In the wrong hands, a sales quota can be a dangerous weapon.
In September 2016, Wells Fargo was ordered to pay $185 million in fines after it was discovered that more than two million banking and credit card accounts were opened for customers without their knowledge or permission between 2011 and 2015. According to the Los Angeles City Attorney, Wells Fargo employees were opening these accounts in order to “satisfy sales goals and earn financial rewards under the bank’s incentive-compensation program.”
Approximately 5,300 Wells Fargo employees were fired after the allegations went public—and some refused to take the blame quietly. Two former employees filed a $2.6 billion class action lawsuit in California, claiming that “Wells Fargo fired or demoted employees who failed to meet unrealistic sales quotas while at the same time providing promotions to employees who met these quotas by opening fraudulent accounts.”
Other employees went public about the predatory sales environment that had blossomed at the bank, the hyper-aggressive sales targets that bankers were expected to hit, and the toll it took on employees’ health and emotional well-being.
The scandal should serve as a lesson to any company that relies on sales teams to drive revenue: Although sales quotas are necessary to establish expectations and track performance, trouble tends to follow when those quotas detach from reality.
So, what is a sales quota, and what does a healthy sales quota look like? Discover insights on how your company can effectively set sales quotas that keep your reps motivated, productive, and balanced.
A sales quota is a specific target assigned to each sales representative within a defined time frame—typically monthly or quarterly. Meeting or exceeding a sales quota leads to rewards that are part of the sales rep’s compensation package. Essentially, a sales quota serves as an achievement benchmark for individuals and teams, guiding performance expectations and fostering accountability.
Why are sales quotas important?
Sales quotas are vital for any successful sales organization as they provide clarity and direction for your team. By establishing specific targets, you give your salespeople a clear vision of what they need to achieve, helping them focus their efforts and align with the company’s overall objectives.
Here are some key reasons why sales quotas are crucial:
Performance measurement: Sales quotas create a standardized method for evaluating the effectiveness of your sales team. They provide quantifiable benchmarks that allow you to identify strengths and areas for growth, enabling informed coaching and support.
Goal alignment: By setting concrete sales quotas, you transform high-level business objectives into actionable targets for each salesperson. This alignment ensures that every team member is working toward the same aims, fostering collaboration and unity within the organization.
Motivation: Sales quotas linked to rewards like bonuses or commissions can significantly boost motivation among your team members. Clear targets encourage healthy competition and drive individuals to exceed their limits.
Accountability: Sales quotas set clear expectations for performance, holding team members responsible for their results. This sense of ownership cultivates a culture of commitment and encourages consistent effort across the board.
Setting effective sales quotas is crucial for motivating your sales team and driving performance. Here’s a step-by-step guide on how to set realistic and achievable sales quotas.
How to set realistic and attainable sales quotas
1. Determine your goals
Start by defining your overall business objectives. Consider two key figures: your operating expenses, which indicate how much revenue you need to generate to keep the business running, and your expected growth rate based on historical performance. For instance, if your business has typically seen a 10% growth rate, use this as a baseline while adjusting for current market conditions.
2. Choose the right quota-setting method
Decide between a top-down or bottom-up approach. In a top-down approach, you set sales quotas based on overall goals and then assign them to individual sales reps. While this method can be straightforward, it often overlooks past performance and individual capabilities, leading to unrealistic expectations and sales quotas. Alternatively, the bottom-up approach involves analyzing past sales data and each rep’s potential to create quotas that reflect their actual abilities, resulting in more attainable targets.
3. Set activity goals
Incorporate activity goals alongside your sales quotas. These could include metrics like the number of calls made, appointments set, or demonstrations given. Activity goals provide a framework for reps to track their progress and make achieving their sales quotas more manageable, boosting motivation and morale.
4. Implement a robust CRM system
Utilize a Customer Relationship Management (CRM) system to effectively track sales performance and quota attainment. A sophisticated CRM helps manage sales quotas by offering insights into client interactions and deals in progress, enabling informed decisions to drive sales success.
5. Regular reporting and analysis
Establish a routine for consistent reporting and thorough analysis of sales data. This process helps identify patterns, potential challenges, and opportunities for improvement, ensuring that your sales quotas remain relevant and aligned with market conditions. Related: Brian Tracy on the #1 thing that successful sales reps do every week
How not to set sales quotas
There are two common methods sales managers use to motivate sales reps to hit their quotas: Rewarding exceptional performance with money or non-financial incentives (“the carrot”) and pressuring salespeople to work harder through threats and humiliation (“the stick”).
An overwhelming amount of scientific research has concluded that both of these methods do more harm than good. In his must-read white paper “The Science of Motivating Sales People: The Carrot & the Stick Must Go,” Hoffeld Group CEO and Chief Sales Trainer David Hoffeld writes, “The foundational precept of the carrot and the stick is that salespeople must be bribed or beaten into obedience.”
Hoffeld found that these extrinsic motivations—sources of motivation that come from outside of an individual—can undermine a person’s internal desire to accomplish a goal, inhibit the ability to creatively adapt when executing a task, and foster a culture of greed or desperation that can cause salespeople to behave unethically in order to make their numbers.
