What is a sales quota? How to set goals tailored to your team

Establishing effective sales quotas is often a balancing act for managers. On one hand, they aim to set quotas that challenge their sales team and push them to perform at the highest level possible. At the same time, they must ensure their quota expectations are actually attainable so their reps remain engaged, confident, and successful.

Managers must take into account their team’s unique needs and objectives while also driving incremental revenue improvements. But without the right tools, data, and strategy for support, they’re left with frustrated reps and lackluster results.

Here, we’ll explore everything you need to set effective sales quotas, including some common structures, pitfalls to avoid, and how to get it right.

What Is A Sales Quota?

A sales quota is a specific, financial sales target that sellers work to attain within a given time period—typically a month or quarter. Sales leaders and managers establish sales quotas to motivate reps, boost and measure performance, and reward sellers who reach their goals.

It’s important to note that, while closely related, sales quotas differ from both sales goals and sales targets:

• Sales goals are generally larger objectives that teams achieve by executing smaller actions, including reaching quotas. If, for instance, a company’s sales goal is to increase revenue by 10% this quarter, its managers and leaders would identify the number of deals their team would need to close to meet that goal. They would calculate how many deals each rep would need to close within that quarter, then break that number down further to determine the financial value each seller must contribute. The resulting value would be the seller’s quota.
• Sales targets are usually team-wide objectives, like the number of products or services they want to sell over a specific period of time.

By setting tough (but realistic) sales quotas, managers give their reps something clear to work towards. Well-defined quotas also enable managers to more easily and accurately predict sales over a particular period of time, which helps the organization better understand and meet customer demand.

While the organization, as a whole, has certain revenue goals and targets they intend to reach, sales quotas act as each seller’s individual contribution to those overarching targets. Thus, as reps strive to meet their sales quotas, their efforts progress the team forward and nudge them further toward those business-level benchmarks.

Sales quotas are an effective means for evaluating sellers’ performance, too. They help managers identify top sellers and those who may need extra training or support. As reps either succeed or fail to meet their quotas, inefficiencies within the sales process become more transparent; and managers can then tweak their strategies to improve their teams’ outcomes.

Setting quotas is a crucial part of the sales management process, as it enables managers to engage and motivate their reps. Keep in mind: The average turnover rate for sales reps is around 34%, so implementing fair, ambitious quotas that encourage growth can certainly make-or-break a manager’s ability to retain their top talent. And the impact of that potential turnover is cyclical, as organizations with an annual turnover rate below 25% have 12% more reps at or above quota than those with higher attrition levels.

Key Sales Quota Factors

As managers structure their teams’ sales quotas, they often struggle to truly understand how well their reps are performing. Without intimate knowledge of what’s working, what’s not, and why, it’s difficult—if not impossible—to set realistic quotas that push sellers to operate at their best level.

A whopping 67% of sales reps don’t reach their quotas and, perhaps more surprisingly, 23% of organizations don’t know if their sellers achieve their quotas or not. They’re either setting and measuring quotas based on the wrong metrics or simply don’t have the proper tools in place for keeping track of their reps’ performance. It’s a risky approach, though, even for teams who do manage to meet their quotas; because without that essential data, managers can’t possibly identify or replicate the factors contributing to their teams’ success.

Implementing quotas that are grounded in accurate, real-time data can become a very real competitive advantage for your organization. After all, effective sales quotas are much more than arbitrary numbers: They’re an opportunity for managers to gain visibility into their sellers’ performance, set goals that light a fire in their bellies, and make meaningful improvements that boost revenue.

Thus, managers should work to tailor their sales quotas to the individuals who make up their team. Robust, modern tools, like sales engagement platforms, can help eliminate the time-consuming, repetitive tasks associated with setting and measuring quotas. They allow managers to create, assign, and track sales activities across the entire team, so they can easily attribute successes (or shortcomings) to each individual and action.

By using intelligent sales-tech, managers can build quotas that align with broader business goals, motivate their reps, and accurately reflect their sellers’ performance. And since only 30% of organizations currently say their managers have mastered the ability to turn data-driven insights into meaningful, strategic improvements, sophisticated tools that take the guesswork out of sales quotas can give your team a significant leg up.

Types of Sales Quotas

There are several different types of sales quota structures that managers can leverage. Below are the most commonly used sales quotas, along with examples to illustrate each:

Volume Quota

Managers set volume-based quotas when they want to motivate their reps to sell a specific number of units—or bring on a particular number of new customers—over a predetermined period of time.

For example, Melanie is a sales rep at a commercial insurance agency. To meet her quarterly quota, she must sell 10 insurance policies by the end of the period. Depending on Melanie’s payment structure, she may receive commission for each policy she sells throughout the period, and will receive an extra bonus if and when she reaches her quarterly quota.

