What is Sales Quota, and How Do You Set Quotas to Close More Deals?

A sales quota is a goal or target that sales managers set to help sales teams keep sales coming and to continuously motivate the sales team to do better at their jobs. Achieving consistent sales revenue growth is crucial for sales teams to grow the business and increase the market share, so they must set realistic sales quotas.

Sales quotas motivate many salespeople to hit their sales goals and drive them to succeed. In addition, they can earn a substantial commission when meeting and possibly exceeding their sales quotas. Sales quotas can significantly impact and streamline the sales process, but only when you clearly define your sales quota and do it right.

This article will define a sales quota, why it is necessary, the different types of sales quotas, and how to set and track the right quotas to boost revenue.

Table of Contents

• What is a Sales Quota?
• Sales Quotas vs. Sales Targets
• Sales Quotas vs. Sales Goals
• Why are Sales Quotas Important?
• Types of Sales Quotas
• How To Set Sales Quotas
• Tips for Setting Sales Quotas
• Common Sales Quota Mistakes

What is a Sales Quota?

A sales quota refers to the financial goals that individual sales reps and teams must reach within a specific period, usually within a month or quarter. Sales leaders traditionally set quotas based on revenue, total sales, or other relevant key performance indicators (KPIs).

Setting sales quotas enables sales leaders to set the standards for what they expect from each sales rep during a specific period. A lot of times, sales quotas go beyond just achieving the company goals, it also motivates the sales reps to work harder to get better compensation

Sales quotas are set differently on a company-by-company basis. In addition, they tend to change depending on the goals the company needs to develop at different periods – monthly, quarterly, or even yearly. We will dive deeper into sales quotas in the paragraphs below.

Sales Quotas vs. Sales Targets

Sales targets are goals mainly used to define targets for sales teams rather than individual salespeople. Unlike sales quotas, sales targets combine past sales data with current market trends to predict what the sales team can do in the future. A sales target usually states how many sales the team needs to make for a particular product or service to reach its revenue goals ins a specific period.

Many companies use sales targets as a forecasting tool to predict what the team is most likely to achieve in the nearest future. They help sellers to break down their sales goals and quotas into small, achievable sizes. However, unlike sales quotas, sales targets don’t have to be achieved within a given time frame.

Sales Quotas vs. Sales Goals

Although sales quotas and sales goals look the same, they are different. Sales goals are long-term strategic plans made to increase a company’s revenue. In contrast, sales quotas are a series of actions that are defined to help salespeople achieve a specific revenue goal.

Sales quotas are a subset of sales goals to help salespeople achieve a specific purpose. For example, a company could set an overarching sales goal of increasing the company’s revenue by 30% – that is the sales goal.

Using this same scenario, a sales quota is the more minor, achievable task that a sales rep/rep must achieve to increase sales by 30%, such as making 50 cold calls daily, sending 30 cold emails, selling 1000 training courses every month, etc. But, again, a company’s size and current needs determine how big or small the sales goals and quotas will be.

Why are Sales Quotas Important?

Sales quotas are critical to sales success to increase revenue and enhance the sales team’s overall performance. For more clarity, Setting a sales quota can help sales teams in the following ways:

1. It acts as a guiding force

Sales quotas serve as a guide that helps sales teams stay on track with their plans to achieve their sales goals. For example, if your sales goal is making your product the no.1 product in the market and beating all your competitors, your sales quotas are smaller tasks that can help you achieve that goal.

This way, you know how to make your product the best in the market without veering off your goals.

2. It improves your sales performance

The core benefit of setting sales goals is to boost your sales performance and help sales managers realize the full potential of their sales reps. Sales quotas also show your sales reps what they need to do to achieve your goals – it inspires the reps to work harder to achieve their sales targets.

3. It helps to visualize the sales plan.

Sales quotas are set mainly by sales managers to reflect the overall sales plan of the company for a specific month or quarter since your company’s growth is measured alongside the individual development of your team members.

The key to achieving your sales quota is creating your sales plan – the set of activities and processes the sales team needs to achieve to hit and possibly exceed their sales quotas.

