What's a sales quota? And how should you use them effectively?
Looking to learn more about sales quotas?
I recently Googled “sales quota” and couldn’t find too much useful information in the first articles I read.
That’s why I decided to write this article, a quick and helpful guide on sales quotas. It will tell you all you need to know in 5 minutes.
If you still have questions, you can hit me up in the comments or send a message to our team on the chat. We’re happy to think along with you!
What we’ll cover in this guide:
- A clear definition of sales quotas
- Why you absolutely need to set sales quotas
- Which different types of sales quotas you need
- How to set and use sales quota successfully
- And finally, how to keep track of sales quotas
Let’s dive right in! 😀
What is a sales quota?
When reading up on sales quota definitions, you’ll find that many definitions reduce a sales quota to one specific type, while there are in fact many levels on which you can set quotas.
A sales quota refers to a sales related target number that is set within a specific period.
This time period can be yearly, quarterly, monthly, weekly or even daily.
The number can be defined for an individual sales rep and/or for a sales team as a whole.
It can be set on the input level (activities, e.g. calls, meetings, ...), on the output level (sales results, e.g. revenue, gross margin, ...), or on any level in between (lead-to-deal metrics, e.g. amount of new opportunities, sales cycle duration, closing ratio, …).
Now why do you need these sales quotas? 😏
Why set sales quotas?
In short, to get higher and more predictable sales.
Isn’t that everyone’s dream?
Here’s how sales quotas will make your sales dreams become real. ✨
Sales quotas are goals to work towards
If you tell your salespeople to “close some deals” without specifying how many deals to close and by when, they won’t know at any moment whether they have to up their game or not. Chances are high you will find them sitting around drinking coffee.
If you don’t set goals for your company, then you can’t rally the team behind it. You also don’t know when to celebrate success together. 😕
It may seem like stating the obvious, but it’s extremely important and sales teams often miss out on so much by not setting sales quotas.
Measure performance, fix/improve it and reward based on it
Want to also get better at sales? Sales quotas are key.
Quotas allow you to contrast expectations with reality. They’ll tell you when things are off track.
All you’ll need to do in the morning is open up your sales dashboard. 💻
If metrics are off, you can dig into the issue further and see how you can fix it.
If all is good, it’s business as usual. Or even better: you can see how you can up the numbers even further!
Drive a balanced/healthy sales pipeline
Without sales quotas on both input and output levels (or levels in between), you’ll quickly find that at any given time a sales rep will typically be focusing on either the start or the end of the pipeline.
There will be times when they’ll primarily be prospecting to fill the pipeline with leads and times that they’ll be focusing on closing deals, but forget to keep generating these new leads.
As most B2B sales cycles tend to take a while, this will result in times with lots of sales and times with almost nothing being closed. It’s not an ideal situation for most businesses… which brings us to the next point:
Forecast sales (for financial planning, resource planning, …)
Setting sales quotas will make sales way more predictable, as your whole team will work together to achieve these numbers and build a way more balanced sales pipeline.
This has numerous advantages:
- You’ll know better how much money you’ll have on your bank account at what point and deal with any shortages or - you never know - overages.
- You’ll be able to plan your resources better, as you’ll know more accurately how many you’ll need to fulfill the signed contracts and when.
- You’ll be able to raise funding from investors based on hard figures.
If you’re thinking “Ok, you can stop Jeroen, I’m convinced...” then let’s move on to the different types of sales quotas you can and should define. (If not, well, I don’t know. I like to believe I tried my best. 😅)
What types of sales quotas do you need?
As we laid out when defining sales quotas above, they can be for one person or for a team and for any possible time span. The main difference in terms of sales quota type, however, is on which level they are applied.
Output level: sales results
If you go Googling for “sales quota”, you’ll find a series of articles like this one.
However, most of them make a critical mistake: when discussing sales quotas, they only talk about the output level - sales results.
While achieving sales results is usually the goal, it isn’t the most effective quota you can set to increase sales and make it more predictable.
What is most effective? It’s maintaining consistent sales activity. More on that below. 👇
While quotas on sales results are still the most popular, there’s also an extensive range of possibilities for output level sales quotas:
- Gross margin
- Deals closed
It all depends on the business you’re in and on what exact behavior you want to incentivize with your sales team.
If you’re for instance working in a marketing agency that sells projects which have external costs to them, your goal might be best represented by the gross margin generated. Whereas when you’re a solo copywriter selling your own time, you’ll just want to maximize revenue.
Input level: sales activity metrics
While output level sales quotas are most often the end goal, they don’t effectively increase sales or make them more predictable.
Sales is not about chasing some revenue target. It’s about consistently placing those x calls, sending those x emails, booking those x meetings, ... every single day.
