Let’s face it — no one likes to talk about their sales quota. It’s little wonder that it’s a sore subject among sales teams — only 46% of sales reps are hitting their quotas. However, a lot rides on this number at the end of a quarter or the end of the year; sales quotas ultimately determine if revenue goals will be met.
Take the fear (or at least the stress!) out of the topic with our comprehensive guide to both setting and achieving your sales quota.
What is a sales quota?
A sales quota is a number, either a dollar value or an activity/volume count, set by sales leaders for reps or teams to meet over a specific time period. This time period can be daily, weekly, monthly, quarterly, or yearly.
Sometimes the difference between a sales quota and sales goal can be confusing. Are they the same thing? Well, the simple answer is no. A sales goal is a long-term, desired result, like growing company revenue. A sales quota is a tactic used to meet these sales goals.
For example, you might set quarterly sales quotas to help reach yearly sales goals. You could have a quarterly sales quota of $500,000 to hit your yearly revenue goal of $2 million.
How do you use sales quotas?
Sales quotas ensure that you’re on track to meet overall sales goals. They’re also important to monitor the health of your sales department and course-correct if needed.
Use your sales quotas to:
- Set sales rep expectations for the month, quarter, or year.
- See where to replicate processes of successful sales reps.
- Review which sales activities are working and which ones aren’t.
- Highlight which reps’ skills need improving.
- Use quota info for goal setting the following quarter or year.
But a word of caution: While sales quotas push sales reps to make more sales, they can be problematic. If you set sales quotas that are unrealistic, you demoralize your team. Or if top reps are doing well and you set their quotas even higher, you risk them becoming discouraged.
As a result of either scenario, sales quotas likely won’t be met, which then affects final company revenue.
Set sales quotas that are both realistic and that motivate your team to sell. This is where the type of sales quota becomes important.
Types of sales quotas
Not all sales quotas are created equal. The type of quota matters — certain ones are more appropriate for different types of companies. For example, the type of quota that works for an e-commerce business isn’t necessarily the best sales quota for a B2B company.
Before you set your sales quotas, consider the four main types:
Profit-based
This sales quota means that a sales rep has to sell a certain dollar amount of your product or service to meet a revenue goal. Sales reps are thus more motivated to close higher-value deals. It’s best used for companies that sell in more than one market and have a variety of products and price points.
Example: You’re a sales rep who has a monthly profit quota of $10,000. To reach this quota, you are incentivized to sell high-margin subscription plans.
Volume-based
Volume-based quotas mean that the rep must sell so many units or subscriptions of your service. These quotas are typically annual. They are the most common type of quota set by small businesses across industries as they’re easy to calculate.
Example: You have to sell 200 subscriptions to meet your quota for the year.
Activity-based
With activity-based quotas, the sales rep is expected to complete a specific number of activities, such as making calls or sending out emails each month. These quotas are good for SaaS companies as they have longer sales cycles and, therefore, more activities to track.
Example: You must complete 50 demos per month, 10 follow-up meetings, and 25 calls to meet your quota.
Combination-based
Combination-based quotas include a combination of the above quota types, such as activity-based and profit-based. These quotas are excellent for B2B companies as there are many customer touchpoints (e.g., from prospecting emails to customer-nurturing activities) that will impact final sales goals.
Example: You have a profit-based quota of $1 million this quarter. To reach this quota, you also have activity-based quotas, including 50 demos per month.
And just because you meet one sales quota (e.g., the sales activity quota for the month) doesn’t necessarily mean you’ll meet all of your sales quotas.
For example, maybe you set 50 demos as your sales activity quota. Your sales reps crush this quota. But for a variety of other reasons, your team fails to hit your quarterly profit-based quota of $1M. This is why it’s important to set reasonable sales quotas, no matter what type you choose.
Calculate and meet your sales quota
Setting the right sales quotas for your team requires breaking down overall sales goals as well as inserting quotas into your sales CRM for easy tracking.
If you’re a sales rep, you can work backwards from lofty sales quotas and turn them into manageable daily or weekly tasks.