As Hoffeld told Nutshell, sales managers have to rethink the concept of sales quotas in order to keep their teams on the right track. “To me, quota is the minimum standard that I’ll accept as a manager,” Hoffeld says. “It’s not what I want you to hit, it’s the base standard for a sales position. The goal is always to perform beyond quota, and if you’re not hitting it, there’s something we have to fix, or else this isn’t working out.”
Setting sales quotas far above reasonable expectations of performance is a proven recipe for failure, and it’s one of the primary reasons why 45.4% of salespeople miss their quotas, according to CSO Insights. “I don’t like when quotas are outrageous sales goals that make salespeople go, ‘How in the world am I gonna hit this?’,” Hoffeld explains. “I worked with one company that would raise quotas as soon as you hit your best month ever—that was your new quota. And if you didn’t hit it, you didn’t get paid. It’s like, ‘Well, every time I do well, I get slapped for it, so I’m not going to do that anymore, because it doesn’t make any sense.’”
Though Hoffeld has found success using “overachievement commissions” to reward top-producing salespeople, he urges sales leaders to always view money as a secondary motivator. “I’m very much in favor of commissions,” Hoffeld says. “Good salespeople are competitive—that’s their primary motivation—and commissions are a way for them to keep score. What I’m not in favor of is when managers try to motivate with income, because that’s when the crazy starts.”
Setting and tracking sales quotas effectively is essential for maintaining a motivated and productive sales team. Here are some practical tips to help sales managers create a supportive environment that fosters success:
Use a customizable CRM
Implementing a robust CRM like Nutshell allows you to create tailored sales quotas and track team progress easily. With its customizable features, you can set specific targets for each rep, monitor their performance in real-time, and generate automated reports to keep everyone informed.
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Align your sales quotas with your business’s historical performance and market conditions to ensure that they are grounded in reality. Avoid setting quotas based solely on top-down projections without considering individual capabilities or past results.
Encourage open communication
Foster an environment where sales reps feel comfortable discussing their quotas and any challenges they face. Regular check-ins can help identify potential obstacles early on, allowing you to provide support and resources where needed.
Provide ongoing coaching and support
Direct coaching from sales managers is crucial for helping reps meet their quotas. Invest time in understanding their strengths and weaknesses, and offer guidance to help them improve their skills. This approach not only drives revenue but also enhances job satisfaction.
Promote a culture of continuous learning
Encourage your sales team to view challenges as opportunities for growth. Providing access to training resources helps them develop new skills that will aid in achieving their quotas while fostering a positive mindset toward personal development.
Create incentives and recognition programs
Establish a system of incentives that rewards sales quota achievement through financial bonuses or public recognition. Acknowledging success not only boosts individual performance but also fosters a culture of excellence within the organization.
By implementing these strategies, sales managers can create a healthy sales culture where quotas serve as motivating factors rather than sources of stress.
When to reassess your team’s sales quotas
Knowing when to adjust your team’s sales quotas is crucial for maintaining motivation and performance. Here are some clear signs that indicate it may be time for a revision:
No one is meeting their sales quota: If your entire sales team struggles to meet their quotas despite effective processes, it could mean the targets are unrealistic.
Excessive commissions due to overachievement: If all reps consistently exceed their quotas, it might indicate that the goals are too lenient, leading to unsustainable commission payouts.
Top performers are scraping by: If your high achievers are only meeting their quotas without exceeding them, it suggests that the quotas lack sufficient challenge.
Low morale and high turnover: If you notice signs of burnout or disengagement among team members, this could be due to unrealistic expectations or insufficient resources.
Inconsistent performance across the team: Significant disparities in how different team members perform against their quotas can highlight issues with the targets themselves, indicating a need for more tailored goals.
Frequent requests for extensions or adjustments: If your sales team regularly asks for deadline extensions or quota adjustments, it suggests that the current targets may not align with market realities or available resources.
These indicators can arise from various factors, but they all relate to how well your sales quotas reflect your team’s capabilities and business objectives. As a sales leader, taking proactive measures is essential rather than waiting for issues to escalate.
Setting effective sales quotas for success
Understanding what a sales quota is and how to set it effectively is crucial for fostering a motivated and productive sales team. While sales quotas are essential for tracking performance and establishing expectations, they must be realistic and achievable to avoid negative consequences, as highlighted by the Wells Fargo scandal. A healthy sales quota should inspire your team rather than overwhelm them, ensuring that they remain engaged and focused on achieving their goals.
When setting sales quotas, it’s important to base them on historical data, market conditions, and the individual capabilities of your sales representatives. Regularly reassessing these quotas can help you identify when adjustments are needed, promoting a positive sales culture that drives results without sacrificing ethics or employee well-being. By setting attainable targets and providing the necessary support and coaching, you can create an environment where your team thrives.
Ready to take your sales process to the next level? Nutshell is the all-in-one CRM and email marketing platform that gives you greater insight into team productivity, helps companies manage lead generation and customer relationships, and provides all tools you need to strengthen those relationships over time. Start your journey with Nutshell by signing up for a free trial today.