Surely, the output won’t be exactly the same every single month, but setting input level metrics will have a dramatic effect on your results.
The psychological effect is also not to be underestimated: if sales cycles take a bit longer in your industry or if you sell slightly larger deals, you most probably won’t close a deal every day (or maybe even week or month).
The best way to stay motivated is quantifying sales activity and reaching your goals every day.
Which sales activity quotas are best for you obviously depends on your sales process and mode(s) of communication. It can be:
- Amount of calls placed
- Amount of meetings scheduled
- Amount of meetings done
- Amount of emails sent
- Amount of chat conversations had
- Amount of leads talked to
In-between level: lead-to-deal metrics
Using input level quotas and output level quotas can often grossly oversimplify the sales process. Placing a certain amount of calls will not directly lead to your desired revenue.
That’s why setting quotas on the in-between level, on the process that generates leads and converts them to deals, is super important as well.
The most common metrics that are tracked here are:
- The amount of new opportunities created: the amount of leads generated
- The duration of the sales cycle: how long does it take to go from lead to deal?
- The closing ratio: how many leads are converted into deals?
- The average deal value: how big are the deals I’m closing on average?
Setting quotas for these, tracking changes over time, zooming in on differences between sales reps, … will give you the necessary levers to take control of your sales process and be successful at it.
How to set and use sales quotas successfully?
Now that we know sales quotas are important and what types of sales quotas you should use, the question remains: how to set and use these quotas successfully?
Here’s a few guidelines. 👇
Define output level sales quotas both top-down and bottom-up
You might have an idea of how much your sales reps are able to sell based on their past performance, assigned key accounts or territory, or another relevant indicator.
You might also have a goal on team or company level for how much you want to sell.
The first approach will define your quotas bottom-up, while the second will define them top-down.
It’s your job to make both meet. 🤲
And if you can’t make those two approaches meet, then you’ll obviously have to take action, because your quotas won’t be realistic otherwise.
Make quotas ambitious but achievable
While “BHAGs” (big hairy audacious goals) have been popularized by Jim Collins in his book “Built to Last”, this approach is rarely a good idea when setting sales quotas.
When hubris kicks in and you’re a tad too ambitious with setting quotas, this may lead to:
- A demotivated sales team
- A wrong idea about their performance
- No proper compensation for this performance
- Or even things like sales reps overselling your products and services, leading to disgruntled customers and excessive amounts of pressure on the team who needs to deliver on the made promises.
Of course sales quotas should be ambitious. It’s important for everyone that you keep moving forward together. Standing still is moving backwards.
But if you don’t keep the quotas achievable, you’ll be setting yourself up to fail as well.
Learn from your top performers
A proven way to boost the performance of your sales team is to learn from your top performers and try to replicate their behavior across the whole team.
Are they placing a lot of calls? Or focusing on sitting down with clients in meetings? 😏
Are they focusing on a few big deals? Or generating a large volume of smaller leads?
Analyzing this will tell you a lot about the dynamics of your sales process and how to go about it successfully.
And if you know what numbers are important, you know where to set your quotas to maximize your results. 📈
Finally, how to keep track of sales quotas?
So, do you now need to start keeping Excel files full of sales calls, emails, meetings, lists of deals, etc.?
Thankfully not, as man has invented automated CRM systems. 🎉
Beware however: most CRMs are not automated.
Nope, they’ll require you to log every single thing you do. Manually. 😣
And of course, most sales reps won’t do this. Or at least not for long. And you’ll find that those who do are mostly the ones who don’t have much else to do. And as soon as they start getting traction in their sales pipeline, they’ll start slacking off in the CRM.
In my previous jobs, I’ve gone through this myself, working with some of the more famous but highly manual CRM systems. And then we started Salesflare to solve this. 😁
Salesflare lives on top of the email inbox, calendar, phone, social media, company databases, email signatures, … and automatically collects and organizes the data your team needs to follow up their leads. ⚙️
And it automatically analyzes this data so you can keep track of your sales quota.
On top of that, you’ll be able to create accountability and transparency within the team, as you can easily share sales pipelines, an (automated) address book of contacts, and timelines of all activity (emails, meetings, calls, tracking activity, …).
Salesflare also directly solves some of the issues we’ve discussed above. For instance, as one of our customers, Simon Lovegrove, said:
Salesflare improves my mood as I can see the wins. It also recently alerted me to a lack of early stage opportunities.
If you’d like to try us, just head here. 👈
Trying Salesflare is entirely free. Setting up an account literally takes only minutes. If it works for you the pricing is affordable. And our support team is ready to help you with anything. Even with deciding on the right sales quota! 😀
So if you have any further questions about sales quotas, hit me up in the comments or send a message to the team on the chat.
Let’s boost those sales and make them more predictable!