Selling Power Magazine Article

Tough Truth about Quotas
Renee Houston Zemanski
Although forecasting sales can be a bit like trying to predict where the magician is hiding the dove in that empty hat, there’s no place for magic in a sound quota strategy.
Simply put, sales managers set quotas to define the expected level of performance. But, quotas set arbitrarily can’t help your reps achieve their goals. Quotas set too high will do more harm than good, causing high salesperson turnover and creating a demoralized environment for those who stay.
Upper management promises great earnings growth to Wall Street over the next year and then backtracks to see how they can get to the promised number. Management then hands over the number to sales and says, “Just do it.” But if sales executives give that same number to their sales force without first breaking it down, it can cause frustration, according to Jerry Colletti, a managing partner of management-consulting firm Colletti-Fiss LLC in Scottsdale, AZ.
“You want to have customized quotas,” says Colletti. “You want quotas that represent the real opportunity, by sets of accounts, by answering these questions: At what rate is the local market growing? How large is the market in each territory for our company’s products and services? What do we have to offer – new technology, new products, new services? And when are they going to be available so I can talk to my customers about what’s coming? Who else is selling in my market?”
To get the answers, the first step in allocating appropriate quotas, say top sales executives, is to get your field involved.
“Involve your sales professionals from the beginning of the planning process,” says Daniel Boon, senior vice president and general manager of Amherst Corporate Computer Sales & Solutions in Tampa, FL, a company that generated $312 million in revenue in 2001. “The more ownership you provide your sales force and the more input you offer them into setting their goals, the more likely they are going to be to take a smarter approach to achieving their goals.”
Colletti agrees: “Involve the sales force and ask them what they believe can be sold. For example, if your company needs to get 15 percent growth overall, you don’t need to get 15 percent everywhere. Some territories might grow 20 percent and others might only grow 8 percent. That’s what the front-line management has to figure out.”
To help them figure it out, Colletti suggests giving front-line sales managers and their teams access to data and access to finance and market people, so they can collaboratively arrive at how their company can reach its quotas.
Most importantly, says Brad Lawson, district sales manager for SAS Institute, the quota measurement system should be in alignment with a company’s strategic goals and objectives. “Often companies give a quota and then change directions,” he says. “You’ll be fighting a losing battle if you base your quota on sales volume but later ask the sales force to start concentrating on the profitability of their sales.”

Numbers, Numbers, Numbers
So you have the big number; where do you start? “It’s really up to the district manager to negotiate the quotas once they are handed down,” Lawson says.
SAS, the largest privately held software company in the world, sells business intelligence software and services and generates more than $1.2 billion in revenue. Numbers are handed down to district sales managers like Lawson, and that’s when he begins to negotiate – armed with plenty of data.
“I use an analytical model to justify to my boss what my team’s quota should be,” he says. “First I look at the ongoing renewal software revenue that my district is generating; then I look at how many accounts my district had that were greater than $500 million, and finally I look at the aggregate revenue of those accounts. Then I compare my district to other districts, so it allows my bosses to apply weight to each of those criteria. It’s not an exact science, but it’s much better than an arbitrary target.”
Once Lawson has a team quota, the next thing he does is allocate it to his individual sales force.“Look at the same things you looked at before and ask yourself, ‘How many accounts does this person have? What is the industry concentration for that district? What is this person’s capacity to execute?’” he says. “You can’t give everyone the same quota. You have to match opportunity with capacity. If you build a quota that is arbitrarily large, you’re not going to be able to rally the troops around it, and you’re basically signing up for a suicide mission.”
Colletti (continued on page 2)
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