Sales quotas are assigned to individual salespeople or sales units over a particular time period and are used to plan, control, and evaluate the selling activities of a company. Here in this article, we have covered all the topics i.e. What is Sales Quota, its meaning, definition, objectives, importance, and types.
► What is Sales Quota?
Sales quotas are sales goals or targets set by a company for its marketing or sales teams for a time period.
Marketing or Sales units are formed on the basis of regions, branches, sales territories, salespeople, and intermediaries.
In most companies, the Sales budget is broken down into sales quotas for various marketing units.
◉ Sales Quota Meaning
A quota simply means an expected performance objective. The sales Quota is tactical in nature and it is derived from the strategic objectives of the salesforce.
◉ Definition of Sales Quota
A sales Quota can be defined as a quantitative goal assigned to a sales unit for a particular time period. It acts as a tool to direct and control sales operations.
A sales quota refers to an expected routine assigned to sales units, such as territory, district, branches, etc.
Sales quotas are Sales assignments or goals, they are management expectations in dollars or units for a specific time period in the future. – Professor Kirkpatric
” A sales quota is the sales goal set for a product line, company division, or sales representative. It is primarily a managerial device for defining and stimulating sales effort.” – Phillip Kotler
► Objectives of Sales Quota
- It provides performance standards or performance goals.
- Controlling activities of a salesperson
- To motivate people by linking quotas to compensation plans
- Identifying the strengths and weaknesses of the company.
- To provide Quantitative performance standard
- To obtain Tighter sales and expense control
Must Read :What is Sales Budget
► Importance of Sales Quota
- Quotas serve many purposes.
- It provides a set standard of performance
- It provides sales targets
- It acts as a controlling technique
- Quota encourages motivation among the salesforce
► Types of Sales Quota
- Sales Volume Quota
- Budget Quota
- Activity Quota
- Quota Combinations
◉ 1. Sale Volume Quota:
The oldest and most common method of designing Quotas. It is the basis for the standard for appraising the performances of individual sales personnel.
It may be set in terms of units of product sales or rupee sales or a combination of these two on a point basis.
- Unit Quota uses when there are considerable price fluctuations
- Rupee Quota is used when there are multiple products.
- Point Quota is used when a company tries to attain both unit and rupee.
◉ 2. Budget Quotas
Budget quotas are set for various sales units in the organization to control selling expenses and gross margin or net margin or profit.
The idea underlying budget quotas is to make the sales personnel inform that their job is not merely to attain the sales volume above.
Budget is of two types;
- Gross Margin or Net Profit Quotas
- Expense Quotas
Calculate gross margin by subtracting the cost of goods sold from sales volume. Sales managers are not responsible for the cost of manufacturing.
Net Profit Quota is mostly accepted by Sales managers as it is calculated by subtracting direct selling expenses from the gross margin.
To keep the selling cost within reasonable limits, the Company may set a quota for expenses linked to different levels of sales attained by their sales force. Very strict conformity to expense quota norms results in demotivation of the salesperson.
◉ 3. Activity Quota
It is set for a total sales call, a number of new accounts, product demonstration, placement or erection of displays, making a collection, etc. Balanced Quota.
◉ 4. Quota Combination:
Any combination of the above-mentioned quotas is known as a combination quota.
- The two mostly used combinations are sales volume and activity quota.
- These quotas influence selling and non-selling activities.
Must Read :What is Sales Forecasting?
► Methods of setting Sales Quota
- Quotas based on Sales Territory potential
- Quotas based on Sales Forecasts only
- Quotas based on Past Sales experience
- Quota based on Executive judgments
- Quotas set by salespeople
- Quotas related to Compensation
◉ Parameters for Developing Sales Quota
Set the parameters for developing sales quotas that are given below.
- See Past Trends: The number of specific product lines that were sold in various sales territories over time.
- Last year’s Revenue: the total revenue generated from sales of all products from various sales territories
- Industry Standards: performance of the competitors in the market.
- Territory Analysis: the quantity that a salesperson thinks can be sold in his or her territory based on the existing pipeline and recent successes.
- Add the percentage of growth expected
- Allot individual quotas to each sales personnel
- Experience of the salesperson
- Assigned job
- Sales skills
- Market potential
- Make sure that the sales quotas are well understood by your sales team
- Adapt quotas to market realities.
◉ Factors considered while setting sales quotas
- Estimate purchasing power
- Study the past sales
- Consults facts and opinions
- Investigate sales policies
- Guage the nature and extent of competition
► Advantages of Sales Quota
- Adjustment of sales and output
- Appraisal of performance
- Sizing up the market
- Useful in sales contents
- Quotas act motivator
Must Read :What is Sales Territory?
► Disadvantages of Sales Quota
- The danger of increased bad debts
- Possibility of ineffectiveness
- Apple of discord
- The problem of quota monitoring
- Warrants huge finance