Activity Quota

For sales team members who aren’t directly involved with closing sales, activity quotas are typically most effective. These types of quotas focus on the number of sales-related activities a rep completes within an established timeline. These activities might include the number of phone calls made, emails sent, follow-ups conducted, meetings schedules, or demos booked. Activity quotas ensure certain team members (like SDRs and BDRs) are held accountable for their progress and that the organization is held accountable for recognizing their efforts.

Let’s say Justin is a sales development rep at a B2B software sales organization. While he won’t be the person carrying deals across the finish line, his work in the initial stages of the sales process is vital to his team’s success. To motivate him to reach out to as many new prospects as possible, his manager has given Justin a quota of 50 phone calls, 75 emails, and 15 scheduled meetings this month. As he completes each activity, it’s tracked in his team’s sales engagement platform, so his manager always knows whether or not he’s on track to meet his activity quota (and can intervene, as needed).

Forecast Quota

For sales teams targeting a particular region or territory, using forecast quotas can help drive growth while remaining realistic. Forecast quotas are based upon the team’s historical performance data, and are used to incentivize an increase in revenue from periods past.

Lizzie is the rep responsible for selling her company’s solar panels to its northeast territory, and she has historically closed $10,000 in sales throughout Q1. Her goal is to increase her Q1 sales by 10% this year, so her forecast quota is $11,000 for that quarter.

The reps at Lizzie’s company who are responsible for their south, central, and west territories each have varying historical sales for Q1, so their sales quotas would be adjusted to reflect their specific previous performances, respectively.

Combination Quota

Many sales teams take a blended approach to their quotas, which gives sellers a wider array of goals to work towards and achieve. This is a great way to keep reps engaged and ensure they maintain both their hard and soft skills.

Chris, who sells medical devices to hospitals, has a combination of activity and profit quotas. To reach his quota, he needs to make 35 phone calls, book 15 demos, and close $5,000 of sales per month.

Revenue Sales Quota

One of the easiest types of quota is revenue sales, as it’s directly tied to the amount of revenue each rep brings in. Each individual seller must reach a particular revenue amount per month, quarter, or other predetermined time period. Managers can tailor revenue sales quotas to better fit their teams’ needs, too. They can easily break the revenue quota up into smaller portions to motivate their reps to sell a particular product or service.

Nick must sell $3,000 this month to meet his revenue quota for his job, which is at a men’s clothing store. His manager can help him reach this goal by breaking down the quota by product, wherein Nick can either sell a smaller number of expensive clothing items, or a larger number of cheaper clothing items.

How to Calculate Your Sales Quotas

There’s no real hard-and-fast rule for calculating your team’s sales quotas. Quotas should be highly dependent upon your unique business, team, and broader objectives. But to calculate effective sales quotas that motivate your team and drive success, start by following these essential steps:

1. Set a Baseline

A good jumping-off point is your organization’s most basic level of performance. It’s the number that represents the smallest amount each rep can sell while still keeping your business alive and operating.

Identify the total revenue your sales team brought in over the last twelve months, then divide that number by twelve. This will give you the minimum monthly revenue your team must close to meet its basic standards.

It’s important to remember that you should always adjust your baseline to reflect your team’s territories, number of reps, seasonal variations, holiday or PTO schedule, and any other unique factors. If, for instance, you’ve just hired a sales team to target a new northeast territory, their baseline quota should be smaller than that for your veteran, central-based reps. You’ll also need to tweak your baseline for forecasted growth, which will help your teams drive future revenue and support your business’s scaling efforts.

2. Use Bottom-up Quota Setting

Many organizations take a top-down approach to quota setting—particularly those that don’t have access to historical data or an in-depth understanding of their sales teams’ performance. It’s a bold strategy that focuses on where top-level leaders would like to go instead of prioritizing how they'll get there or questioning if they’re capable. But top-down quotas simply don’t work in the long-run, since they inherently ignore the most important factor in reaching any quota: Individuals.

Businesses are better off taking a bottom-up approach, in which they instead leverage historic performance data and meaningful insights to set realistic quotas. By starting with their sales team’s actual abilities, previous performance, and even their potential shortcomings, managers can more accurately establish quotas that their reps can meet. This makes for a happier, more engaged, successful sales force; and one that’s motivated to continue building on their past wins.

3. Decide on Activity Goals

Once you’ve hammered down the basic numbers, it’s crucial to identify which activities will contribute to your reps’ quotas. An increase in revenue hinges upon a manager's ability to uncover and ameliorate the obstacles preventing their reps from reaching their quotas—and that requires them to track, manage, and understand the activities their sellers are executing.

The right sales engagement platform can make the selection and evaluation process a breeze, as powerful tools enable managers to assign and monitor the activities of each rep in real time. Whether it’s number of phone calls, emails, follow up messages, meetings scheduled, or another activity entirely, managers can easily determine which reps are meeting their activity quotas and how that contributes to their team’s broader revenue goals. From there, they can tweak their reps’ activity quotas to incentivize them to execute on those that are most valuable to the business’s success.