4. It helps to align the sales team efforts to the company’s objectives

A sales quota defines the overall plan and goals of the company, stating what tasks need to be achieved to help the company move forward. A sales quota can help your sales teams to align their efforts to achieve the company’s objective.

When your sales team’s tasks are aligned with your company’s goals, you have better chances of helping your company achieve its goals.

5. It helps to establish incentives and compensation plans

Aside from showing your sales team what they need to achieve their sales goals and motivate them to do better, a sales quota can also help you state the incentives and compensation plans that every sales team member is entitled to when they achieve their sales quotas.

For example, a sales quota could state that you are entitled to a 20% commission and other work benefits when you close a deal worth a specific amount. When a sales rep is fully aware of this, it inspires them to hit their sales quota on time.

Types of Sales Quotas

Sales quotas can be categorized into seven essential parts, which include the following:

1. Profit Quota

Profit quotas are the amount of money expected from goals each sales rep needs to hit regularly. It focuses more on the sale’s gross profit than the total revenue. They are the most common quotas for sales teams to ensure that the company’s financial goals are always met, irrespective of the strategies the sales reps decide to use.

This quota encourages sales reps to focus more on the profit generated from each product sold, not the total revenue. Therefore, sales reps using this method will be required to close more high-value clients to hit the sales quota faster.

2. Volume Quota

A volume sales quota is when the sales team considers the total revenue or number of units sold instead of focusing on the gross profit. Many companies use this type of sales quota to measure how much product their sales team is selling and to motivate them to sell more products.

Volume quota, unlike profit quota, ensures that the inventory is constantly rotating for sales reps to take advantage of upselling and cross-selling approaches. You can measure the success of this sales quota by whether a sales rep can sell a given number of units in a given period.

3. Activity Quota

Activity quotas are mainly set for sales development representatives (SDRs) and business development representatives (BDRs) to identify the specific set of activities that they must accomplish within a given period. The activity quota outlines sales activities, such as outbound emails, phone calls, messages sent, or scheduled meetings.

Sales leaders measure the activity of this quota based on whether or not the rep can complete the assigned tasks. This quota is mainly assigned to incentivize more outreach.

4. Cost-based Quota

Cost-based quotas focus on the total resources needed to close a sale. Many sales leaders use this quota to motivate and reward sales reps for getting the most out of their sales without exceeding their budget. Notably, sales reps need to meet this quota to help the company minimize its conversion costs.

5. Forecast quota

Forecast quotas are set using past sales data and performance to create new goals for the sales team. Many sales leaders use this quota when a company has had consistent seasonal trends in sales that have been tracked and monitored over multiple years.

Unlike other sales quotas, forecast quotas are only assigned to certain territories based on their past revenue or team performance. For example, if a sales team had sold goods worth $20,000 in the previous quarters, based on this revenue and the potential of the sales team, you could decide to increase his quota to 30%, making his goal for the next quarter to be $26,000

6. Combination Quota

As the name implies, combination quotas are a mix of those mentioned above. Most sales leaders opt for this method when a specific goal needs to be analyzed from different perspectives or when a rockstar sales rep is on the team.

A typical combination could include a mix of activity, profit, and volume sales quotas to enable sales reps to take on small, achievable milestones alongside a visual sales plan to increase the sales reps” chances of attaining their sales quotas.

7. Revenue Quota

A revenue sales quota is based on a revenue goal for a month, quarter, or year. Every sales rep is assigned a revenue quota to bring in a specific amount of revenue each month or quarter. Sales leaders can customize this quota to fit the needs of the business and sales team.

Small companies using this quota set the quota for a month or quarter, while larger companies with longer sales cycles set this quota annually.

How To Set Sales Quotas

The two main techniques most companies use to set sales quotas for their teams are the top-down and bottom-up approaches. The

1. Top-down Approach

The top-down approach is best suited for enterprise organizations. It involves setting quotas for an entire period and assigning them to sales reps to achieve that goal. Using the top-down approach, sales managers determine the overall sales goal and break this down into quotas for sales reps.

