$3 billion dollars.
That’s how much Wells Fargo paid after admitting to long-term, wide-scale fraud within its ranks.
Sales reps from Wells Fargo were put under unrealistic pressure to meet their sales target. This resulted in many sales reps opening secret savings and checking accounts for customers without their knowledge or approval.
The sales team would use their own contact details on forms to hide the fraudulent activity from customers.
The reps would move money from existing accounts into new ones, and set the PIN number of those ghost accounts to “0000” for easier control.
Such scandals aren’t new. Other banks, like Standard Bank, have been outed for the same fraud, with their staff targeting old workers and high school students.
Performance pressure crosses industries, too. The famous VW emissions scandal was caused in part by engineers realizing they couldn’t hit emissions targets for US diesel cars through “permissible means.”
It’s clear that not setting a realistic quota can lead to irreparable damage to consumer trust and company brands. So why do sales managers keep doing it?
It boils down to a combination of:
- Limited knowledge of sales quota incentives on compensation
- Top-down performance pressures on sales leaders
- Sales process flaws that hamper long-term growth
- Inability to manage executive expectations
In this piece, we’ll outline different types of sales quotas and show how sales leaders can avoid setting unrealistic quotas and create a sales goal every sales representative is proud to strive for.
6 sales quota types
Sales quotas determine sales compensation plans, and quota agreements provide transparency and accountability within the sales organization. However, not all sales quotas are equal.
Some revenue quota arrangements are straightforward – make a sale to get a specific commission. Others may be nuanced, requiring sales reps to sell [x] units and reach [y]% in profit margins.
We can divide sales quotas into six types:
- Sales activity quota
- Sales volume quota
- Profit quota
- Forecast quota
- Revenue sales quota
- Combination quota
#1 Sales activity quota
“Make [x] calls and send [y] emails within [z] period.”
Activity quotas focus on input activity to influence output metrics, and you can track these metrics in your CRM.
Done wrong, they incentivize sales teams to rack up low-quality leads to pad their activity metrics.
#2 Sales volume quota
“Sell [x] units each [period] and get a commission on each unit; plus receive a bonus on meeting quota.”
Volume quotas help the company push more product, but may hamper the customer experience as your sales force ignores customer fit just to try and sell as much as they can.
#3 Profit quota
“The cost of each unit is $x; your profit is based on sales profit margin over $x.”
With profit quotas, reps move to sell products more expensively for them to make more money.
This can lead to price-gouging and non-competitive pricing against competitors.
#4 Forecast quota
“Sell [x]% over your QoQ or YoY target.”
With forecast quotas, you’re asking an account executive or sales rep to sell more units this period than they did last period (e.g., sell more in July than June) or at the same time last year (e.g., sell more units this holiday season than last year’s holiday season).
This model works for solutions experiencing strong market growth (e.g., remote hiring HR solutions in the face of a pandemic).
However, they work less for solutions dealing with seasonal demand, experiencing waning demand, or getting into new markets.
#5 Revenue sales quota
“Sell $x worth of product in this [period].”
Revenue quotas simply work with a top-line number and let reps reach it in different ways.
Sales reps might sell more products at a slightly lower price, aiming to make [x] calls and send [y] emails per day.
Again, watch out for perverse incentives where sales reps aim to hit a number as quickly as they can, no matter the effects on the customer experience.
#6 Combination quota
“Sell enough [x] at $y margin to hit $x in total revenue.”
A combination quota involves two or more sales requirements and can tamp down the worst of each incentive on a sales employee.
Sales management: Is your quota realistic?
As a sales leader, it’s important to set realistic sales goals to keep your team motivated, prevent burnout, and encourage the right sales activity. But how do you go about that?
Below is a list of best practices to consider for quota management.
Do’s & Don’ts of setting sales quotas
FreeAgent CRM helps you track progress towards your sales quota
The above advice gives you ways to set your sales quota, but what tools should you use and how should you track progress toward quota attainment?
Spreadsheets are one way to record and track a quota plan, but they require manual intervention, aren’t very secure, and lack advanced automation features such as lead scoring and automated email campaigns.
By contrast, CRM software is a great way for a sales manager or chief sales officer to review, set, and monitor sales quota attainment progress in one place.
If you’re looking to shorten your sales cycle and speed up onboarding and training, an easy-to-use CRM tool such as FreeAgent CRM allows you to:
- Create repeatable results through automation and templates
- Create and assign tasks related to each rep’s sales quota
- Create realistic sales quotas using sales forecasting
- Gamify sales rep activity for friendly competition
- Provide access to sales enablement content
- Track your sales pipeline and opportunities
- Generate insightful sales reports
- Track rep activity in one place
Try FreeAgent today to meet your quota goals.