Sales Quota Best Practices

As is the case with any part of the sales management process, establishing sales quotas can be tricky. To avoid some common landmines and ensure success, try implementing these tried-and-true best practices:

Match Quotas with Sales Activities

As a sales manager, it can be easy to forget that not all of your team members have a clear or direct stake in the company’s revenue. And even those who do—like account managers and account executives—might grow tired or frustrated chasing quotas that are based solely on revenue.

Each salesperson brings a unique perspective and experience to the table, and they should be measured, recognized, and rewarded for more than just the dollar amount they help your organization rake in. To build sales quotas that truly motivate and engage your team, make sure you also match them to individual sales activities. That way, sellers at every level can easily see how their day-to-day efforts tie into the bigger picture and how those otherwise unrecognized tasks play into your company’s success.

Update Your Quotas Quarterly

Your team’s sales quotas should never be set in stone. As your business grows and its priorities shift, so should your sellers’ goals and, therefore, their quotas. Not only is this crucial for keeping reps incentivized and engaged with their work, but it’s also vital for continuously executing an effective, innovative sales strategy.

Each quarter, managers should evaluate all the factors that impact their reps’ performance and adjust their quotas to reflect any significant changes. If, for example, the company has launched a new product and is prioritizing its sales, managers shouldn’t expect sellers to meet or exceed the same quotas they’ve reached in previous quarters. After all, reps will likely need time to study the new product and fine-tune their messaging before knocking their sales out of the park.

Reinforce Positive Behaviors

Sure, pushing your reps to achieve their sales quotas is an important end-goal for a given time period. But managers would be remiss not to celebrate and reinforce the positive behaviors that nudge reps closer to their quotas along the way. Incentivizing all the smaller steps throughout the longer journey can help sellers better understand how they’re succeeding and ensure a better customer experience, too.

For example, rewarding reps who execute a certain number of follow ups or reach out to prospects across a variety of channels is beneficial in two key ways: The rep knows that delivering excellent customer experiences is a crucial part of the sales process and the customers have a positive perception of your brand.

Don’t Set Unrealistic Quotas

It’s sometimes tempting for sales managers to set impractical quotas in the hopes that their sellers will fight tooth-and-nail to overcome the obvious improbability. While this strategy might work in the cinematic universe, they rarely pan out in reality. In fact, more often than not, unrealistic quotas just lead to frustrated, disengaged reps who are at risk for premature burnout.

To turn sales quotas into valuable tools that help their sellers triumph, managers should instead make sure their teams are actually capable of achieving them. They should sit down with their teams and discuss previous performance, upcoming business goals and initiatives, and potential roadblocks. They should be as transparent as possible with sales forecasts and historical data so their reps always know their quotas are realistic and grounded in truth.

Even better if your team has powerful sales engagement software that enables them to track their progress and view forecasts in real-time. That way, they can understand exactly how their quotas were established and seek help reaching their targets well before it’s too late.

Don’t Set Commission Caps

If you set caps on your team’s potential commission earnings, you’ll also squelch their desires to perform at their best. Your top-performers shouldn’t be punished for exceeding your expectations, and your lower- and mid-level performers should know there are no bounds to their potential. Instead, make sure sellers at every level are properly compensated for reaching or eclipsing their quotas.

Resources

Calculating your team’s sales quotas can be daunting, so we’ve compiled a list of the most helpful online calculators to get you started.

1. Calculator Soup Profit Goal Calculator

If you’re looking to set profit-based quotas, look no further. Simply plug in your team’s average monthly or quarterly profits, sales, variable costs, and fixed costs to Calculator Soup to find your ideal quota amount.

2. Yesware Quota Calculator

Whether you’re implementing a top-down or bottom-up sales quota approach, Yesware’s online calculator can help you quickly establish your quota with just some basic information.

3. Panalysis Sales or Conversion Target Calculator

If you’re looking for an extremely basic-level breakdown of rep quota, this calculator can get you started. It uses your annual revenue target, monthly growth goal, average deal size, average monthly site visitors, and monthly conversion rate to determine each rep’s ideal quota. Be sure to adjust this one based on your team’s other unique elements before you hit the ground running.

Intelligent Tools for Sales Quota Success

Despite the undeniable importance of setting effective sales quotas, managers still struggle to get it right. They often lack the tools required to gain full visibility of their teams’ performance or build accurate forecasts, which makes establishing realistic quotas a time-consuming, laborious task.

The Outreach Sales Execution Platform enables managers to not just track team performance, but to improve it in real-time. Outreach automatically monitors every opportunity and raises the alarm on any deal issues across their pipeline. Sales managers can quickly assess why a deal is off track, coach their sellers to address the issue and push the deal to close. 

With Outreach, managers can build attainable quotas that drive rep performance and boost revenue. Learn more about how the managers can empower their team to reach their full selling-potential, or request a demo today.