Setting Sales Quotas

Dr. Sanjeev Prashar,

Institute of Management Technology, Ghaziabad
SALES QUOTAS
Sales target figure assigned to sales units as a required minimum for a
specified period

Help management in directing, evaluating and controlling the sales force

Prepared on the basis of sales forecasts and Budgets

Few of the purposes Sales Quotas serve are:-

To furnish goals and incentives for sales force
To control sales peoples activities
To control selling expenses
To evaluate productivity of sales people
Sales Quota
Sales Quota is a sales assignment, goal or target
set for a marketing unit in a given accounting
period

Can be quarterly, annual, or longer term

Failure to meet quota calls for action

Exceeding quota merits reward

Sales Quotas

Devices for directing and controlling sales operations

Quantitative objectives assigned to sales

organizational units

Can be used as standards for appraising selling

effectiveness; specify desired performance levels for
sales volumes, etc

In short, they quantify managements expectation

within a given period
Sales Quotas: Objectives

Managing sales effort by facilitating sales controls;

Provide quantitative performance standards;

Obtain tighter sales and expense control;

Motivate desired performance;

Usage in connection with sales contexts.

Importance of Sales Quotas
Provide performance targets

Provide standards

Provide control

Provide change of direction

Tool for motivating salespeople

Sales Quotas

Sales quotas have certain limitations such as

being time consuming, difficulty in
comprehending if complicated statistical
calculations have been used
Setting Quotas
Quota setting processes

Quotas based on sales forecasts and market potential

Quotas based on sales forecasts alone

Quotas based on past experience

Quotas based on executive judgment

Quotas based on sales force compensation

Quotas set by sales people themselves

Types of Sales Quotas
Sales
Volume
Quota

Sales Activity Sales Financial

Quota Quota
Quota

Combination
Quota
SALES VOLUME QUOTAS
Most common type of quota
Communicates How much for what period
Emphasizes on sales or some particular aspect of
sales volume
Used for appraising the performances of individual
sales personnel or distributive outlets
Are set for geographical areas, product lines or
marketing channels or for one or more of these in
combination
Objectives

Provide quantitative standards

Obtain tighter sales and expense control

Motivate desired performance

Ensure that company sales goal are met

Ensure the volume of sales covers the fixed costs of producing

the product or service
SALES VOLUME QUOTAS
3 types:

Rupee Sales
Volume Quotas

Unit Sales Volume

Quotas

Point Sales Volume

Quotas
SALES VOLUME QUOTAS
Rupee Sales Volume Quota:
If a salesman is given a target to sell products worth of Rs. 50,000
within one month then this type of quota is called rupee sales volume
quota
Companies selling broad product lines set sales volume quotas as
management meets complications in setting unit quotas and in
evaluating sales performance for individual products
Rupee sales volume quota relate easily to other performance data
such as selling expenses, through ratios or percentages
When products have no established prices and sales personnel have
discretion in cutting prices either rupee volume quotas or combined
rupee and unit volume quotas assure that sales personnel do not cut
prices too deeply in build unit volume
SALES VOLUME QUOTAS

LG

Mobile White
Plasma TV
Phones Goods

Salesman Salesman Salesman Salesman

1:Rs. 50,000 2:Rs. 40,000 3:Rs. 35,000 4:Rs.80,000

As seen in the diagram, salespeople belonging to different products are given a

sales volume quota in terms of money which is called rupee sales volume
quota
SALES VOLUME QUOTAS
Unit Sales Volume Quota:

If a salesman is given a sales target in terms of the units of the product

then this type of quota is known as Unit Sales Volume Quota
It is used in situations in which the prices fluctuate considerably for eg, if
a product is priced at Rs. 80 a unit, 600 units sold means Rs. 48000 in
sales but if the price rises by 25% only 480 units sold brings in the same
rupee value
It is also used when narrow product lines are sold at stable prices. If unit
prices are high, unit quotas are preferable due to psychological reasons-
sales personnel regard Rs 1 million quota as a higher hurdle than a 40
unit quota for machines priced at Rs. 25000 each
SALES VOLUME QUOTAS

LG

Mobile White Goods

Plasma TV
Phones

Salesman
Salesman 1: Salesman 2: Salesman 3:
4:80,000
50,000 Units 40,000 Units 35,000 Units
Units

As seen in the diagram, salespeople belonging to different products are

given a sales volume quota in terms of units which is called units sales
volume quota
SALES VOLUME QUOTAS
Point Sales Volume Quota:

Some companies uses sales volume quotas expressed in points. It might

consider Rs. 100 sales worth as 1 point, it might value unit sales of
product A at 5 points and of product B at 1 point depending on the PLC
of the product or it may convert both rupees and unit sales into points

The disadvantage is that sales personnel often attained most of their quota
through selling one or 2 easy to sell products

Solution to the above problem is

Products be put into different categories according to relative profitability
SALES VOLUME QUOTAS
Then individual point volume quotas should be set for each
category
Bonus should be awarded for sales over quota in each category
Sales personnel should be mandated to meet all the point volume
quotas before becoming eligible for bonus points
While appraising management should regard a certain point
volume attainment laced with the bonus points and compensations
In the diagram next slide, it shows the point system distributed
among the different products of LG and the salesman selling the
appropriate products will get the respective point associated with
the product
 SALES VOLUME QUOTAS

LG

Mobile White Goods

Plasma TV
Phones

CDMA: 9 GSM: 3 Washing

35 : 3 points 54 : 5 Points Refrigerators
Points Points machines

Semi
12 litres: 5 20 litres: 10 Automatic: 5
Automatic: 8
points points points
Points
AN APPLICATION OF UNIT SALES
VOLUME QUOTA
 AVIVA
Joint venture between Dabur and Aviva plc.

