As we enter Q4, many organizations begin planning for the fiscal next year. At the top of every Sales Executives’ mind is “What are going to be my revenue targets and how am I going to achieve them?” That in turn poses the question, “How am I going to convert that into quotas for the sales reps?”
Calculating Sales quotas is a tricky science. When determining quotas, how do you know what will work best for your sales team? What is the best algorithm to use? How do you ensure they motivate the right behaviors? The quotas that you are preparing need to balance the need for the organization, but they also need to be attainable and motivating to the sales rep. How do you successfully achieve both?
While each company will have their own specific criteria unique to their business, often the basic criteria sales organizations consider is quite similar. Let’s take a look at some of the different factors sales organizations should consider when calculating quotas.
How many Reps on your team achieved quota last year? What was the % of year over year growth?
The historical performance of your individual sales team members versus quota is an important consideration to make when establishing sales goals. In addition, you should understand why individuals achieved quota and why they fell short. Was it territory configuration, lead distribution, sales experience, job tenure? Carefully reviewing individual performance and understanding the reasons for successes will be necessary to properly forecast quotas for the coming year.
How many territories did you have? Did certain territories blow away their numbers? Do the geographic territories need to be realigned?
It is imperative to evaluate your territories and consider what changes are anticipated based on Industry, competitive landscape, business potential, and actual geographical size. These factors will help you determine how to align sale reps to territories, how many reps cover a territory and how to best anticipate revenue performance.
Products and Services Offerings
What does your product roadmap look like for the next fiscal year? How many new products will you be introducing to market? When will you be introducing them?
Arguably, this could have the most significant impact on revenue performance. The challenge is identifying the timing associated with the launch of new products and services and how they will impact your sales pipeline and convert to revenue.
You will need to rely on past experience and your executive team, from product development; marketing and finance who can assist you and guide you in this area.
What are your growth plans? What are those based on? When will those increases occur? What does your increased sales headcount look like?
Increases in headcount will definitely have an impact on how you allocate sales quotas. When you add headcount you typically need to realign existing territories to create new ones – in turn, impacting quotas of existing sales reps. In addition, you need to consider your current ramp time for new reps. How long does it take for them to build a pipeline and start producing revenue? In addition, how do you plan for attrition? These all need to be considered and reflected in your allocation of sales quotas.
Even after all these considerations, economic conditions, deferred product launches and employee turnover can affect the best designed compensation plans. Quotas should be reviewed and assessed on a quarterly basis so that you can make necessary adjustments as needed.