5 types of sales quotas every sales operations personnel should know
Sales Quota or Sales Target is one of the most recognized terms when it comes to sales. It is a target that the sales team must meet in a given time period. As dramatic as it may sound an organization’s ability to achieve or miss the quota can lead to its overall success or failure. As a result, commercial excellence or sales operations managers, especially in Life Sciences or Pharmaceutical organizations need to understand the exact need and accordingly set quotas; the reason being, quotas are not that straightforward as they may seem, there are more than a couple of types of methodologies you can use to set sales quota for your team. Sales quotas also tend to be a driving factor in improving the health of your sales team, motivating them enough to bring superior results and eventual profits to the organization.
Basic Revenue Sales Quota: Probably the simplest of all kinds, in revenue-based sales quota, sales reps are responsible to bring the targeted amount of revenue in the given time frame. A sales rep sells enough of their solution to generate a designated amount of revenue. Revenue-based quotas are a most common type of quota and it is usually set for the quarter or month. Some businesses (e.g. SaaS companies) might use an annual revenue quota due to a longer sales cycle.
Forecast Revenue Quota: A forecast quota is based on historical precedents and takes into account past information across various metrics like; sales, market share, territory, etc. Forecast quotas generally assigned to a specific region, territory, or broader team. The forecast model requires a heavy amount of data to set quota effectively; however, it is the best way of ensuring a positive outcome if you have prior sales info, market share growth, overall market growth, and your sales team’s performance available at your disposal. This methodology is used vastly used in mature life sciences or pharmaceutical organizations.
Volume-Based Sales Quota: A Volume-based sales quota is somewhat like a revenue-based sales quota. Sales reps are responsible to sell enough number of units/services to meet the goal. The purpose is to motivate reps to sell more units to move a certain amount of inventory or to gain new users. This type of quota comes in handy when one wants to increase its market presence. An example would be an organization launching a new drug in the market that has no sales history and no proven credibility across a broader set of audiences. In such a case, it is ideal to set unit-level targets as the goal should be to penetrate and not focus on revenue as much.
Differentiated Volume-Based Sales Quota: Differentiated volume-based quota is more useful in organizations with a wide range of products. A discrete number of quotas are set across different versions of the product. Depending on the value of the product/service the goal to sell a number of units vary. The goal to sell higher-value products/services will be more / less compared to the low-value product depending on the profit margin earned behind every product. Organizations usually use this quota when they have a foothold because of an existing product and want to launch a new product in the same market. Another reason can be an organization seeing varying traction across the product portfolio.
Account opportunity-driven Quotas: Account opportunity-driven quotas consider variations in the market as well as account characteristics. They consider the market share across the territory in terms of growth, potential upside in every account, pipeline opportunities and predict future growth opportunities. It is a very granular approach and well suited when you have reliable account-level pipeline data such as revenue retention, penetration, acquisition.
In this article, you learned about the various types of sales quotas. Before setting your quotas, you need to determine which performance measures make sense to your business. The next step is to select a quota that can be achievable by 80% of your salesforce. It is critical that your sales rep feel their quota is achievable otherwise you risk demotivating your team.