Whenever there’s talk of sales, talk of quotas is not far behind. Sales quotas help sales teams stay on track to meet targets and are an important part of most sales strategies.
Here, we’re going to cover five different types of sales quotas that your team can use to not only meet but exceed your revenue targets. Let’s take a look at each one!
Quotas, when they come up in discussions about sales, are never far behind. Sales quotas are an important component of most sales campaigns and help team members stay on track to meet goals.
Here we'll look at five distinct sorts of sales targets that your staff may utilize to not just fulfil but also exceed your revenue expectations.
What Is a Sales Quota, and How Does It Work?
People frequently confuse sales quotas with a single concept. That isn't the case, however.
Sales targets are not a single thing; rather, they exist in several forms. They all have certain characteristics: for example, they define a goal that must be achieved within a particular time period.
In other words, depending on your company's demands, quotas can be set for individual salespeople or entire teams.
Why Is a Sales Quota Important?
Set sales goals that may be used to both inspire your team and assess their performance.
By establishing a clear target, reps have something to aim for, and they can see when they are on track or off course. Similarly, management may also use data to make data-driven decisions in light of the goal set.
Quotas can help get things started by making sales performance more precise and uncertain — without a defined goal for success and failure, it's tough to know how you're doing.
For Your Sales Team, Here Are the 5 Types of Sales Quotas to Create
Let's now have a look at the many sorts of team sales targets you can establish.
1. Forecast Quota
A forecast quota is a prediction of what a sales team or individual rep should achieve by a certain date. Forecast quotas are generally based on the rep's or team's historical success.
The aim will rise overtime period if the team continues to improve in high-performing teams.
Forecast quotas are based on past performance, and they may differ significantly between team members and, in larger organizations, regional teams.
This sort of quota is usually more personalized than other kinds that provide targets for the entire sales staff.
For example, if John's monthly sales average $15,000, his forecast quota for each month would be $15,000.
If it is anticipated that he will raise his revenue by 5% in the next month, his forecast quota will be $15,750.
However, if Rachel serves a region with generally fewer sales, her forecast quota may be as little as $10,000 without any projected rise over the following month.
2. Profit Quota
Profit quotas are less popular than anticipated targets. They're mostly used by companies that sell high-value items with few discounts.
Overall, this form of quota is less prevalent than others. Where quotas are set for individuals or groups, profit quotas focus on the overall sales team's earnings.
The goal for a sales team's profit is determined by profit quotas. The cost of the items sold is subtracted from the revenue generated to determine this figure.
One uncommon characteristic of this quota is that it isn't based on volume. If one sales representative can sell the same goods at a higher price, they will have to sell fewer products in order to fulfil their quota.
In other words, profit targets are all about focusing on the bottom line: how much money a rep or team is generating for the company as a whole.
3. Volume Quota
A volume limit is the polar opposite of a profit goal. A profit goal, on the other hand, only considers how much money the rep or team adds to the business.
A volume target might be expressed as a target of $20,000 in sales over the next month, whereas a profit objective would be phrased as a target of 100 units sold per month.
Unlike a profit goal, which may be defined as a desire for $20,000 in sales within a given period of time, a volume aim is based simply on how many items are sold. The disadvantages of volume quotas are numerous.
On the one hand, if one sales rep can sell their 100 units for $5 each, while another is only able to do so for $3 a piece, it appears as if both are fulfilling their goals.
One salesperson, on the other hand, earns $500 per month and the other just $3 per month.
As a result of this disparity, volume limits are typically most beneficial for items with a set price rather than those with any bargaining component.
So you might want to use a volume limit for video game purchases but not for automobile purchases.
4. Activity Quota
Quotas come in many different varieties, each with its own set of requirements and restrictions. Most of the time, they are linked to a project's outcomes.
In this case, though, quotas are more concerned with activities rather than sales since they pertain to outputs rather than purchases.
While profit, volume, and forecast quotas all have something to do with the amount of revenue generated, activity limits are only concerned with the activities that lead up to those purchases.
If you want to know how quickly your salespeople are selling items, a sales volume quota might not be ideal.
Rather than measuring units sold or profits, an activity quota focuses on such activities as scheduling meetings, making phone calls, and sending emails.
It works best in industries with more irregular sales and reps who may go months without making any purchases.
5. Combination Quota
A combination quota is a mix of several types of quotas. A rep will have to accomplish an activity quota and a volume quota in order to meet their total monthly sales goal.
An example of this is when a mixing quota might be an activity limit with an extra volume restriction — the rep must sell a certain amount of items and arrange a specific number of meetings to fulfil their overall monthly sales target.
The trick to employing hybrid quotas is to make sure you're combining the correct kinds.
It's typically preferable to combine an activity quota with either a forecast, profit, or volume limit. You can ensure that your representatives meet both their sales goals and customer experience standards by doing so.
How to Create Sales Quotas
Let's see how many questions we can answer. Now that we know what sorts of quotas there are, the next issue to consider is how to establish them.
1. Locate Your Assets
The first step is to understand where your sales team stands currently. How many teams and team members do you have? What are their conversion and drop-off rates, for example? How efficiently are they moving customers through the sales pipeline?
Once you’ve figured out your starting point, you can then move on to planning how to maintain or improve it.
2. Discover Your Sales Performance History
Once you've got a general sense of where your team is now, begin researching its performance history. This will give you a reference for what to expect.
3. Begin at the Bottom and Work Your Way Up
Managers have a propensity to start with the top and work their way down in order to establish objectives: they pick a goal for how much profit they'd want to generate and then make that figure their quota.
Unfortunately, this can be difficult. While it may be appealing to wave a magic wand and increase profits simply, sales teams have limitations.
If a team has only made $10,000 in sales each quarter previously, increasing their income by $50,000 is unrealistic.
Instead, start with the bottom and work your way up. Take a look at how you've done historically and then establish quotas around that. It's fine for the quota to be higher than previous numbers; it just needs to be within a reasonable range.
A good rule of thumb is that 80% of reps should be able to reach the quota. The quota should be high enough that it's a motivational challenge, but not so high that no one can reach it. Your team will become demotivated if you do this.
5. Figure Out How Much You'll Need
With all of this in mind, all you have to do now is crunch the numbers and establish a quota.
Take your baseline, establish a reasonable raise goal, and then do the Math. If you're going by volume, a 10 per cent increase for a rep who sells 40 units quarterly would be 44.
As you create your goals, keep seasonal trends and other market factors in mind.
Sales quotas are important to the success of any sales team.
When correctly utilized, they encourage sellers and assist management in detecting performance issues.
Similarly, they keep sales teams on track by ensuring that goals are met and that team members have something tangible to strive for.