What is a Sales Quota and How Do You Set It?

A sales quota is a goal that a worker, sales team, or a company’s whole sales department must reach within a specific time.

You can calculate sales quota in several different ways:

• Amount of money to be made.
• Number of units sold.
• Number of new accounts to be opened.

A sales quota provides salespeople with a measurable objective. It helps them to assess their performance and effectiveness.

So, it’s a significant factor in achieving sales. But it’s essential for the wider business, too. Sales quotas can affect the company’s short-term and long-term operations and strategies.

Want more information? You’ve come to the right place!

This blog explains sales quotas and how best to set them.

Scroll to start learning! 👇 

Understanding sales quota

There are different types of sales quotas. They encourage performance, set a standard for success, and measure sales productivity.

Sales quotas are all about numbers and measurable goals. Some of these are:

Revenue target

A revenue target is the amount of money a salesperson, team, or company wants to make in a certain period of time.

One of the most basic ways to measure sales effectiveness is to determine how much money the team brings in.

So, you can set a sales quota in dollars (or any currency of your choice). You can set revenue targets for different lengths of time, such as weekly, monthly, quarterly, or yearly.

Volume target

A volume target is the exact number of goods or services a salesperson, team, or organisation wants to sell in a certain amount of time. 

Unlike revenue goals, which focus on the amount of money made from sales, volume goals determine the number of items sold.

You can set volume targets to be daily, weekly, monthly, quarterly, or yearly. 

The time element in sales quotas

The time aspect in a sales quota is based on the exact amount of time a salesperson, team, or company has to reach specific sales goals.

The time range can differ depending on the business model and industry. B2B sales deals often have much longer sales cycles than other sectors.

Standard time frames include:

• Daily: Some fast-paced sales environments, like retail stores or call centres, may set daily goals to ensure employees always do their best. 
• Weekly: Weekly targets are less common, but they can work well for businesses with shorter sales cycles or in fast-changing, dynamic industries.
• Monthly: This is the usual time frame for sales quotas, especially in industries where sales cycles are medium-length. Monthly quotas strike a mix between giving salespeople enough time to close deals and letting them know how they’re doing regularly.

Geography and territory in sales quotas

In a sales quota, geography or territory refers to the area or region that a salesperson, team, or distributor is responsible for selling in.

In many industries, sales representatives are usually assigned specific territories so that the whole market is covered and there’s no overlap between accounts.

There are vital aspects of geography or territory in sales quotas. These are:

• Defined boundaries: Each region’s borders are clear. Depending on the size of the business and the goods or services being sold, these can be as small as a single neighbourhood or as big as a whole country.
• Sales potential: Territories should be allocated based on how much money they could bring in. This means considering the number of ideal customers, their buying power, and the market demand in each area. 
• Balanced allocation: The best way to divide territories is so that each sales rep has an equal chance of making their quota, considering each region’s sales potential and difficulties.
• Accountability: Salespeople are responsible for all sales efforts in their assigned territory. It clearly outlines who is accountable for what.
• Avoidance of conflict: By clearly defining territories, businesses can avoid problems that happen when two or more salespeople talk to the same prospect or chase the same account at the same time.
• Customised approach: When salespeople know what makes a territory unique, they can change their approach, strategies, and messages to reach the local audience better.

Product or service in sales quotas

In a sales quota, product or service means the specific things or services a salesperson or team expects to sell.

These could be electronics, cars, groceries, or services like consulting, software subscriptions, or banking services.

There are crucial aspects to product or service in sales quota, such as:

• Defined scope: Sales managers give their reps a list of goods or services they’re responsible for. This list usually matches the reps’ areas of expertise or customer base.
• Variable targets: Sales targets vary for each product or service, depending on the profit margins, market demand, strategic importance, or inventory levels.
• Multi-product quotas: In some cases, salespeople are in charge of selling more than one product or service. They may have different quotas for each or a single target they can meet.
• Special campaigns or promotions: There may be temporary sales goals for new or seasonal goods or a market opportunity that only lasts for a limited time.

Types of sales quotas

There are different sales targets, each with pros, cons, and best-use cases.

Here are some common sales quotas:

• Revenue quotas: These targets are based on how much money a salesperson, team, or department should make in a certain amount of time.
• Volume quotas: This quota is based on how many units of a product or service are sold rather than how much money they bring in.
• Profit quotas: These are based on the profit made from sales, taking into account the costs of the goods or services sold.
• Activity quotas: These targets are based on specific sales activities, like the number of cold calls made, proposals sent, or demos given.

Each type of sales quota is best for different situations and goals, and businesses often use more than one type simultaneously to measure sales success. A sales playbook that contains strategies and scripts can help sales agents achieve their quotas.

