Keeping morale and sales success rates high often goes hand in hand. After all, there is proof that high motivation and morale are directly connected to job performance—and therefore overall profits.
But if your idea of sales motivation is hosting office Christmas events, throwing pizza parties, and handing out $20 gift cards, then it’s probably time to go back to the drawing board. Short-term rewards are great, but if they’re not tied to performance, what message are you sending?
In order for institutional and individual goals to be met, they must be communicated and rewarded. That’s what a sales quota is for.
Short-term rewards are great, but if they’re not tied to performance, what message are you sending?
Successful leaders use sales quotas to motivate reps to meet and surpass sales targets. When reps have clear goals, they’re more enthusiastic about selling and more invested in perfecting their sales strategies.
In this article, we’ll give you a comprehensive sales quota definition, describe what sales quotas might look like (depending on your organization), and explain exactly how you can set the right quotas for your team to boost productivity and profits.
What is a sales quota?
A sales quota is a baseline numerical sales goal reps and/or teams are expected to hit in a given time period. Sales leaders can set quotas based on revenue, the total number of sales, or another relevant KPI (key performance indicator). By establishing quotas, sales leaders set the bar for what they expect from reps in a certain sales period.
For many teams, sales quotas are not just company goals—they also help determine each sales rep’s personal compensation. If a sales rep uses sales productivity tools to the fullest and emerges as a leader for their team, quotas help ensure they’re properly rewarded for their efforts.
Depending on what each company needs, different sales managers can set different monthly, quarterly, or yearly quotas to track their team’s performance. Let’s dive deeper into the types of sales quotas that may be appropriate for your team.
Sales quotas vs. targets
Unlike sales quotas, sales targets are goals that use your team’s past sales data combined with current market trends to predict what your sales team might be capable of in the future. Companies use sales targets as a forecasting tool, but sales teams are not expected to hit these targets within a given time frame (unlike quotas).
This doesn’t mean that sales reps don’t need to pay attention to sales targets and company goals: It just means that their day-to-day work and compensation aren’t tied to sales targets. Sales targets can be wonderful for motivation, however. If sales leaders want to encourage their teams even further, rewards for hitting sales targets are very effective.
Types of sales quotas
Most sales quotas will fall into one of six categories:
Profit quotas: Profit quotas are exact dollar amount goals that each sales rep should regularly hit. These are the most commonplace quotas for sales teams. Sales leaders often set profit quotas to make sure the company’s financial goals are always met, no matter which strategies sales reps decide to use.
Volume quotas: Instead of setting a dollar amount, sometimes companies will use volume quotas to measure how much product their sales team is selling. Sales leaders use these quotas to ensure that their inventory is constantly rotating and that reps are taking advantage of upsells and cross-sells.
Activity quotas: These quotas reward different types of sales activities such as outbound emails, phone calls, messages sent, or meetings scheduled. Outbound sales leaders will often assign their reps higher activity quotas to incentivize more outreach.
Cost-based quotas: Cost-based quotas focus on the number of resources it takes to land a sale. Sales leaders use these quotas to reward sales reps who get the most value out of each sale without going over budget. Meeting these quotas helps companies minimize conversion costs.
Forecast quotas: Forecast quotas use past sales data to create new goals for the sales team. Sales leaders use these quotas when a company has consistent seasonal trends in sales that are trackable over multiple years.
Combination quotas: Combination quotas are a mix of different quotas. Sales leaders normally use combination quotas to meet specific goals that need to be analyzed from multiple perspectives.
Let’s look at a few sales quota examples to get a better sense of what setting quotas might look like for your company.
Sales quota examples
Example #1: Activity quotas
Let’s say an AI software company recently programmed a new technique for artificial learning. The company wants to increase outreach to bring in clients who fit the new target audience.
The sales leader at this company decides to set a series of quotas for the sales team. These quotas include: calling 20 prospects each day, sending out 30 emails to spread the news each day, and using sales engagement tools to keep prospects’ attention once they get in touch.
These quotas aren’t purely about numerical dollar sales because the goal with this new product is simply to create targeted awareness. With a smaller pool of prospects and a lack of familiarity with the product, the more important initial quotas are all about outreach and demand generation.
Example #2: Profit quotas
Let’s say a computer hardware company normally sets a quarterly, revenue-based quota of $20,000 per sales rep. The company is looking to increase that quota with a steady growth rate over the next five years.
This company’s sales leaders decide to increase company-wide quotas by 2.5 percent each quarter, aided by CRM automation software. This means that for the upcoming quarter, each sales rep needs to sell $20,500 worth of products to meet their quota.
Note that profit quotas don’t specify which products need to be sold; they only set the dollar amount. A sales rep could sell 20 mid-priced products or five high-priced products and still meet the quota.
