- A quota is only valid if it is aligned to company and employee success
- Many companies think success equals growth but could be doing much better
- Inaccurate quotas degrade their value as a motivator for sales reps
Sales success is not about hitting quota. Yep, I said it. Dig into your company’s compensation plan and you will likely confirm that the same is true for you. Most quotas are not built using the foundational elements required to accurately align to sales growth objectives. From 2011 to 2019, the average revenue for the companies in the S&P 500 has grown over 24%, but average sales quota attainment has dropped from 63% to 43% by some estimates. Does this mean that sales reps, who grew company sales by an average of 24%, have become less effective? I doubt it.
Instead, here are three more likely reasons quota becomes disconnected from sales success.
- Over-assignment. This occurs when quotas are set above the actual sales goals of the company. Calculate quotas by reviewing the overall sales commitment for the year, and then comparing it to the sum of quotas for all sales reps. This may require rationalization in areas where multiple sales reps are paid on the same deal, but it is an activity that should be done annually during alignment of the annual compensation plan to the commission budget. If the sales rep quota total is more than the total company sales goal, you’re over-assigning. This can happen at multiple levels in the organization and therefore, by the time the sales managers receive their quota, it is inflated. If over-assignment is accounted for in the compensation rate, this is OK; however, most companies don’t do this. Many sales leaders are instead given a quota they have no hope of achieving but that will satisfy company objectives — even if they miss by 15% or more.
- Unlimited quota. As expected, when this over-assigned target is distributed to each sales rep, it is often unrealistic and results in a distribution that very few will achieve. Because many organizations equate quota to sales success, they design their compensation plans to align market total target compensation (salary + commission) to that goal. This practice ultimately leads to turnover of sales reps because they realize an unachievable quota means they will not make a reasonable salary.
- Punishing success. A comment you hear a lot in sales is “No good deed goes unpunished.” There is a common practice of rewarding those who beat quota with an even bigger quota — this inevitably leads to a miss or a rep with such a large territory that it limits other reps’ ability to have enough opportunity to succeed.
These three behaviors compound to create a spiral that leads to a successful company but one that has a sales team that feels like it is failing. If this is common in your organization, you are likely underpaying your sales team, which will result in retention issues and underperformance. This may appear to work due to continued market growth, but produces a suboptimal sales effort that leads to missed opportunity and a company that is growing but not reaching its potential. When market dynamics become more challenging and company sales goals aren’t tougher to achieve, these issues become critical.
Using quota to determine achievement only works when the sales compensation planning process is built around an aligned set of steps that ensures quota attainment as well as company and employee financial success. If this is not done, quota is not a valid measure of sales success.
Does your organization need help aligning quota to sales success? Contact us to learn more.