What Is Sales Quota Setting?

Setting the right sales quota can have a huge impact on how your salesforce and your company perform—and whether sellers stay at your company. Set quotas that are clear, challenging, and achievable, with the right incentives for success, and all those financial and retention outcomes can rise. Set quotas that are too low, opaque, or unreasonable, and your sales performance will be doomed to spiral down. This is the power of setting up sales quotas correctly.

What Is a Sales Quota?

Sales quotas are numerically defined targets that sales teams and individual salespeople are expected to meet within a certain period. Long a staple in the world of selling, quotas can based on revenue, number of deals, or a combination of the two.

A quota motivates salespeople by rewarding them based on performance. For the company, a quota helps keep salespeople focused on goals that support the company’s overall revenue and volume objectives. Quotas are intended to be met in a specific period, such as by month, quarter, or fiscal year.

Sales quotas are influenced by many factors, including the sales territory, customer type, or the product or service being sold. For example, a person selling complex equipment to a federal agency might have a low volume quota and a longer measurement period, with the understanding that large government deals take a long time to close.

The idea is to set quotas that are lofty yet attainable so sellers are incentivized to perform well without getting discouraged due to unobtainable goals. Compensation for salespeople is often tied to how they perform against quota, with bonuses for meeting or exceeding the target. Salespeople who consistently fall short of quota will earn less and are unlikely to keep their jobs. Quota attainment is a measure of how much of your quota you fulfilled. If you close $1.2 million of a $2.4 million quota, you have 50% attainment.

Quotas work when they motivate sellers to close more and more profitable deals, which translates to more profit for the business.

What Is Quota Setting?

Quota setting is the process for establishing the target that the organization, team, or salesperson should achieve. To lead to success, these benchmarks must be understandable, measurable, and attainable. They need to be created in a timely manner to ensure sellers are aware of the expectations when the next review period begins. Salespeople need to see the quota-setting process as delivering targets that are fair and grounded in reality and facts, not arbitrary or wishful numbers.

Many considerations should be taken into account when setting sales quotas, such as the potential market, average sales cycle time, and average deal size. The quotas should reflect the company's business strategy and sync with the CFO office’s budget planning process and revenue projections. If a business sells various products and services, it’s wise to tailor the quotas differently for individual teams and sellers based on what they sell and how promising the opportunities are.

Common Methods for Setting Sales Quotas

A few common methods for setting sales quotas are top-down, bottom-up, and hybrid:

Top-Down

The top-down approach relies on the CFO’s office or other executives setting expectations based on broader revenue targets for the organization. For example, the CFO’s office sets a total revenue forecast based on a range of factors, and sales leadership breaks down that number into smaller targets for each team and then each seller.

Bottom-Up

The bottom-up approach works oppositely. Sellers submit their sales expectations, which their managers review and possibly adjust before being finalized as the quota. The accumulative quotas provide a revenue target for the company overall. This method gives sellers more influence on sales expectations and more autonomy to shape their goals.

Hybrid

The hybrid approach blends top-down and bottom-up concepts, getting sellers involved in the process by providing their input on market expectations while finance and sales leaders ultimately determine the target based on the demands and expectations of the business.

Quota Setting FAQs

How do I know if I set a good sales quota?
If more than half of your salespeople attain their quota over the given period, it’s a good sign you’ve set a solid benchmark. This shows that your salespeople are motivated and your processes support effective growth. That said, if more than 90% hit their quota, you might be aiming too low and should raise expectations to provide more of a stretch goal.

How often do I need to update the sales quota?
It’s wise to revisit the quota after each period to analyze the results. Based on seller performance, you can increase the quota to strive for bigger goals or reduce the quota if the prior target was too challenging. Periods are generally monthly, quarterly, or annual.

Salespeople aren’t hitting quotas. What’s wrong?
If your salespeople aren’t hitting quotas, personal performance may only be one of the root issues. Seasonality, economic hardship, and underperforming sales technology are all factors that impact overall performance. Sales training, product quality, and marketing effectiveness can influence sales performance. That’s why it’s critical to understand the entire market environment and company outlook when setting quotas for your salespeople.