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Is Your Quota Setting Tactics Setting You Back?
The annual planning process starts, and executives and sales managers are looking at sales revenue plans, go-to-market strategies, expense budgets, and new product offerings. However, many leave their sales team members in the same territories or customer allocation without reviewing and updating their quotas from the previous year? There will be some anecdotal changes, but insufficient reviewing is completed.
Often, the reason is it is easier to modify the previous years’ quota and for some others don’t know how to do it. There is a lot of work in modifying quotas and then communicating the changes to the sales team. It can be met with objections by one or all, and the last thing sales managers want to do, is disrupt is their sales teams or cause their top players to seek other jobs.
Historically many companies use an equal increase in their quotas based on the top-line revenue growth expected.
The problem with this type of quota setting is that you increase expenses unnecessarily, penalise good sellers, not recognise the work they have put previously to cultivate a territory or customers. Poorly designed quotas are a recipe for disaster and need to be taken seriously.
Setting Quotas and KPIs is one of the most important parts of the planning process, and time needs to be invested in getting it right.
There are 5 reasons why you must review your sales quota:
1. The Company Strategy has Changed
The company sales strategy will have changes made based on market conditions, new products coming to market, mergers and acquisitions, expansion into new regions, and many other factors.
It usually happens with a new CEO is hired, or a change in the most senior executive team occurs. They are looking to put their mark on the business by heading in new directions. Current CEOs are looking for expansion through, and extension of the existing company strategy and are often a little more tempered in how much change will be made to the strategy.
Carrying last years, quota and KPIs will not support you with changes being made in the strategy. You will be setting the sales team up to be on the wrong path from the get-go.
2. Your Market has Matured
Competition is fierce at there, and it does not take long for many players to drive a market to maturity. Once the market is mature, it becomes a process of taking market share from competitors, with lower profitability and harder fought battles by salespeople. Carrying the quota over in most cases will penalise the team members as the high days of big sales are over, and now it’s dismantling the competitors grip on some customers.
3. New Products Under or Over Recognised
As new products are added to the companies offering, there is a sense of excitement of the endless opportunities across the customer base. Salespeople often asked to state the potential within their customers, and with eyes glistening at the thought of the new conversations ahead, they can miss the mark completely.
Suppose the total available market share (TAM) is not clearly understood and consumption rates by customers. In that case, you could be faced with paying excessively high salaries in some areas and no compensation to others in lesser quality territories.
Understanding the TAM and having marketing validate the numbers is an important contributor to Quota Setting. The right profiling of customers, analysis of potential customers and consumption rates will directly affect the quota number set. If you get those numbers wrong, you could have a mutiny on your hands.
4. Customers Requirements are Shifting
In changing economic climates, markets are changing, the customer base is shifting, and innovation may have provided customers with news of doing business that indirectly affects your sales.
A company providing lubricants and sealants to a manufacturing company receives a sudden drop in orders. The manufacturer has purchases a line of new CNC machines no longer requiring your products.
A scenario like this happens all the time across different industries in different ways. Information technology is one of the greatest impacts on customer demands.
If your company is not close enough to the customers (even though all companies report they are), there can be slow and damage creepage as they shift away from your offering.
5. Fresh Eyes
The planning process is one that occurs in all businesses that have growth on their agenda. To reset every year and look at the company strategy with fresh eyes is imperative. What did you learn from last years planning process? Is there anything that needs more refinement? Are you considering all the changes that will impact the sales team?
The planning process must go down to setting Quota and KPIs as the road map for your sales team’s success. As Sales Manager, your role is to ensure that the road map gets them to the destination rewarding performers and delivering a great customer experience.
For sales managers, the key is not to fear the change of adjusting Quotas and KPIs; be confident in your road map and show the team and how and why.
If you are looking at reviewing your Quotas and KPIs, we can take you through a workshop to assist you to succeed with your company and team.
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