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From History to Opportunity: Five Quota Setting Methodologies
Quota-setting methodologies vary based on the market and types of accounts. Approaches can range from one-size-fits-all, to a historic view to a forward-looking opportunity view.
- Flat quotas are simple and effective in the right situations. Organizations often start out this way or may use this approach in new markets it enters. Everybody gets the same quota because it is assumed that all opportunities and resources are equal. While this may seem like a primitive approach, it can be effective in environments with unconstrained opportunities where there is abundant sales potential and the capability of reps is similar. The flat quota approach is common in new business development situations where reps don’t have an existing base of business to manage and may have few boundaries to their sales opportunities. It’s survival of the fittest.
- Historic quotas are the most common in companies, yet they create some of the biggest issues by assuming that history is predictive of the future and of potential in a market. This approach creates quotas that recreate history. A majority of companies use a historic quota-setting process either primarily or in combination with other methods. While history is a good starting point, it should be enhanced by turning the attention to future opportunities.
- Market opportunity-driven quotas are developed by starting with historic information and building on it based on the characteristics of the market. Market opportunity might consider predictors of potential that indicate how much opportunity might reside in an account. For example, the number of employees at an account location may be correlated to revenue potential. Those indicators can become part of a larger predictive model that either estimates the potential of a territory or compares that territory with other territories to help allocate the goal correctly across those territories. This approach can be effective for a large number of accounts.
- Account opportunity-driven quotas consider characteristics of the accounts as well as the market. By looking at the sources of revenue retention, penetration, and new customer acquisition, and the existing and planned sales pipeline, a sales organization can build the account opportunity components, bottom-up. Those growth estimates can be compared with top-down intelligence on the overall market, and growth predictions. The company can also consider sales capacity and the capabilities of reps to capture that account opportunity.
- Account planning can be used for growth planning, coaching reps to the plan, and of course, setting quotas for the account. This process is effective in situations where there are a small number of large accounts. The account plan provides information on growth targets in the account as well as tactics the team will use to grow the customer relationship.
By considering and combining these methods the organization can develop a quota-setting approach that matches each type of account segment and can increase the opportunity to hit the company’s overall sales objective.
Next week I’ll begin a series about communicating the sales compensation plan and changes to the organization. Contact me at email@example.com with any questions.