For example, if the company sales goal is to make $50,000 in a quarter, then using the top-down Approach, the sales manager assigns this task to 5 sales reps with individual sales quotas of $10,000 individually.

2. Bottom-up Approach

The bottom-up approach focuses more on the sales team’s skills. In this approach, the sales manager determines the quotas based on the potential of the sales reps and how they have performed in the last quarter. So to adopt this approach, you need to analyze past sales data to fully understand the sales team’s performance and any seasonal trends and set goals based on what the sales reps can comfortably achieve.

The bottom-up approach is best used when you have difficulty determining the total revenue you want to set for your sales quota. It gives the sales team more consistent growth in the long run. However, when implementing the bottom-up Approach, sales managers need to find out how many deals the sales reps closed in the past, how much revenue they generated, and the time it takes to complete a deal.

Tips for Setting Sales Quotas

The right sales quotas can tremendously impact your sales team’s business management. Here are some tips to help you set realistic and motivational sales quotas for your team.

1. Align the sales quota with your company standards

Review your company and sales team’s historical data and performance to set the new sales quota. For example, how much revenue did the company make in the previous quarter? What’s the sales reps’ productivity level, etc.?

These are the questions you need to find answers to prepare a framework and set realistic sales quotas for your sales reps and the sales team.

2. Consult your sales team before setting a sales quota

Before setting any sales quota for your team, ensure that you have consulted your sales team to ask them about the realities of the sales in the market, their experiences with their clients, and the market’s competitive landscape.

When you have up-to-date information about this, you can create sales quotas that challenge your team to work harder but not one that is unattainable.

3. Be Prepared for market changes

Many factors affect sales beyond the capabilities of the sales team and past sales performance, such as internal and external factors. One of these external factors that can affect sales is the changes in market trends.

For example, if you manage a logistics business in a remote area where they have no access to healthcare products, a healthcare company suddenly builds a store in that area. This new change solves the people’s need for healthcare products that your logistics company manages. This new development can affect your sales, so you need to ensure that your sales quotas cover unforeseen changes in market trends,

4. Keep your sales team engaged

Your sales team is critical to successfully achieving your sales quota. So, you must ensure every sales team member is focused and committed to achieving the quota. Importantly, you must give your team clear, actionable, and well-researched goals to help them stay on track. Don’t set unrealistic quotas for your sales reps to stop your sales team from burning themselves out.

5. Determine the target review period

Depending on the length of your sales cycle – short or long, clearly define the review period for all the sales quotas. If the sales cycle is short, identify all the problems preventing you from achieving the sales quota and take relevant action. Alternatively, if it’s a long cycle, take the time to cover all the gaps to boost your sales performance.

6. Don’t push your sales team too hard

Your sales reps are in charge of actualizing your sales plan and achieving the sales quotas you have set for them. as important as your sales goals are to your business, try not to push your sales team too hard. Instead, motivate and create plans to boost their morale and give them realistic goals.

Common Sales Quota Mistakes

Here are two common mistakes that you should avoid making when setting your sales quotas,

1. Setting unrealistic quotas

One of the biggest mistakes that sales managers and sales leaders make the mist is setting unrealistic and unattainable sales quotas. Please don’t go to extreme lengths to achieve your quotas, even when you want to motivate them to get better. Ensure that your sales quotas are realistic and attainable for sales reps.

2. Including Commission caps

Another terrible mistake managers make when setting sales quotas is applying commission caps to your sales reps’ quotas, as this can limit the commission they earn. Especially when your sales reps feel they will hit their commission cap, they won’t feel financially motivated to close more deals.

Conclusion

Sales quotas are financial goals that individual sales reps must achieve, usually within a quarter, month, or year, to achieve the overall sales goal. Therefore, setting and tracking sales quotas is significant to sales success.

However, it must be realistic, so your sales team can achieve it. Aside from setting realistic sales goals, it would be best to manage your sales teams with the proper tools to keep track of your team’s performance and determine which sales reps are meeting their goals or underperforming. Either way, a sales management tool can help keep your team on track with your sales goals.