Break down larger sales goals into quotas
It’s a delicate balance, setting sales quotas that are challenging yet achievable. They also depend on your overall sales goals. These sales goals should be based not only on historical sales data but also on current market trends.
If your sales goals are realistic, your sales quotas should be too. First, ensure that you have a strategic sales goal process in place.
Once you’ve set your overall sales goals, break down these goals into sales quotas for your team.
Example: Your CRO set a company-wide revenue goal of $3 million in 2020. You thus set a quarterly profit-based quota of $750,000 for your team. In addition, to make the number less overwhelming for reps, you set a volume-based quota that says that each rep will be expected to sell 300 subscriptions this year to hit revenue goals. Three hundred subscriptions equals an activity-based quota of 10 colds calls, 20 emails, and 5 demos per week per rep.
Of course, it’s not quite as cut-and-dried as the above example. When setting these goals, take into account the experience of your sales team before handing out quotas. Giving an entry-level sales rep the same quota as a rep with five years of sales experience likely won’t end well.
Granted, the numbers you set will depend on your own sales team, but below are good sales quota benchmarks based on sales rep experience:
- Entry-level sales rep (no experience): $300,000-$600,000 sales quota
- Sales rep with (one to two years of experience): $800,000 sales quota
- Experienced sales rep (three-plus years of experience): $1.3 million sales quota
Also account for past sales information. For example, maybe you know from last year that 30% of your sales happened during Q1. In addition to distributing quotas according to rep experience, you might set a higher quota for Q1, such as $900,000, and then lower numbers for the remaining quarters.
Use your CRM to manage your numbers
It’s difficult to know if you’re meeting sales quota if sales activities and deal information aren’t visible on a regular basis. A sales CRM lets you plug in quotas and automatically track progress/record sales activities.
For example, in Sell’s CRM, the Rep Performance Dashboard report allows you to set and view your sales rep’s quota attainment as well as pipeline conversion rates and loss reasons.
Maybe you see that Lauren is great at her sales pitch but losing a significant amount of deals at the contract stage. At her current rate, she won’t meet her quota. That’s your cue to discuss why she’s struggling and how you can help.
If any sales quota is low within your CRM, you can determine if your reps need assistance and course-correct.
Help your sales reps work backwards to achieve their sales quotas
By breaking down quota into manageable steps, sales reps will be more motivated to hit their quotas. Think about it. Telling your rep to “Find five referrals per week” is a lot less intimidating than “Hit $20,000 in sales this month.”
Both quotas might equal the same result, but tactical quotas help ensure that your reps aren’t worrying about final numbers but are motivated by small wins.
Here’s how you can break down quotas into actionable steps. Consider the following scenario:
- Your rep needs 50 qualified leads to meet their quota for the month.
- You only have four weeks (20 working days).
Create a simple formula based on this information. Divide the number of qualified leads by the number of weeks. Based on this calculation (50 divided by 4), your sales rep needs to convert 12.5 leads per week.
Next, break down this number into activities. What is the number of meetings/calls/emails your rep needs to generate 12.5 leads every week? Look in your CRM at past sales activities to source this number. Maybe you see that the rep typically calls 10 people or spends three hours per week on social selling to get this many leads. Your rep should replicate the process based on these activities and create a realistic to-do list.
Complete this same process for the entire quarter. Tell your reps to set deadlines for themselves on each activity in their calendar to help meet their quotas. Maybe each Friday, the rep sets a goal deadline of 20 cold calls to reach his or her quota of 80 calls per month or 240 calls per quarter.
It’s all about making sales quotas manageable for your reps.
Break down sales quotas into achievable activities
Setting and achieving sales quotas can be intimidating. If you’re a sales manager, you’re worried that your sales quotas are too challenging or not challenging enough to grow the company. If you’re a sales rep, you’re stressed that you’re not going to reach your sales quota.
Whether you’re a manager or rep, work backward from sales goals and turn them into monthly, weekly, or daily tasks to overcome stress and crush your sales quotas this year!