What possessed sales leaders to raise quota...

especially in a down economy? Is a question that has been frequently discussed since CSO Insights released their 2010 Sales Performance Optimization (SPO) Survey and Analysis report. Despite the steepest decrease in quota attainment observed since CSO Insights started their survey, 85% of the respondents to the 2010 Survey ( data collected late in 2009) said they intended to raise quota for 2010. Already in the 2009 SPO report (data collected in late 2008) a similar amount of respondents planned to raise quota. At that time it was though already evident that the economy had started its nose dive. The decrease it sales performance, measured in quota attainment, in the 2010 report was therefore almost a self fulfilling prophecy.

They had no choice

Is not a cheap excuse at least from sales leaders working for public companies. In many cases it is unfortunately the brutal reality. Sales leaders are prisoners of the mechanics imposed by SARBOX, rules intended to protect share holders' interests. One of the rules therein stipulates that the revenue target has to be allocated in its entirety to the sales people, becoming their quota.

So if sales leaders are handed down a revenue target from the company leadership, together with the order of a headcount freeze, quotas increase automatically. The same is true even if company leadership factors in the current state of the economy and is setting the target to maintain last year's level of revenue. Yet in  that same year, a reduction in field forces was ordered to protect the bottom line. Then quotas cannot but go up again.

Sales performance measured as quota attainment therefore mechanically gets into a downward spiral. This trend is further exacerbated by the fact that quotas, appearing more and more unattainable, negatively impact the morale of the sales people. As there is also little to nothing done to help salespeople to improve their performance hoping for a recovery of the economy remains the only way out of this asphyxiating spiral. However hope was never a good strategy.

What sales leaders can do to stop the spiral?

First they have to have the courage to ask for a seat at the strategy table where revenue targets are set. To make their voice heard there, they need to be able to speak the strategy lingo They should, second,not be shy to ask for help to learn this lingo. They will then be able to demonstrate to their colleagues the legitimacy of the request for being included in the corporate strategy formulation process. The timing for such a request is also right. The era of shareholder value focus, which mainly determined the current participants in corporate strategy discussions is coming to an end. However, third, they have to act now. Given  the often lengthy and laborious budgeting processes, revenue targets for 2011 will be set soon.

Sales Quota Attainment: Who's Performance is Measured?

For companies with the fiscal year identical to the calendar year, we are entering the period where sales leadership starts thinking about the next year. One of the key parameters to figure out are the sales quotas to be given to the salespeople.

As the percentage of salespeople reaching or overachieving quota can be considered an established measure of Sales Effectiveness and it is also common knowledge, that the percentage of salespeople reaching quota leaves a lot of room for improvement, it might be a good time to discuss the above question.

The Sales Leadership View

There is little doubt for sales leadership that quota attainment measures the performance of the salesperson. Setting a sales quota (goal) possibly with some stretch built in, to motivate the salespeople to give their best, is considered good management practice.

As salespeople rarely will be in a position to argue about the quota given to them, this is probably the view that prevails within most companies.

The External Observer View

From a third party point of view, the cause for not attaining the quota, may be caused by inadequate efforts from the salesperson, but it can also be due to a wrong setting of the quota. In this latter case, sales quota attainment would then measure sales leadership performance.

Testing Your Quota Setting Practice

As a sales leader, you might consider the following questions helping you to assess your quota setting practice.

When figuring out the quota for the individual sales person, do you:

1. Consider the potential number of ideal customers in the person's territory?
2. Apply measured conversion rates (e.g. prospects converted to leads, to opportunity, to proposals to close) to determine the percentage of customers who are likely to buy?
3. Take into consideration how long the salesperson is already assigned to the territory?
4. Consider the mix of existing and new customers in the territory?
5. Factor in the average deal size to determine the monetary amount of the quota?

The more questions you answered with 'no', the more your quota setting risks to be biased. Quotas might then be perceived as unattainable even with best efforts by your salespeople. This might negatively affect their motivation and morale just at the time when these are needed to persist in a tougher environment. I am not advocating here that quotas should not have a certain challenge for the salesperson, but it should stay with in reasonable limits.

If you care to have a motivated sales team, but had to answer 'no' to several questions, you might then ask yourself what is currently hindering you to adhere to the few simple principles suggested with the questions. If you think the hurdles you find are insurmountable, then I suggest you might want to stop expecting better sales effectiveness of your team measured in quota attainment.