In the wrong hands, a sales quota can be a dangerous weapon.
Last September, 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 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. [Tweet this]
So, what does a healthy sales quota look like? Nutshell asked a few sales experts for their advice on how companies can set sales goals that keep their reps motivated, productive, and sane.
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How to create a reality-based sales quota
No sales manager has ever said, “I want our revenue to go down this quarter.” The quest for growth is universal in sales—but those growth targets can’t be pulled out of thin air.
“It’s very hard to make intelligent decisions about what quotas should be if you don’t understand the territory for each individual sales rep or sales team,” says Bob Apollo, founder of the B2B sales advisory firm Inflexion-Point Strategy Partners. “What is your historical revenue from existing customers in that territory? How many customers who match your ideal customer profile are present in that territory? Without a clear idea of those parameters, you won’t be able to set quotas in an informed way.”
“One thing that never works is when quotas are exclusively set from the top down, or aren’t aligned with the sales organization’s expectations,” adds Tibor Shanto, Chief Sales Officer of Renbor Sales Solutions and author of Shift!: Harness The Trigger Events That Turn Prospects Into Customers. “For example, the board of a company will say they’re looking for X amount of growth, the leadership will do a top-down forecast or go through an exercise to get a bottom-up forecast, and if there’s a gap, they’ll arbitrarily assign it to a sales team. Clearly, that team’s quota is unrealistic from the start, and the salespeople are probably going to be demotivated.”
According to legendary performance coach Brian Tracy, sales quotas should reflect as much hard data as possible on a company’s sales history. “Take into account seasonality, new product launches, past performance of the sales department and individual employees, and every other factor that may come up before determining exact numbers,” Tracy advises. “By doing this, you’ll have a better idea of what you can actually expect and your projections will be more accurate.
“And remember, these numbers are what you strive for, but you should be fluid in your approach on them,” Tracy says. “Motivate your team to reach them, but don’t make it the only way you reward them or acknowledge their performance and hard work. Employees sell better when they’re not under large amounts of stress.” [Tweet this]
Related: Brian Tracy on the #1 thing that successful sales reps do every week
Why money and stress are quota-killers
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.” [Tweet this]
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 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.” [Tweet this]
For more of David Hoffeld’s insights, read The Science of Selling: Proven Strategies to Make Your Pitch, Influence Decisions, and Close the Deal
Do we really need sales quotas?
Even if the misuse of quotas can be devastating to performance and morale, every sales expert we spoke to argued for the necessity of quotas in general.
When asked whether he thought sales quotas were inherently demotivating, Sales Management. Simplified. author and sales coach Mike Weinberg (newsalescoach.com) didn’t mince words: “You cannot have a healthy sales culture without goals and a laser-focus on results vs. goal,” Weinberg told Nutshell. “Honestly, the premise of this question is ridiculous to sales managers and executives who live in the real world—you know, the world where companies have owners with bank covenants and business plans, the world where the primary job of sales is to grow the top-line, not to babysit a territory or over-serve existing customers. In that world, nothing works without goals.”
“I’m a firm believer in setting goals in every area of your life—including in sales,” added Brian Tracy. “Without having a goal, your sales team will falter and not have a clear direction or purpose. The key is to set tangible sales goals that are reasonable but also inspire your team to strive for more.”
One way sales managers can do that is to set quotas just past those data-backed expectations. “I think if you can narrow in on a good quota based on potential growth, the length of the sales cycle, the length of the buying cycle and other things, there are some positive elements to stretching,” Tibor Shanto says.
“For example, if you felt that a territory could present 10% growth from a data perspective, raising the sales target to 11% might inspire the sales person to try a little harder or more creatively,” Shanto explains. “It’s perfectly fine to expect your thoroughbreds to run a little better, and to continuously re-invent elements of their game and the things that made them successful to begin with.”
Just remember: Some pushback is inevitable. “It’s pretty rare to find a sales rep, frankly, who’s delighted with their quota,” Bob Apollo says. [Tweet this] “They’ll all attempt to argue it down, they’ll probably low-ball the sales manager when trying to set appropriate targets—a certain level of dissatisfaction is just to be expected. But I think you can get to a fair quota by applying a few straightforward principles. You might not have the salespeople turning cartwheels about it, but at least they’ll believe that they have a chance of achieving it.”
What can sales managers do to save their reps’ sanity?
The Wells Fargo scandal is an extreme (but not unique) example of what can happen when sales goals are established with insufficient regard for the consequences. To avoid a similar fate, sales managers must take steps to ensure that the culture they create doesn’t wind up damaging their company’s reputation or their employees’ well-being.
“If you expect your salespeople to behave ethically, then as a manager you’ve got to behave ethically yourself,” Apollo says. “I think unethical salespeople are sometimes the result of unethical signals sent by leadership, or managers who choose to turn a blind eye to bad practices. My belief is that sooner or later, that sort of thing catches up with you.”
David Hoffeld agrees that salespeople mimic their managers—for better or worse—and sees it as an opportunity for managers to set a positive tone. “I think sales managers should foster a culture of continuous learning,” Hoffeld says. “They should empower their people, not micro-manage them. Coaching is something that all effective sales managers do: ‘How do I help people get to that next level that they want to get to, but they don’t have the knowledge or skills to get there? How can I remove the internal obstacles that are limiting the amount of time they can spend selling?’ I see sales management more as a service role. You’re trying to serve the people that report to you, and guide them to where they want to be.”
Direct coaching from sales managers might actually be the most decisive factor in whether or not a sales team’s meets its quotas. “It’s disappointing when I ask sales managers if they have coaching plans for their individual reps and they don’t,” Tibor Shanto says. “Then how are you helping your reps achieve quota? That’s where I think some of these disconnects happen, more than some number being off. I can give you a really tough number to reach for, but if I do everything I can to help you, then I’m doing my job as a manager.”
In other words, providing your sales reps with the right coaching and support drives revenue far more effectively than big commissions or insane sales targets can—and it ensures that your salespeople won’t be tempted to sacrifice their ethics to close a deal.
“The most important thing is how your customers are treated,” Shanto says, “because ultimately, that’s where the money comes from.”