If quotas are so critical to the performance of a business, why are they set with so little thought or methodology? (Apologies to those who put in the thought and methodology, though.) Typically, a team spends months designing a compensation plan for the sales team, and then hurriedly sets goal numbers based on financial information handed down by CFOs. Poorly designed quotas can significantly weaken sales comp plans. If quotas don’t represent true market potential, the sales comp plan itself will break down. What’s more, if the plan doesn’t perform as designed, ultimately, the business could be at risk.
Here are the top five ways to set bad quotas—and accidentally sabotage your sales team.
Set Quotas Using Historic InformationAccording to a recent SalesGlobe survey, the top quota setting challenge companies are facing today is that quotas are driven by historic information. They don’t represent real opportunities in the market. Instead, quotas are set looking in the rear view mirror; we’re not looking at market potential—at both those positive opportunities and the places where prospects have dried up.
Don’t Bother to Have Your Quotas Ready by Month OneIn about 30 percent of companies, quotas are not ready in the first month of a new comp plan. In fact, quotas actually may not be ready in the first quarter of the year. It happens because a lot of times the numbers aren’t ready until the end of the year, and the quota setting process can’t get started until those numbers are ready.
Adjust Quotas Mid-YearBecause quotas aren’t ready by month one (and a few other reasons, legitimate and not) about half of companies will adjust quotas during the year (for legitimate reasons and not). Of course, when adjusting quotas, it’s really essential to have policies for why you would make those adjustments.
Punish Your Best Reps by Giving Them a Higher Quota Every YearCompanies that don’t have an effective quota-setting process inadvertently create a performance penalty. The highest performing reps are rewarded with a higher quota each year, often in the same increasingly saturated territory.
Make the Quota-Setting Process Top SecretAbout 29 percent of companies we surveyed said the process wasn’t transparent. People don’t have any idea how their quotas were set. And about one in three also said they don’t believe in the process. Inequitable quotas weaken the effectiveness of the sales comp plan and raise questions about the accuracy of the information.
There’s a pattern in these bad practices, which I think is really fascinating. The top issue is about information: quotas don’t reflect market opportunity. So quotas are not good because they’re not representative of what the sales reps can do. But there are other challenges around people and the process. I think that’s a key point: Even though the quota is just a number, quotas are really about a process and people.