by Sales quotas are targets set for individual sales reps and teams to measure performance, incentivize salespeople, and increase company revenue. Sales quotas are typically tied to sales volume, costs, profit, or specific sales activities like appointments or calls, and effective quotas are ones in which 80% of your staff on average should be able to meet.
A number of factors are used for establishing sales quota for salesmen. The quota may be based on past sales records, buying power of customers, company policies, total production for the year, competition, etc.
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Past sales records
Past sales of established organisations form a good index for future performance. Thus, while setting sales quota, past sales may be taken into account. Otherwise stated, the future sales quota is fixed keeping in view the past sales. New companies can fix their sales quota by observing and going through the past sales of the competing firms.
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Buying power of customers
A manufacturer can have a rough estimate of the buying powers of customers of a particular area. The buying power of a particular area can be known by the economic status, income of the customers living in the area, living habits, etc. Accordingly, the manufacturer can estimate sales quota for that particular area.
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Company’s policies
Company’s policies regarding credit, quality of goods, discount, selling terms have a direct impact while estimating sales quota for the salesman. In case the company has a liberal credit policy, high quality goods, offers higher rate of discount and facilitates installment selling, larger sales quota can be set for the individual salesman. These policies help to increase the demand for goods and services and as such increase the sales quota of each salesman.
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Total production for the year
A company’s total production in a particular year also plays an important role in determining the size of the sales quota. If, in a particular year, the production is high then higher sales quota can be set for the salesmen because goods which are produced need to be sold. On the other hand, if the production is normal in a particular year, moderate sales quota for each salesman is fixed.
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Extent of competition
If the company in question is facing higher competition, the sales quota fixed is usually lower. In other words, the intensity of competition is inversely proportional to the size of the sales quota. It means that companies enjoying lesser competition or near monopoly can have larger sales quota fixed for each salesman as there is every possibility of larger volume of sales.
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Opinions of experts
Experts in the sales field are of immense help in determining the sales quota. Dealers, agents, consultancy firms and other agencies which are closer to the market are in a position to know the kind and quantity of goods that can be sold in a particular area. Companies can take the help of such agencies or persons in fixing sales quota for each salesman.
Methods of Setting Sales Quotas
The sales quota is determined in many ways.
4 important methods of setting sales quotas are discussed as follows:
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Top Management Downward method
In this method, the management and executives, with their experience and judgement, estimate the total sales for the next year. Sales executives having enough experience in the sales are given the responsibility of setting such sales quotas. This method is sometimes called guess work quota method because it is estimated on the basis of executives’ guess work.
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Territorial Estimate Upward method
This method is known as grassroots approach. In this method, the salesmen are asked to make estimation of sales of their territories for the coming years. The branch managers make adjustments in the salesman’s estimates. The district and divisional sales managers make further adjustments of salesman’s estimates with the cooperation of sales force. Finally, all such sales estimates are grouped and the sales estimate of the entire sales field is prepared.
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Combination of Top Management-Downward and Territorial Estimate-Upward method
In this method, the above two methods of estimating sales quotas are combined. At the headquarters, the management by their past experience and judgement estimate the sales quota. At the grassroots level, the salesmen are asked to make their own estimates. Next, an overall estimate for the entire sales operations of the company is prepared based upon both the estimates. Then the estimate is divided into territories, products and salesmen.
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Past Performance Method
Under this method, sales estimates are made keeping in view the past sales performance and the total sales estimate for the future is made by increasing the sales by a certain percentage. The increase is also made keeping in view of the competition, advertisement, economic condition, price of the product, etc. Then this total estimate is divided into sales quotas for each division, district, branch and individual salesman.
Besides, there are several methods of estimating sales quotas like survey of buyers’ intention, industry forecast and market share. While a company has the freedom to choose any method that suits it best, the basic criterion for choosing a particular method of sales quota estimation is that the method should be quick, less costly and more accurate.
