We’re experiencing a business world very different from the one we are used to, where a pandemic has caused debilitating closures, abrupt changes in buyer behavior, dramatic realignment in sales, and an uncertain overall economic climate. One of the responses organizations are forced to make during these special circumstances is to change sales quota allocations to reflect their new reality. Many companies alter quotas as macro-conditions change, but this pandemic is likely to require businesses to take an entirely fresh look at their standards and compensation systems.
This is a unique — potentially very positive — opportunity. Quota setting is critical because, done right or done wrong, it has a major impact on business and financial results as well as the morale and performance of the sales team. If your company is resetting quotas for this new business climate, this is your chance to establish a new and better process with long-term benefits.
Quotas can cause consternation within an organization, mainly due to the potential for disagreement among finance, sales leadership, sales operations, and executive management. True ownership and governance (such as robust RACI or RAPID assignments) may be unclear.
Quota setting ownership is frequently a matter for debate between finance and sales ops. The truth is that full ownership by either one of these teams may have negative implications. When finance is solely responsible, their focus is on budget. This can result in unrealistically high quotas. A finance-only view is also unlikely to account for the lack of consistent market opportunities from territory to territory or the dynamic nature of individual accounts. In other words, special situations and changes on the ground may not be reflected in the quota structure.
When sales ops is solely running the quota system, there is potential for sales goals to be misaligned with corporate objectives. This is true, for example, in companies with multiple divisions that are working to rebalance their mix of sales for greater profitability. If it’s less expensive to produce and sell one type of product, the financial picture may reveal an advantage to selling more of that product. However, sales ops may see more momentum and volume opportunity for selling another type of product and put more focus there. The two viewpoints are in conflict until resolved.
One recent client was in the midst of a strategic product shift. Quotas needed to drive transition to new products while protecting existing product revenue in the short term. Setting quotas required a highly collaborative approach between sales ops, finance, (and product!) teams as they merged historical performance data with market forecasts for new products.
2. Goal Variance
This problem tends to occur when finance is solely in charge of quota setting. The financial overview may not include a detailed assessment of the total addressable market or sales potential within each set of accounts or each territory. This can result in two issues.
Goals may be set too high for territories/accounts with lower potential. This disadvantages sales personnel within these territories and can cause burnout and high turnover, as even the top sales reps are set up to fail. It is a serious problem for your sales team when performance isn’t rewarded within the context of reality.
Goals can also be set too low for some territories. In this case, too few sales resources may be assigned to a territory, and your company may not be tapping into its full potential. On top of falling short of potential, compensation costs may be too high as reps overachieve against low quotas.
3. Message Disconnect
This occurs when executive leadership and sales ops are looking at the quota process from different viewpoints. Top-down meets bottom-up does not create the necessary alignment between leadership hopes and expectations and market realities.
The result is a disconnect in the messages that reach the field. Sales reps are unable to understand what is really expected of them or why, and the compensation design comes in for criticism.
4. Roll-Out Timing
Companies sometimes don’t communicate quotas and compensation structure to the field until after the start of the plan year. This is a poor practice because it can make the sales team feel disadvantaged. Not knowing what’s expected of them can disrupt motivation and cause an initial lag in sales momentum for the fiscal year that is hard to overcome. Reps can even perceive that the company is trying to “game the plan” when quotas are communicated late.
Quota-setting can cause unnecessary headaches for organizations but it doesn’t have to. Virtually all the problems with quotas lie within the procedures set up to establish them, and those can be changed. Here are three steps your company should take to make your quota setting process effective in garnering buy-in and motivating your sales team.
Set Up Proper Governance
You need to clarify the work to be done, ownership and accountabilities, process, data sources and flows, chain of decision-making, and communication timing that is most beneficial for your organization. You should make sure that sales ops and finance are both integrally involved in the process from the beginning. Your data sources should include your sales reps in the field and your sales leaders.
Assign an Individual Owner
While you are identifying ownership, assign one individual in your company to be accountable for running the process from start to finish. Coordination is key in making the quota process work; you need someone who has the authority and skills to manage the critical process, data from multiple sources, and stakeholders with very different points of view. Ensure adherence to this ownership plan, even when key stakeholders exert influence that might derail the process–as one client recently experienced when an executive overstepped established bounds to unduly sway planning, resulting in significant cost overages at incentive payout time.
Use Data to Develop and Test Approaches
Finding the best sales quota system for your organization requires serious data analysis, not guesswork. Most companies with problems in this area have simply not gathered and incorporated enough data on which to base their quota practices. You need to take into account:
Setting up your goal allocations is the final, critical part of the process. There are several ways to do this. Don’t assume one way will fit every segment of your business. Consider whether you might need different approaches for different segments.
As you can see, each of these methods is most effective in specific business situations and can help companies address different common challenges.
Contact us to learn how Axiom Consulting Partners helps organizations with quota setting and creating sales effectiveness processes.
Additional perspectives for sales leaders: