Ninety percent of all sales organizations set target sales goals for their salespeople, according to research published by ZS Associates in the book Building a Winning Sales Force. But how do you know your target sales goal is the right number?
Sales reps want goals that are attainable. Sales managers and corporate execs want goals ambitious enough to propel the company to greater financial success. But the difference of opinion on what is attainable and ambitious can be substantial. "Setting the right goal is an essential component of good sales management," said Andris Zoltners, Founding Director of ZS Associates and recent speaker at the San Francisco Sales 2.0 Conference, "but it's not always easy to get it right."
According to Zoltners, the effects of poor goal-setting can be disastrous, especially for sales forces that tie a larger percentage of incentive pay to goal attainment. Two of the most common scenarios occur when target sales goals are set either too high or too low. Each situation has at least three negative effects.
When sales goals are set too low:
When sales goals are set too high:
- Company pays out needlessly high incentives.
- Salespeople become complacent.
- Sales fall short of potential.
- Sales force earnings decrease.
- Salespeople become angry and disengage.
- Sales suffer.
Notice that in both situations, the outcome includes a negative affect on the sales reps' attitude. That is the opposite of what incentive pay is designed to do.
"The cost of poor goal-setting cannot be underestimated," says Zoltners. "The fairness and difficulty of the goal will directly influence the salesperson's level of motivation, which in turn will affect the amount of effort and work he or she puts in to meet the goal. And you can see all of those elements reflected in your revenue results."
Unfortunately, sales managers don't always have the final say over the sales goal, and C-level executives are not always in tune with the psychology of motivating a sales force. "Very often, corporate executives don't understand the impact of a sales goal that challenges a sales force too much or not enough," says Zoltners. "They pick the number they want to see, not the number that's going to help the sales force achieve success." Executives' unrealistic expectations, poor forecasting, unforeseen internal changes, and market shifts can complicate the question of where the bar should be set for sales goals.
What's the best way to correct sales goals gone wrong? When it becomes clear that a sales goal is too challenging, Zoltners recommends setting a new, more realistic goal. This isn't always a popular solution; many companies believe it shows more integrity to stay the course. Remember the larger picture, however: the point of an incentive plan is to motivate reps to succeed. Reps will likely appreciate the choice of committing to a more reasonable goal.
If you really want to stick to a goal even though it's too challenging, announce instead a plan to reward reps who meet a certain percentage of the original number. Base the contingency plan on past sales data, as well as market trends. If these factors indicate that most reps could reasonably make 80 percent of the stated goal, for example, then add a bonus for anyone who achieves that 80 percent.
If you realize your number has been set too low, Zoltners advises taking action based on the length of time left in the incentive period. If the incentive period is short (a quarter or less), it's better for morale to leave the goal as is and instead prepare the sales force for an increased number for the next incentive period. On the other hand, if the incentive period is significant (one year or longer), the best approach is to increase the sales-force goal sooner, rather than wait for the period to end.
As Zoltners told the audience at the Sales 2.0 Conference, sales organizations are better off establishing target sales goals within a certain range, rather than holding the team accountable for a hard number. In most cases, this flexibility allows reps and sales leaders to strike the right balance between ambition and attainability.