Sales Quota - Definition, Importance, Types & Example
Published in Marketing and Strategy Terms by MBA Skool Team
What is Sales Quota?
Sales quota is the sales goal or figure set for a product line, company division or sales representative. It helps the managers to define and stimulate sales effort. Sales quota is the minimum sales goal for a set time span. Sales quota can be individual or group based e.g. for a business unit or a team.
It is a way or a parameter to drive the sales organization to achieve and realize its targets before hand. It also helps in growth and investments required.
Generally sales quotas are set slightly higher than the estimated sales so as to stretch the sales force effort.
These are developed through the study of annual territory marketing plan. In this the plan for developing new accounts and expanding existing accounts is given by the representatives.
Sales Quota Types
They are mainly of the following types:
1. Volume Based : This is determined by number/units of products/services sold.
2. Revenue Based : This is determined by sales generated by sales of products or services.
3. Profit Based : This is determined by profit earned through the sale.
It is a very important driver for sales driven organization or company. Many companies e.g. CPG sector depends upon the efficiency and desire of the sales force. Sales quotas channelize their efforts and keep them accountable. Many a times percentage of quota determines the variable pay they would earn in an year.
These targets also determine the overall companies' performance. The aggregation of all the sales quota can determine company's performance. Sales quota need to be realistic with focus on growth rate a company wants to or can achieve. The value of these quota or targets need to properly estimated. If it is too high, the sales team may feel too much pressure and if on the other side if it is too low then the company might not be able to grow as compared to competitors.
Objectives of Sales Quota
Sales quota helps in defining the amount of sales that can be achieved realistically in a geography and time period. Some key objectives while setting a sales quota are:
1. Volume of sales
It helps to determine how much sale can be done by an sales person, sales team or the regional office.
2. Geographic Limitations
Sales quota is primarily useful for defining the city, area, locations etc where a particular sales person or team would operate.
3. Business Opportunities
A well defined sales quota can identify area where sales are higher or lower. Higher business area can keep increasing market share whereas a lower sales area is an area of opportunity.
4. Sales performance
A good sales quota helps create the right targets, goals and measurement criteria which the sales team have to achieve.
5. Advertising Budget
A good sales quota define the amount of budget that needs to be spent for marketing activities to achieve the sales targets.
A well defined achievable target can motivate sales team to perform more efficiently, thereby contributing to business growth.
Another main objective of sales quota is to ensure coordination between internal stakeholders (finance, marketing etc. departments) and external stakeholders (warehouses, distribution centers, logistics etc.).
How to set Sales Quota?
Sales quota can be set through many methods.
Common methods depending upon the company or individual used are :
1. Strategic Estimation : In this method, as per the estimation and planning for future sales drive individual quota of sales designated for individuals or smaller groups.
2. Individual Capability : This method sees the capability of the sales force and also the previous performance put in by the team. This helps in deciding the sales quota for next year.
Example of Sales Quota
New business goal: - $1,000,000
Average sales size: - $50,000
Total sales needed to achieve the goal: 20
Hence, this concludes the definition of Sales Quota along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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