Types of Sales Quotas
Marketing campaigns can include billboards, advertisements, magazine articles and banner ads, but it's up to the sales team to get the stuff out the door. To accomplish this goal, sales teams can do all the usual things -- cold calling and networking, sending letters and inviting executives to events -- but even these efforts sometimes don't win the target accounts. At such times, sales quotas can come in handy. Suddenly, sales revenues or sales units, and closing deals and driving revenue move to the top of every salesperson's agenda.
Salespeople and sales territories must deliver on revenue or volume targets that they're beholden to. Usually, these sales quotas are the volume of goods a salesperson's customers must buy or the sales revenues that his efforts must generate on a monthly, weekly or daily basis. In turn, a company assesses the salesperson's performance according to his tendency to hit or exceed the quota on a consistent basis. The sales quota can be determined in part by information, such as the prior period's territory sales numbers, the salesperson's salary multiplied by some factor or a prior year's goal multiplied by an annual growth rate. The type of quota a company selects is determined in part by the market and the product.
It's common to base a sales quota on the sales volume or sales revenue for a customer, product line, region, period of time or some combination thereof. In many cases, a company that sells a product with a high unit price implements a sales volume quota on a daily, monthly or quarterly basis. If a company sells low-priced products, the business might put in place a sales revenue quota. Quotas also can be set for a group of products, such as men’s clothing or computer products. Sales volume goals fail to measure either the profit generated by a particular sales person or his productivity.
Gross margin or gross profit also serves as a basis for a sales quota for a branch, a group of products or a salesperson. A gross margin quota is calculated by deducting the cost of goods sold from the sales revenue; a gross profit quota is calculated by subtracting selling expenses and the cost of goods sold from sales revenue. A problem with profit-based sales quotas is that sales personnel have no control over prices or manufacturing costs, each of which affects gross margin. In addition, to boost the probability of achieving a gross profit-based quota, a salesperson may cut back on expenses, which can affect her sales negatively.
A company may base a sales quota on a combination of a sales forecast for a particular geographic area and historic sales data. For example, assume that region A was responsible for 25 percent of the prior year's sales and the sales forecast for the current year is $150,000. The current quota for region A might be 25 percent of $150,000 or $37,500.
Billie Nordmeyer works as a consultant advising small businesses and Fortune 500 companies on performance improvement initiatives, as well as SAP software selection and implementation. During her career, she has published business and technology-based articles and texts. Nordmeyer holds a Bachelor of Science in accounting, a Master of Arts in international management and a Master of Business Administration in finance.