Whenever there’s talk of sales, talk of quotas is not far behind. Sales quotas help sales teams stay on track to meet targets and are an important part of most sales strategies.
Here, we’re going to cover five different types of sales quotas that your team can use to not only meet but exceed your revenue targets.
A lot of the time, people refer to sales quotas as if they are a single thing. But that’s not the case. Sales quotas aren’t a singular entity, and there are actually several different types.
That said, they all share certain features, namely that they specify a target that needs to be met within a specified period of time. The target, however, can be anything from sales volume to profits to internal sales activity itself, whether successful or not.
In other words, the quota can be set at the input level (how many calls or meetings are scheduled, for example) or the output level (how many sales are made, the sales cycle duration, closing ratio, etc.).
Quotas can be set for individual sales reps or entire teams depending on your company’s needs.
Sales quotas set defined goals that can be used to both motivate your team and evaluate their performance.
By setting a clear target, reps have a goal to work towards, and they can clearly see when they are on or off course. Similarly, management can also measure the team’s performance in light of that goal, and make data-driven decisions.
Overall, quotas can get the ball rolling and stir up enthusiasm by making sales performance less vague and ambiguous — without a clear benchmark for success and failure, it’s hard to know how you’re performing.
With this understanding of sales quotas in hand, let’s move on to an exploration of the different types of quotas you can set for your team.
A forecast quota is exactly what it sounds like: a forecast of what a sales team or individual rep should be hitting by a specified date. Usually, forecast quotas are based on the historical performance of the rep or team. In high-performing teams, the target will increase period-over-period as the team continues to improve.
Since forecast quotas are based on historical performance, they can vary widely between team members and, in larger organizations, regional teams. This type of quota tends to be more individualized than other types, which set quotas for the sales team as a whole.
For example, if John typically hits $15,000 in sales every month, his forecast quota for each month will be $15,000. However, if it’s expected that he’ll increase his sales by 5% for the next month, then his forecast quota will be $15,750.
However, if Rachel serves a region that generally has fewer sales, her forecast quota might be only $10,000 with no expected increase over the next month.
Compared to forecast quotas, profit quotas are less common. They are typically utilized by businesses that sell high-value products and don’t offer many discounts. Overall, this type of quota is less common than others.
Instead of setting quotas for individuals or specific teams, profit quotas typically look at the profit the sales team as a whole produces. However, they can be tailored individuals when needed.
Profit quotas set a target for how much profit a sales team produces. This can be measured by subtracting the cost of the goods sold from the revenue they produce.
One unique feature of this quota is that it is independent of volume. If one sales rep is able to sell the same product for a higher price, they will need to sell less product to meet their quota. In short, profit quotas really focus on the bottom line: how much money the rep or team is bringing the business.
In some ways, a volume quota is the exact opposite of a profit quota. While a profit quota looks only at how much money the rep or team brings to the company, the volume quota is entirely based on how much product the rep or team sells.
Whereas a profit quota might be expressed as a target of $20,000 in sales over the next month, a volume quota would be stated as a target of 100 units sold next month. The price at which those units are sold is irrelevant to the quota.
This has its advantages and disadvantages. On the one hand, if one sales rep is able to sell their 100 units at $5 each and another is only able to sell them for $3 a piece, on the surface, it will look like both are hitting their quotas. However, one rep is bringing in $500 a month and the other is only bringing in $3 a month.
Because of this, volume quotas tend to be most useful for products that have a fixed price, not products that have any bargaining element to them. So, you might want to use a volume quota for video game sales but not for car sales.
Activity quotas are a bit further removed from the end result compared to other types of quotas. While profit, volume, and forecast quotas all focus on the amount of sales made in one way or another, activity quotas focus entirely on the activities that lead up to those sales.
This type of quota is especially useful for businesses that tend to have longer sales cycles. Instead of measuring units sold or profits, the activity quota sets a target for activities like scheduling meetings, making phone calls, or sending emails. It makes the most sense in industries where sales are more sporadic and reps can go long periods of time without making sales.
Combination quotas are exactly what they sound like: a combo of different types of quotas.
For example, a combination quota might be an activity quota with an added volume quota — the rep will need to sell a certain number of units and schedule a certain number of meetings to hit their quota.
The key to successfully using combination quotas is to make sure you’re combining the right types. It often makes the most sense to combine an activity quota with either a forecast, profit, or volume quota. That way, you can ensure that your reps are not only hitting their sales targets but they’re also providing a good customer experience.
Now that we have a better idea of what types of quotas are out there, we can move onto the next question: how do you actually set them?
The first step is to understand where your sales team stands currently. How many teams and team members do you have? What are their conversion and drop-off rates, for example? How efficiently are they moving customers through the sales pipeline?
Once you’ve figured out your starting point, you can then move on to planning how to maintain or improve it.
Once you have a general idea of where your team stands, start looking into its performance history. This will give you a baseline of what to expect from your team and how much improvement is realistic.
Some managers have a tendency to set their quotas from the top down: they decide how much profit it would be nice to make, and then they make that number their quota.
Unfortunately, this can be problematic. While it might be nice to simply wave a magic wand and increase your profits, the reality is that sales teams have limits. If a team has only been making $10,000 in sales quarterly, it’s not realistic to expect them to suddenly make $50,000 just because you say so.
Instead, it’s best to build your quotas from the bottom up. Take a look at how your teams have performed historically, and then set your quotas around that. It’s ok for the quota to be more than the historical figures, but it needs to be within a realistic range.
A good rule of thumb is that your quota should be reachable by 80% of reps. The quota should be high enough that it’s a bit of a motivating challenge, but it shouldn’t be so high that no one can achieve it. That will just demotivate your team.
With all this in mind, all you need to do is run the numbers and set your quota. Take your baseline, set a realistic increase, and make your calculations.
For example, if your rep is currently doing $50,000 quarterly, and you’d like to see a 10% increase, you should set a profit quota for $55,000. If you’re going by volume, a 10% increase for a rep that sells 40 units quarterly would be 44.
As you set your quotas, make sure you take seasonal variations and other market factors into account.
Sales quotas are crucial to the success of any sales team. When used properly, they motivate sales reps and help management identify issues with performance. Similarly, they keep sales teams on track by solidifying goals and giving team members something concrete to work towards.