Sales quotas may be set in several ways. Let’s explain several basic methods companies use most frequently for setting quotas.
It requires a desired level of performance.
Methods of Setting Sales Quota
The following methods of setting sales quotas are important:
1. Forecasts and Potentials Based Method
The most common methods for setting quotas is the use of sales forests plus market and territory potentials.
Here, the company makes a total volume or unit sales forecast for the company, product lines and individual products.
Each of these forecasts can be done on a geographic basis.
On the basis of sales forecasts, product line and individuals product sales quotas can be set.
This method includes the following.
(1). Quotas Devived from Territorial Sales Potentials
Under this method, the quota is derived from the sales potentials present in a territory.
A sales volume quota sums up the effort that a particular selling unit should expend.
Sales potential, by definition, represents the maximum sales opportunities’ open to the same selling unit.
Many management derives sales volume quotas from sales potentials.
(2). Quotas Derived from Total Market Estimates
In some companies, management has neither statistics on nor sales force estimates of territorials sales potentials.
These companies use to down planning and forecasting to obtain the sales estimate for the whole company.
To derive sales quota, the sales manager may either 1. breakdown the total company sales estimate, using various indexes of relative sales opportunities in each territory, and then make adjustments, or 2. convert he company sales estimate into a companywide sales quota and then breakdown the company volume quota, by using an index of relative sales opportunities in each territory.
2. Only Forecasts Based Method
The prior procedure is common for large national companies.
Some firms, however, do not have the necessary information, data, money, and people to determine sakes potentials for individual sales territories.
This is especially, true of companies that sell in small geographic areas.
Some firms set quotas in relation to their sales forecasts or total market estimates.
They then usually establish quotas based on past sales in a geographic area without regard for sales potentials.
If a sales region sold 25% of the firm’s past year’s sales, its quota would be 25% of the forecasted sales for the next year.
3. Past Experience Method
Some companies do not make sales forecasts for total sales volume, product lines, or individuals products.
They take the past years’ sales for each geographic unit, add an arbitrary percentage, and use the results as their sales volume quotas.
A few companies set quotas from an average of sales for several years.
This average is prefered since it covers the sale trend and the effects of exceptionally good or bad years.
4. Executive Judgement Method
Whatever method a company uses for setting sales quotas, executive judgement should be a part of the process.
Yet it is generally not recommended as the only method for deciding quotas.
Executive judgement is useful for setting quotas when little information exists.
It may be impractical to determine the sales potential for a newly opened sales territory, for example, or impossible to estimate the acceptance of a new product.
Frequently, managers have to rely on their judgement to make future predictions.
It should be noted that quotas a be of no higher quality than the judgement of those setting them.
5. Salesmen’s Judgement Method
It is not a common method. It is used especially in companies expanding into new geographic areas or setting up a sales force.
In these conditions, it is difficult to project sales.
No past sales exist on which to base future estimates.
Hence, companies usually ask their own salespeople to set quotas for one or two years.
Most companies fo allows their salesmen to give input on the sales quota setting process.
Sales peoples input, views, ideas are combined with historical data and forecasting data to provide the final quota.
Thus, salesmen are placed in a position of determining their own performance standards.
The company justifies this method on the ground that sales personnel, being closest to the territories, know them best and therefore should set the most realistic quotas.
It is also assumed that having sales personnel set them. But many salesmen are not interested in setting their own quotas.
Some may remain reluctant to achieve what they regard as too much.
Other may overestimate their capabilities and set unrealistic high quotas.
These very high or low quotas may cause dissatisfaction and low sales force morale.
To make these quotas. The sales manager should have better information. 12 Essential Tools of Public Relations (Explained with Example).
6. Quotas Related to Compensation Method
Companies sometimes base sales volume quotas solely upon the projected amounts of compensation that management believes sales personnel should receive.
Sales quota also serves a basis for the promotion of salespeople within a company.
Quotas represent the bottom line for a salesman.
For promotion, salespeople are usually judged on their attaining quotas over time.
It is also very common to earn extra compensation by reaching sales volume quotas for total sales, existing products, and new products.
For example, a salesperson may be paid a salary plus a bonus of 1 to 15 per cent on all sales over quota.
Thus, now you know the important methods of setting sales quota.