How to set sales quotas
There are two main techniques that companies use to set sales quotas for their teams: The top-down approach and the bottom-up approach.
The top-down approach is most common for enterprise organizations. If companies must hit a certain gross revenue, they can use a top-down approach to shape their sales quotas. For example, an enterprise organization can use CRM software to take a look at market trends and compare them with the growing needs of the company. Then, that company can build quotas around meeting those needs and pass the quotas down to the sales team.
The bottom-up approach places a lot more focus on your team’s skills. This may involve analyzing past data to understand your team’s performance, any seasonal trends, and then setting quotas based on what sales reps can realistically achieve. A strategy like this places your company’s growth goals on the back burner and puts more emphasis on raising team morale. This strategy tends to give your team more consistent growth in the long run.
Tips for setting sales quotas
Consult with your team
Sales quotas feel less personal when the planning is done behind closed doors. Your sales reps manage the current sales trends in their territories, which means they know the realities of the sales floor. So before you hand out any sales quotas, see what your team has to say. That way, you can establish quotas that test your team’s limits without being unreachable.
Don’t rely solely on past data
Taking last year’s sales quotas and bumping them up by 5 percent to meet new goals year after year is a recipe for disaster. Stay on top of market trends and remain aware of the overall economy when setting quotas. Not all fiscal years are created equal. After all, inflexible 2020 sales quotas based on 2019 fiscal reports likely didn’t go over well.
Keep your team focused
Even if you’re simply looking to scale your process, you have to keep the team in mind. When sales reps get quotas that feel unattainable, they typically do one of two things: burn themselves out trying to achieve unrealistic numbers or give up on the quota (and management) altogether. When building your sales quotas, give your team clear, actionable, well-researched goals to help them stay on track.
For example, if you’re trying to place more focus on higher-value SaaS accounts, build your team’s quotas around developing deeper personal connections with fewer prospects. You can clarify what you want by setting goals using SaaS CRM tools and monitoring VIP relationships.
Don’t push your team too hard
When a sales rep really pushes themself to exceed their sales quota, it’s devastating when they don’t reach it. Sales quotas are a great way to boost morale, but the higher they are, the more likely your team is to fall short. It’s important to find the line between giving your team realistic goals and giving them space to grow.
It’s not easy to choose the perfect sales quota that will make both management and sales reps happy. Here are a few tips to help you set realistic and motivating sales quotas for your team.
Average sales quota increase
Whenever a company is looking to boost revenue, it’s standard practice to increase sales quotas. The question is, how much can you raise your quota without condemning your sales team to failure?
While sales growth rates differ between companies, a sales growth rate of 5 to 10 percent year-over-year is standard for most businesses. It allows for steady and consistent growth without causing gray hairs for anyone still sitting in their cubicle at the 11th hour. However, every company is different, and what works for one might not work for another. Depending on your industry, market, and size, growth rates can skew lower or higher.
How many sales reps should hit quota?
When a sales rep doesn’t meet their quota, it doesn’t always mean they’re dropping the ball. Sales reps might not have the right tools to convert every prospect on their list—if they even have a long enough list to begin with. In other instances, the sales quota may simply be set too high for the team to realistically hit.
That said, sales reps not meeting their quota can actually be a sign that things are working. If every sales team hits 100 percent of their quota, that means it was set too low.
It all comes down to how much you want to challenge your team each quarter and what your company can afford to give out in commissions.
For example, a 60 percent quota attainment may be perfect for your company—it means that your sales quota is challenging your reps and your budget won’t break from distributing bonuses and commissions. However, 60 percent also means that a fair number of your sales team will find it difficult to meet their quotas, and morale might drop.
If every sales team hits 100% of their quota, that means it was set too low.
Higher quota attainment means your team will probably be happier, but your company will also need to balance commission payouts with overall revenue each quarter. It also means that a higher number of sales reps won’t have as much of a reason to sell past their quota because they’ll be comfortable financially.
As you can see, setting the correct quota is a complicated balancing act.
Watch your team’s progress with the help of a CRM
Setting and tracking sales quotas is vital for team success. But when you’re managing a sales team without the proper tools, it’s nearly impossible to determine which sales reps are on target and which ones need an immediate course correction.
Zendesk Sell helps your team stay on track. With customizable dashboards and CRM analytics, you’ll always be able to keep an eye on the reps that are falling behind and build better quotas for upcoming cycles. Solving problems in the moment guarantees your team can hit its goals and stay motivated, while accurate projections guarantee your quotas won’t drag your team—or revenue—down.
Request a demo of Zendesk Sell today, and learn how a powerful CRM can help you establish data-driven, revenue-boosting sales quotas.