The Real Cost Of Exceeding Quota_FI

The Real Impact of Exceeding Quota

When you review the performance of your sales staff you might think that simply meeting quotas is the best you can hope for. But, if your team crushes their sales quota on a regular basis it might not be a viable quota. Establishing a viable sales quota for your organization is not easy. If quota is too low or too high, it has a trickle-down effect throughout the company.

Today over 50% of companies have had half of their sales staff exceed expected quotas. What does this tell us? It tells us that there are imperfect quotas and benchmarks resulting in sales staff either missing their quota or far exceeding their quota.

Missing Quota

When sales staff fails to meet their quota it can be the result of things like low leads, staff members who aren’t great closers, or staff members who are poor representatives.

When you consider the bell curve of your sales staff performance, remember that there are going to be under performers especially if a statistically significant chunk of your staff is exceeding performance expectations on a regular basis.

Too Many Crushers

Failing to meet a quota is a problem. But what most sales managers don’t realize is that crushing a quota is just as detrimental. If too many reps are exceeding their marks, then the quotas established are too easy to attain.

This is problematic because it can produce unmotivated sales reps. In fact, long-term, this environment can cultivate a loss of revenue for the company because representatives will only work as hard as necessary to hit their marks or slightly exceed their marks, and then they back off. This is especially true of companies that have commission caps on quotas.

If there’s a commission cap, as soon as a sales representative meets their quota, the company has removed any incentive to sell once that quota is met.

If too many of your sales representatives are hitting their marks, you’re leaving money on the table as well. Your sales force isn’t being put to their full potential. If sales representatives are able to quickly and effectively exceed their numbers easily, then they have a great deal more potential inside of them, which is yet to be seen. If they have more to give, your company needs to provide them the opportunity to do so.

How To Set The Perfect Quota

So how do you set the perfect quota? You have to find which type of sales quotas are best suited for your organization. What works for an inside sales rep will not work as well for someone selling physical products or marketing to large pharmaceutical companies.

As the manager it is your job to make sure that you are using the most appropriate design for your company. If things have changed and the current template is no longer viable, you have to be willing to make changes that maximize the potential of your sales representatives.

5 Most Common Types of Sales Quotas

 

#1 | Volume based

Volume based sales quotas are the most common and best suited for small businesses. The basis for this metric is the number of units sold or the amount of money made for a specific length of time. The idea is to motivate your sales representatives to maximize their sales during that set of time so that they can receive not only their commission but bonuses based on the total sales made during that time.

#2 | Profit-based

Profit based quotas incentivize their sales reps by focusing on closing deals that are the most profitable for the company, not just accepting any and all sales. This is best suited for representatives who sell in multiple markets or have to cover unique territories.

#3 | Activity-based

Activity-based sales quotas are better suited for individual sales reps or teams making sales which are quantifiable, such as setting a specific number of appointments or taking a certain number of phone calls. This would be better suited for an industry that focuses on long lead development cycles with little or no inventory such as telemarketers or appointment setters, even inside sales reps.

#4 | Cost Based

Cost-based quotas are better for industries that want to reduce their costs for every deal rather than industries that focus more on heavy revenue building. The intention for this type of design is for sales staff who want to reduce the amount of time it takes to close a deal or reduce overhead costs.

#5 | Combination

A combination strategy will integrate the volume base quota mentioned above with one of the other options. You might want to have your sales representative focus on how they approach their sales but also the quality of the close. You might not just want them to make appointments or calls alone but instead to make as many appointments and calls as possible while also selling company software to the most profitable customers.

As the leader you have to understand what has caused your sales staff to miss their quotas too often or too far exceeds their quotas. To do that you have to diagnose the problem.

Need help deciding which quota is best for your organization and how to implement? We’ve got you covered: Choosing The Right Sales Quota For Your Team

3 Areas to Diagnose

1. Sales Team

A sales team comprised of 10 representatives aiming to hit a quota that is better achieved with the help of 15 representatives is simply understaffed. As a sales manager you have to make sure your team is not trying to compensate for resource or time deficits. Look at historical trends and see if your quotas are met on a regular basis. Add up the representatives across your team and their quotas to see what the numbers have to say.

2. Leads/Opportunities

You might project a certain pipeline as the sales manager and simply not hit your goals because your leads and opportunities are insufficient. It is your job to provide sufficient opportunities in your sales pipeline for your team. Your sales staff should have three times more pipeline than the sales quota goals.

3. Reps

If every other aspect of your sales pipeline seems healthy then the problem might simply be your reps. Your representatives could struggle to convert these opportunities into deals and it is your job to figure out where the problem lies with your representatives and help them to fix it.

By monitoring your people regularly and checking on the performance benchmarks and quotas you are integrating, you can continually improve the performance of your sales force. By diagnosing the true issue at hand in respect to your quotas, you can better meet the needs of your representatives.  When the appropriate quota is established your entire operation can operate in a more efficient capacity all while maintaining success.

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