Quota.
It is a loaded word, with multiple meanings and connotations for the speaker and the listener. It can be a source of frustration, relief or consternation. It can represent a perspective of hope for executives or a perception of sham for sales reps. Quota embodies a notion of achievement for performance, but many times the reward for performance is not well thought out in relation to the effort for achievement.
Daniel Pink in his book Drive talks about the how the quota/performance system is broken. How only in sales can someone work to achieve a goal and be told to achieve more the next time–essentially never getting a rest or recognition for a job completed. And while I have worked for sales companies who have tried to create reasonable quotas, I’ve also worked for companies who used a dart board for quota setting. In Drive many of the reasons for this appearance comes from the arbitrary feeling of quota setting aligning with the seeming capriciousness of company goals. The disconnect of tying these to the rep’s quota creates ensuing chaos. Admittedly, I will be coming back to this topic a lot since sales, quota and operations are tightly tied together, but this is my first swag at it–with a lot of anecdotes to start the ball rolling.
First anecdotal evidence…A friend of mine was hired as a sales representative into a territory where every previous salesperson had foundered and missed the company set goal. And, hand-in-hand with this, each of the previously failed reps ended up having a tenure of just over a year. He found the position because he had worked with the hiring manager years before, and they both agreed it would be a great fit for his skills so they signed him up. Braced with the knowledge of his predecessors and hoping the relationship with his manager would help temper the company’s prior foibles, when it came time to establish quota he figured the company would be reasonable. Nope. The target number came back doubled over previous year’s number; more than twice the revenue the territory had ever produced. In a territory which had struggled to produce $2MM in revenue, they set his plan at $5MM. After he picked his jaw up off the ground he asked why.
“Because we feel the territory can support it.” was the response. Huh?
By setting the my friend’s quota at a ridiculously high number, the company sent two messages without really realizing it. One, start looking for a job because you are going to fail, and two, we aren’t really paying attention to what’s going on inside the territory, only what’s on our spreadsheet of territory revenue estimates. A third possible message was, Oh, and we have to meet Wall Street’s expectations and you’re replaceable, so…here you go.
What this quota lacked was data. It had a lot of speculation and expectation, but up to that point in time, none of the speculation actually was accurate nor was the expectation being achieved.
At another company, quotas were set by looking at the prospective revenue spend of companies. If a prospect was a $100 million dollar company, then based upon “industry norms” it would spend 10% on products sold in the target category, which translated to a potential for $10 million dollar spend. Therefore, the thinking went, this prospect will potentially spend $10MM dollars this year and we should be able to sell them something.
This method is equally flawed, in many ways, and which I’ll expound upon later.
So, how do we start to align commissions with revenues? In my sales operations consulting, I’ve worked with companies who know the amounts of revenues they want to generate, but don’t understand what it might take to achieve–be it through sales efforts, marketing efforts, revenue incentives or commissions accelerators–they start from the wrong side of the equation to add growth. How? They look at the previous years revenues and say, “We want to be 10% bigger next year.” and then figure out how to distribute that burden among its sales people. What they should be doing is looking at it from the other side of the problem, since right now the company doesn’t know how to articulate the direction needed to set the revenues which creates the margin to set reasonable quotas. Meaning, they haven’t looked at their data to see where they should focus.
For example, if I was a $10 million a year company selling services and I was ready to bring on a rep, what would I focus on? On my data! First, I would analyze where my revenue in services was actually coming from as it might surprise you (the “what”). Next, I would analyze who and/or how those services were won (the “why” and the “how”). Was one rep particularly successful? Did the owner do it? Did the sales come through other channels? This matters, because figuring out where the seller is having success can fuel the enablement of methodologies to exploit that capability.
Let’s say it is a small business and the owner is the best sales rep (as is the case many times in small businesses). Making the owner’s abilities reproducible is critical to future growth. So teaching the keys to the owner’s successful selling will be very different than if the owner is looking to exploit a market segment or expand the business outside of its normal bounds. And analyzing the data would reveal this trajectory. From there I would look to see if there is any history or precedence for the sales being won to then calculate what I might expect a new rep to do (e.g. relationships, negotiating, etc.).
Ultimately, the purpose of hiring a new rep is to increase the company’s revenue. Which means the rep’s purpose is to sell and have the rep be successful–and by our current metric this means make quota. If the salesperson is struggling to meet quota, and the analysis hasn’t been done, the company will more than likely be doomed to repeat their sins when it brings on the next rep. When one adds in the cost of on-boarding, training and ramp-up time, it is too significant an investment to then just cut bait . By scrutinizing the needs of the job and really understanding what the expectation is for the salesperson, a quota can be set which allows the rep success and the company success. Some may read this as too indulging, but I would rather plan for success than be in a continuous mode of failure and clean up.
Because if the rep is making money, the company is making money. And that is success.
Thinks, Inc. is a consulting firm which specializes in Smart Sales Operations. If you’d like for us to come and assess your chaos, drop us a line at contact@thinks-inc.com
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