break sales quota targets into manageable activity goals, e.g., 10 cold calls per day, 40 targeted emails per week, 3 meetings a month, etc.
Wait until until the end of the period to measure sales quota progress	Record activity goals in CRM or other suitable tools to track progress toward sales quota attainment
Force non-stop selling to meet sales quotas	Encourage your sales team to take frequent breaks to conserve energy and improve mental health
Let small problems compound	Check in on sales challenges daily to nip problems in the bud
Be stingy with praise and encouragement	Praise and motivate sales reps often by celebrating small wins
Prioritize your sales goals over the customer’s needs	Encourage helping over selling for a better customer experience
Accept all revenue goals from top sales management without question	Manage upward: Set proper expectations to the executive team based on sales team capacity, sales territory context, and historical revenue performance
Focus on singular sales channels without investing in adjacent ones	Think like a war general and invest in air, ground, and sea cover to create more opportunities through: Social selling Better prospecting Brand-building events Long-term content plays
Neglect the impact of sales training on quota attainment	Invest in sales training and coaching around people (sales prospects and team personnel), processes, and products. If your sales team uses a CRM, help them learn more by investing in CRM training for higher productivity.
Get too attached to the outcome and work with harmful mindsets	Focus on input (activities and sales mindset) and output will take care of itself

FreeAgent CRM helps you track progress towards your sales quota

The above advice gives you ways to set your sales quota, but what tools should you use and how should you track progress toward quota attainment?

Spreadsheets are one way to record and track a quota plan, but they require manual intervention, aren’t very secure, and lack advanced automation features such as lead scoring and automated email campaigns.

By contrast, CRM software is a great way for a sales manager or chief sales officer to review, set, and monitor sales quota attainment progress in one place.

If you’re looking to shorten your sales cycle and speed up onboarding and training, an easy-to-use CRM tool such as FreeAgent CRM allows you to: