Posted: 8/2003

Raise the Bar
How to Set Effective Quotas

By Gary Lawrence

For sales managers, the recurring
challenge is how to set quotas that follow the business plan and motivate sales
force. They wrestle with keeping the sales force engaged and striving to meet
and exceed the sales goals set with the intent of creating a "culture of
winners." Experience identifies six hallmarks of effective quota
management:

1. The process systematically
identifies pockets of opportunity. The sales force almost always is looking
for that edge on the competition. Sales managers and marketing also should be
scanning the horizon for new customer segments, new product applications and
product variations to address new market segments. This information always
should be taken into account when setting or adjusting quotas.

2. Sales managers and sellers
jointly evaluate the unique aspects of local markets/accounts. Sellers, as
the "feet on the street," give the company significant intelligence on
competitors, impact of marketing programs and promotions, customer reactions to
products, pricing and terms and general market conditions. This makes each
territory/account list unique, and sales managers must take this into account in
setting quotas.

3. Quotas are set at realistic
attainable levels, consistent with prior performance and the business plan.
In the perfect-world scenario, 90 percent of the sales force should reach the
threshold of the distribution of expected performance and 60 percent to 70
percent should cluster around their quota. Sellers must feel the quotas they and
their managers have agreed to are attainable. "Stretch" quotas can be
realistic if the company is committed to new products, new applications and
marketing programs that give sellers new ways to convert prospects and boost
share with current customers.

4. Stars are rewarded for high
performance, and non-performers are penalized by the incentive plan. Plans
are designed intentionally to have accelerated payout levels for those whose
performance exceeds quota, while those who do not achieve quota are paid less
than target incentive. In particular, those who are below the minimum expected
level of performance or threshold often receive no incentive pay for the
measurement period.

5. The sales force understands
the basis of quotas through a transparent quota-setting process. Using a
bottom-up and top-down combined process involves the sellers in the
process and helps them understand the process and need to have the final quotas
add up to the business plan. When quotas "come from on high,"
first-level sales managers have the difficult chore of coercing buy-in from the
sales force, and a considerable amount of selling time is spent in discussing
the rationale for the assigned quotas.

6. Quotas are linked to
territory/account plans. When this approach is used, even in a "fair
share" quota-setting process, sellers see that management is taking into
account both positive and negative changes in their territory or assigned
accounts. After all, the sellers know best the variables, such as competitive
activity, new competitors, pricing pressures, etc., that affect their future
performance.

In the end it comes down to
balancing quota-setting variables the sales force perceives as fair while
meeting the company’s business plan. Critical to success is allowing the time
for one-on-one discussions between sales managers and sellers to reach
understanding on quotas that take into account the market segment, competition,
new products, planned marketing efforts, and training and development.

Gary Lawrence is a managing
director of Peregrine Consulting Inc. and can be contacted at +1 770 399 6493 or
[email protected].

Is Quota Setting an Issue for
Your Company?

Here are some common indications
that quota setting is an issue in your company:

Wide or non-normal distribution
of quota attainment

should be 1 5 percent of their
assigned quota

Boom-year syndrome

"Black box" syndrome

"Road noise" about the
quality of quotas from sales force