Incentive Compensation

How to Set Realistic Quotas for Sales Success in 2024?

Simon Soorej
min read
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The Formula One Championship came to an end last November, with Max Verstappen clinching the World Championship title. While his fast reflexes and steering dexterity contributed to this extraordinary feat, it was his ability to complete laps within the specified timing that carried weight.

Your sales quotas play quite a similar role in helping you achieve your objectives. They break down your overall revenue goals into individual targets for your reps and foster a sense of accountability towards their attainment. Quotas also play a key role in supporting you to tackle attrition problems across your sales teams.

Surprisingly, according to the 5th edition of Salesforce’s State of Sales Report, only 48% of sales professionals believe that their team can achieve 75% quota. That’s a shocker!

Perhaps you can up the ante by setting realistic quotas to help your reps achieve their “Max” potential in 2024. Lights out, let’s go! 🚦

Why Do Quotas Matter?

One of the biggest hurdles faced by sales leaders is establishing quotas that are both achievable and market-competitive. Solving for this challenge can be beneficial to you in more ways than one:

  • Well-defined quotas help you retain your top sellers. When crafted carefully, they empower your reps to go beyond the 100% attainment level. This not only fosters a sense of accomplishment, it also puts your company on the map as an attractive hub for the best talents in the industry.
  • Personalizing quotas for each individual enhances motivation. Your reps sense a direct connection between their efforts and achieving company goals. Hitting goals becomes a source of pride, contributing to a positive work environment. Additionally, this tackles the attrition problem prevalent in sales teams.
  • Quotas play a pivotal role in driving desired behaviors. When aligned with overall company goals, they act as catalysts for growth. They guide your reps to contribute to the overall success of the organization.
  • Quotas also offer a clear roadmap for career growth for your reps. This provides them with a sense of purpose and direction, fostering a long-term commitment with the organization.

Importance of Setting Realistic Quotas

Drawing parallels between lap timings and quotas, we can highlight the significance of setting realistic quotas. Similar to a complete lap being broken down into sectors, yearly quotas can be further broken down into quarterly targets.

The goal is to cross each sector at a specific time. Consider Max to be the driver here. Imagine that the first sector of the track has 7 turns and the average time taken by previous drivers to cover it is 25 seconds. Claire, Max’s team principal, sets the expected time. Here are the 3 possible scenarios:

  • She wants Max to be number one, so she sets an impossible time of 10 seconds,
  • She feels that Max should be relaxed while driving and sets a timing of 40 seconds, or
  • She realizes that since the average is 25 seconds, and Max has a superior car - he’s capable of covering the sector in 22 seconds.

The first scenario reflects what happens when you set quotas that are too difficult. Like Max, your reps will be overwhelmed. This creates a “culture of losing”, where your reps are unable to hit even 70% of their quota despite their honest efforts. Incentives don’t kick in, demoralization sets in, and attrition reaches an all-time high.

The second scenario is a 180º flip of the first scenario, i.e., when you set quotas that are too easy. Your targets become a walk in the park, with almost 70-80% of your reps attaining 100% quota. Budget allocation for incentives becomes a nightmare for your finance team and reps become demotivated and lackadaisical.

The third scenario is the smart move - setting stretch goals. Not only does it keep your reps motivated for the long haul, but it also ensures the budget for incentives is brought in by the reps themselves. The top sellers earn the surplus incentives left behind by the ones who didn’t quite hit their quotas. In a “stretch goals” scenario, you’d ideally want 55-65% of your reps to achieve 100% quota, with 10% exceeding the “excellence” level.

5 Key Considerations for Setting the Right Quotas

Now that you’ve got a rundown on why setting realistic quotas is a game-changer, let’s dive into the how. A race car depends on certain factors to nail the lap timing. Similarly, here are 5 key factors you must consider when locking in your quotas:

Alignment with Company Goals

Much like race cars adhering to proper guidelines prescribed by Formula One, sales quotas should be aligned with company goals. Also, your quotas shouldn’t be set in stone for the long haul. Just like every race track is different, your business objectives may change every year - for one year, you might focus on growth while for the subsequent year, you might play defensive and focus on retaining market share. Your company goals should guide your reps to prioritize their focus on closing deals that are crucial for success, and aligning them with quotas provides intrinsic motivation and visibility to your reps.

Market Conditions

Understanding your current market landscape and market potential is akin to examining track and weather conditions carefully. To establish quotas that align with achievable market opportunities, you need to thoroughly analyze past performance data like what % of reps hit their quota, how much revenue growth was observed, was there any seasonality in customer demand, etc. This will provide you with a clear sense of what needs to be done. You also need to consider the emerging consumer and industry trends for realistic quota setting.

Customizing Quotas

Not all car engines have the same build. Similarly, sales reps have varying skill levels to consider while setting quotas. Analyzing past data helps you to identify your star sellers, consistent achievers, and underperformers. This can help you better allocate revenue targets - knowing that your top sellers can handle more quota and risk.

Tailor quotas at a territory or product level. For instance, new territories may benefit from an assertive yet adaptable quota approach, while established ones thrive with an efficiency-focused setting. This personalized method optimizes performance based on individual strengths and market dynamics.

Engineering Sales Success

Consider this: it’s not just the car making waves on the track; there’s a whole crew of engineers behind the scenes. This is where sales planning plays a crucial role. To set effective quotas, you need to evaluate the complete funnel and strategize how other key stakeholders - marketing, business development, presales, customer success - will support this. You also need to ensure that your existing pipeline provides you with enough opportunities to meet revenue targets and ultimately, the quotas.

Commissions and Accelerators

Money in the bank = fuel in the tank.
Commissions and accelerators keep your reps stay on the track in the long run. Make sure your comp plans remain competitive in the market and that accelerators kick in when your top reps cross the 100% quota attainment.

Here’s a guide to help you set the right accelerators.

Tracking Quota Attainment

Alright, now that your cars are on track and you’ve set the right timings for each sector, i.e., your quarterly quotas - is your job done? Not quite yet.

You have to keep an eye on how your reps are performing, see if they’re heading the right way to achieve their quotas. Also, analyze your comp plans for potential bottlenecks and devise strategies to rectify them.

Just like racing teams do pit stops to understand issues faced by drivers on track, schedule periodic reviews to address the challenges faced by your reps. Encourage clear communication, and adjust quotas based on their feedback, if necessary.

Final Thoughts

Quotas are essential components of a comp plan, no doubt about it. Setting realistic quotas helps you level up your business, hold onto your top sellers, and keep your reps motivated for the long haul. While crafting quotas, consider the key factors viz., alignment to company goals, market conditions, individual capabilities, sales enablement, and commissions & accelerators.

Using an incentive compensation software like Everstage can help you visualize performance metrics and gain crucial insights through advanced dashboards and reporting capabilities. This can also enable your reps to stay on top of their deals and cruise to the finish line! 🚀

Here’s to an amazing 2024! 🥂

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