Sales quota can be defined as
the sales target, which is assigned to any sales unit for a particular duration
of time; here sales unit can be a person, region, distributor etc. Sales quota
provides a target to be achieved in particular duration, which increases the
productivity.
Commercial firms set up sales
quotas in order to improve sales volume and increase the net profit of the
organization. It can also be viewed as a standard to determine the
effectiveness of sales unit. Sales quota is determined using various factors
such as market potential, marketing method, past sales record etc., with
effective projection of market sentiments. For planning sales quota, control
of sales operations can be an effective method.
Sales quota is imposed in an organization
to fulfil various objectives required to increase the sales of product and
maximize profit.
Sales objectives help an organization in the following ways −
● They provide a standard to measure the
performance.
● They help to control sales expenses for
customer acquisition.
● They help define a target; this further
facilitates motivation and enhanced performance.
● These help to identify and monitor the
performance of salespersons.
These are some of the primary
objectives of sales quota for an organization. Further, sales quota can be
divided in different types according to the requirement.
Sales quota is divided into
four different categories according to the difference in forecasting and cost
allocation procedure, management goals, selling issues and executive decision.
The following are the
different types of sales quota.
Sales and volume quota is
allocation of sales quantity for salesperson, geographical regions,
distribution outlets etc. This quota can be implemented according to sales
performed or revenue earned by respective units.
The combination of both the
criteria can also be used for the implementation of this quota. The quantity of
sales and revenue earned can be allocated to the respective unit (salesperson,
region) and it has to fulfil at least one of them.
Financial and budget quota is
used to determine and restrict expenses on sales to attain desired net profit
planned.
It is implemented on various
segment of sales organization to control the expenses accordingly. The aim of
these quota is restriction of expenses for making sales so that profit can be
increased.
In competitive market, the
effective performance of sales group is required. It can act as a long term
benefit for the organization. Organizations set up activity quota for sales
force for efficient results. These can be performed by allocating sales target
to salespersons.
The following are the activities listed under sales quota −
● Number of accounts opened through the
salesperson
● Number of sales calls made to potential
customer
● Number of demonstrations made to show the
product
● Number of maintenance activities performed
Activity quota is planned on
the basis of these activities performed by the salesperson. By setting quota
for the activities, efficient performance and controlling can be managed.
It depends on product type and
market condition, issues related to sales of product and the challenges faced
during the sales of a product. Organizations set up quota with combination of
sales volume and activity quota in order to increase sales.
Sales quota for any unit like
salesperson, region, etc., should be a reasonable and an achievable goal, for
it to be fulfilled at the provided time span. At the same time, quota should
not be such that it doesn’t take much effort to achieve.
The following are some of the methods for setting the sales quota −
Total market estimate method
is used to determine sales quota in places where the management doesn’t
have any data about the market potential. It can be determined by dividing
the company’s sales quota with respect to regions or dividing sales quota
according to relative sales opportunity as per region.
Territory potential method
directly relates territorial sales potential to sales quota. The
potential here is total industry’s sales for that segment. Sales potential
represents the maximum market size of the product; size of the market reflects
the sales potential. This method gives precise results if territorial sales
potentials are used with a combination of territorial design.
Past sales experience method
determines the sales quantity based on the previous year sales. Managements of
organizations set this up by increasing some percentage from the previous sales
record.
For more precision in the
approach, managements most commonly use an average of several years as a base
line for the measurement. This method is simple and doesn’t take much effort to
implement.
In this method, sales quota
volume is determined by the management, but it is more likely to be a guess.
The management decides the sales quantity and no fixed procedures are involved.
This method is not precise and
it’s mostly not used by organizations to determining the sales quota. This
method doesn’t provide any estimate for territorial based sales volume.
In this method, the sales
quota is determined by the salesperson of the organization. Through this
approach, a more relevant sales estimate can be maintained, which can be
achieved by the salesperson.
Salesperson have better
knowledge of the market conditions, so they can set the target as per their
standards, and if the standards are set by the salesperson themselves rather
than imposed by the management, their fulfillment is
more likely possible.
Compensation method is based
on management’s view of what a particular salesperson should receive as
revenue; this method does not take into account the sales projection or
territorial volume.
For example, if a salesperson
has to receive 20,000 as salary, which can be received as 10 percent commission
of the sales amount, then the salesperson has to sell products worth 200,000.