Is quota setting the Achilles heel of your sales commission process?
Would you classify your process a train wreck?
As important as sales compensation plan design is, the goals incorporated into the plans carry equal weight when it comes to the overall effectiveness of the plans. Strikingly, in a recent Mercer study the process of setting quota is described by 21% of 78 sales leaders surveyed as being ‘a train wreck’ while another 42% of the respondents go on to rate their process as ineffective. To be fair, some are managing this process effectively with 37% who rate this to be either effective or very effective.
What’s going on and how can it get better?
To dig deeper into what’s going on, there is some survey data from World@ Work that was done in collaboration with Better Sales Comp Consultants that included that sheds a bit of light on the issue:
- Most models for next year’s quota are built on a ‘Last year plus’ starting point.
- Few use 3’rd party expert data in setting quota.
- Typical mix is that 75% of the influence in setting the quota is from the top (executive driven) while 25 % is from the bottom (based on field input).
- Majority of companies will allocate the last four months of the fiscal/calendar year to setting next year’s quota.
With so much at stake and your sales reps having so much skin in the game, it is critical that you avoid becoming a train wreck. Few things will drive high sales turnover (especially of your better sales talent) and budget woes (either over/under budget) than a year where your quota setting process blows up.
To help avoid the issues that plague so many, take a look at the following and consdier incorporating where it makes sense.
- Build the quota setting process on the back of a rigorous corporate forecasting process. Quotas should align closely with forecast. Step One: a realistic forecast is a MUST. Otherwise you’re spending a lot of time & effort efficiently administrating a process that can best be termed ‘garbage in - garbage out’.
- Drill down beyond the summary goals and break down according to run rate renewal business, business expansion within existing custom base and brand new clients/logo’s,
- Use third party economic benchmarks in the quota setting process to guide the establishment of territory & market potential.
- Get as granular as possible, regional/territory competitive market data is available is some markets – this is critical to set the stage for the next best practice suggestion ….
- Note: this implies building quota based on territory potential - not sales role.
- Embrace a collaborative process built on consensus building that engages, involves and builds buy-in from the field sales force to the process.
- Balance the data drive top down approach highlighted above by engaging sales managers to refine the first cut.
The time & effort that you put into setting quota that is considered fair by your sales reps, managers, executive team will go far in helping you avoid the fate of 63% of your peers.