The way to perform proper quota setting is by following our Methodology.
Without further ado here are the answers to the great questions that were submitted during our webinar.
How do you set quotas when you are launching brand new products and don’t have accurate historical data?
Launching new products or services is always a daunting challenge. In terms of setting quotas for a new product or market, market potential and sales process will determine how to set an accurate quota. Marketing potential should be included in the business plan that has been built by marketing or finance. The sales process designed to sell the new product/service will determine amount of time or it will take to sell. If you are launching a new product without knowledge of the market potential or sales process send me an email and we can help you install a sales enablement program for new product/services launches.
In a long sales cycle such as 6-9 months, how much quota should be based on the pipeline vs. market potential?
Pipeline should never drive quota. If pipeline is determining quota in any way you are stacking the deck and showing favorites to people in the organization. The five components of my quota methodology ensure that everyone is treated fairly. Use market potential as your rationalization step. Just because a rep has a big opportunity doesn’t mean they should receive a bigger quota. Fairness is essential to keeping “A” players.
How do you implement quotas without having “A” players walk out?
“A” players like quotas for two reasons. First, quotas identify who the real “A” players are and expose individuals who are underperforming. Second, having a quota system will starve the underperforming reps and shift that money to “A” players through effective compensation design. If you are considering implementing quotas into your organizations make sure you design and effective compensation plan and over communicate what is going to happen and why you are making this change.
Do you include current revenue in the market potential calculation?
Current revenue impacts the market potential calculation in that the more penetration you have the less market potential. Take a territory that a total market potential of $5M in annual revenue. The company already has $2M in revenue from that territory so the market potential is $3M.
How often do you realign quota allocation throughout the year?
Realigning quotas throughout the year is a dangerous game and one that should be thoroughly considered before implementation. If sales goals are too high the best position to take is to leave quotas as unattainable to preserve the integrity of the goal setting process and instead offer special promotion incentive feature or SPIF to provide the sales organizations with something to strive for that is attainable. If the quota is too low you can adjust them up at the end of a quarter or month if they are calculated in such a way. If you the quota cycle is for one year your hands are most likely tied. If you find this to be the situation begin to communicate early and often to the sales force that this was a windfall year and to expect quotas to be significantly raised next year.
If working with quarterly quotas, is it better to be a rolling 3 month average or a straight 90 day goal?
It all depends on what you are trying to do. Personally, I have seen the best results at organizations that provide period of time goals so straight 90 day approach. With that said, if you are having sales reps sand bagging, holding back deals until a quota window opens, the compensation program a rolling 3 month average can work for you. This decision comes down to the culture of the organization.
What techniques do you use to value the pipeline?
I use two variables to value the pipeline. The first is cash win rate because it is most accurate representation of what I could expect to win in the pipeline. (Cash win rate is calculated as dollar value of deals won divided by the total dollar value of deals.) The second variable is percent of historic sales by period of time. Refer to my previous post “3 steps to developing a Tight Sales Dashboard.”