The important thing is to choose the type (or types) that best suit your organisation’s goals, sales process, and product or service. 

Understanding the basics of sales quotas is one thing, but learning the importance of setting them is vital.

Importance of sales quotas

Sales quotas are essential for a business. Why?

Because they align individual and team success with a company’s goals.

Here are some essential reasons why sales quotas are important:

• Performance evaluation: Quotas provide a standard way to measure how well a sales team is doing.
• Goal alignment: Sales quotas give salespeople concrete goals to reach, turning high-level company goals into measurable goals for each employee.
• Sales force motivation: Quotas can motivate people if they’re tied to sales incentives like bonuses or raises.
• Accountability: Quotas set expectations for sales success and hold people accountable.

Now that you know why sales quotas are important, let’s find out how to set them 👇

How to set realistic sales quotas

Setting realistic quotas is essential for keeping your sales team motivated and ensuring their goals align with your business’s goals.

Unrealistic targets can hurt morale and cause people to leave their jobs, among other problems.

Here’s a guide to setting reasonable and useful sales goals:

1. Conduct market research

• Market size: Look at the general scope of the market or the size of the segments you want to reach.
• Competition: Know who you’re up against and how that might affect your sales.
• Economic indicators: Consider how the economy might affect the amount a customer can spend.

2. Analyse historical sales data

• Historical data: Look at how sales have been done in the past; find trends and patterns.
• Team skill level: Figure out how good your sales team is. Are they new and untested, or do they have experience? 
• Resource availability: Consider the marketing support, sales tools, and other resources your team can access.

Lead Forensics used Cognism’s data and hit quota faster - check out the video 👇

See the results Cognism produced:

• Raised conversion rates by 30%.
• Accelerated sales rep performance by 50%.
• Generated consistent annual ROI.
• Reduced sales team churn.

3. Consider business objectives and strategy

• Clarify goals: Know your business goals. Is your goal to enter new markets, keep existing customers, or make more money?
• Timeframe: Figure out how long it will take to reach quarterly, semi-annually, or yearly goals.

4. Consult the sales team

• Consultation: Talk to your sales team about quota standards; get their feedback and listen to their ideas.
• Realistic expectations: Salespeople often know best what they’re capable of. Their morale and drive depend on their accepting their sales quotas.

While setting a sales quota looks relatively easy, there are common pitfalls in quota-setting. Let’s look into this next 👇

Common pitfalls in sales quota setting

Setting sales quotas is a tricky act of finding the right balance. Using quotas correctly can inspire your sales team and push them to do their best work. 

However, it’s easy to make mistakes when setting quotas. Here are a few things to look out for:

Unrealistic targets

Setting too high expectations can cause your sales team to struggle to reach their goals.

This can lower confidence, causing people to work less hard or move elsewhere.

Lack of flexibility

Failure to change quotas in response to unplanned events, such as changes in the market, supply chain problems, or people changes, can lead to big problems. 

Never set unrealistic and unfair sales team quotas.

Ignoring market conditions

This means setting quotas without considering market trends, seasonality, or economic factors.

This can make it either too easy or too hard for your reps to meet quotas, which can damage their motivation.

Monitoring and adjusting sales quotas

Ensuring that your sales team meets short and long-term company goals requires keeping an eye on and adjusting sales quotas. 

For example:

If you run a small business with a limited budget, one of the most effective ideas is to make good use of CRM software for small businesses. Keep track of your customer data, analyse it wisely and adjust sales quotes to match your customers’ needs.

Here’s a guide to help you track and change quotas effectively:

Regular reviews

• Frequency: Depending on your sales cycle, do daily, weekly, or monthly check-ins to compare success to goals.
• Key metrics: Look at key performance indicators (KPIs) like income made, volume sold, customer retention rates, and others that align with your business goals.

Document changes

• Keep records: Write down all changes to targets, why they were made, and what you expect to happen.
• Performance reviews: Evaluate your team’s performance to identify trends, areas to improve, and places where they do a great job.

Mid-course corrections

• Flexible quotas: Be ready to change your sales quotas if market conditions, product demand, or team success shift in ways you didn’t expect.
• Approval process: Make sure there’s a straightforward way to change quotas and a clear way to decide who needs to accept the changes.

Sales quotas: the last word

Take it from us - sales quotas are hard work.

That said, they shouldn’t stop you from being motivated to achieve your goals. One thing is to never forget the formula for setting sales quotas:

There may be pitfalls in setting quotas, such as unrealistic targets, lack of flexibility, or ignoring market conditions. Still, you can always combat them through proper monitoring and adjustment of your sales quotas.

Every seller wants to move deals forward and close deals that benefit both the customer and the salesperson. Keep your team focused on realistic sales quotas and tune out the noise!