Have initiated and pioneered many innovative sales approaches

Follows monthly sales volume quota

Targets are based on:-

Number of people working in the organization
Number of years spent in the organization
Team size
Targets are set on 3 parameters such as:-
Premium price
No. of policies
Activation
Incentives given to agents on monthly and quarterly basis in the form of
issuing laptops
Procedures for Setting Sales Volume Quotas

Sales volume quota can be derived from

territorial sales potentials
total market estimates
past sales experience
executive judgment
Compensation plan
Sales person can also be allowed to set their
own quotas

23
 BUDGET QUOTAS
Set for various units in the sales organization to control expenses, gross
margin or net profit
Purpose: Planning, Coordinating and Controlling

Expense Quotas

Budget Quotas
Gross margin or
Net profit Quotas
 Budget Quota

(+)Financial incentive to control

Expense expense
(-) Sales expense not directly
Quota related to sales volume

(+) Product line has both high

Gross Margin margin and low margin products
(-) Salesman has no control on
or Profit manufacturing costs
Quota (-) Some expense out of control
AN APPLICATION OF BUDGET
QUOTA
 BARISTA
Coffee chain ranked among the top 50
phenomena that changed India
Gross Margin Quota used
Targets are set taking into consideration
competitors margins
Item Margin(%)
Beverages 70
Food 65
Merchandise 50
 BARISTA
Net Income is based on:-
Operating cost of each outlet
Margins from each outlet
Projections for sales
Inflation
Number of outlets

Hierarchy followed:-

Expresso Bar Minus- Espresso Bars, Simple Coffee Houses

Expresso Bar Plus- Coffee along with sandwiches and snacks
Corporate- Espresso Bar, in collaboration with corporates
Crme- This includes Lounge, and caters to premium segment
 EXAMPLE: BARISTA, SAKET

Location- High Income Group

Target Population- Youth aged between 19-35 years
Average Ticket Size(ATS)- Rs.170 to Rs.190
Total Sales Revenue = ATS * No. of Tickets
Each Ticket is contributed by 2.5 people on an average
Total Footfall = 2.5 * No. of Tickets
DSR records these entries
Outlets promoted to next higher level based on their
performance
 ACTIVITY QUOTAS
For controlling how the sales personnel allocate their
time and efforts among different activities
Set when salespeople perform both selling and non-
selling activities
Management may select this type of quota from the
following activities-
Daily calls
New customers called on
Orders from new customers
Product demonstrations made
Displays built
Relationships with customers maintained
Particularly valuable for missionary sales people
 Activity Quota
Uses Disadvantages

for total sales call Inspiring sales force

calls on prospects Quantity, not quality of
number of new work rewarded
accounts
missionary calls
product
demonstrations
placement or erection
of displays
making of collections
 COMBINATION QUOTAS
Companies may combine two or more quota types
Used when companies want to control sales force
performance on key selling and non-selling activities
Disadvantages:
Difficulty in understanding the quotas
Wrongly place more emphasis on one component activity
alone
Solutions:
Continual Supervision
Point system quotas
Combination, Point System Quota
Salesperson: T Synder (1) (2) (3) (4) (5)
Quota Actual Percent Weight Quota x
Quota Weight
Sales volume $75,000 $67,500 90 3 270

New accounts obtained 20 15 75 2 150

Call on prospects 50 50 100 1 100

Displays erected 150 135 90 1 90

7 610

610/7 =87.145 (Snyders point score)

Salesperson: J. Thompson (1) (2) (3) (4) (5)

Quota Actual Percent Weight Quota x
Quota Weight

Sales volume $90,000 $63,000 70 3 210

New accounts obtained 30 27 90 2 180

Call on prospects 90 100 111 1 111

Displays erected 200 190 95 1 95

7 596

596/7 =85.143 (Thompsons point score)

Problems
Sales personnel may have difficulties in
understanding them and in appraising their own
achievements.
Design imperfections may cause sales personnel
to place too much emphasis on one component
activity
Hence continual supervision of sales force is
essential.
 Full line quota
Salesperson: OReilly (1) (2) (3) (4) (5)
Quota Actual Percent Weight Quota x
Quota Weight

A $20,000 $20,000 100 1 100

B 20,000 20,000 100 1 100

C 10,000 4,000 40 2 80

Total $50,000 $44,000 4 280

280/4 =70.0 ( OReillys point score)

Salesperson: Debbie (1) (2) (3) (4) (5)

Johnson Quota Actual Percent Weight Quota x
Quota Weight

A $20,000 $16,000 80 1 80

B 20,000 18,000 90 1 90

C 10,000 10,000 100 2 200

Total $50,000 $44,000 4 370

370/4 =92.5 ( Johnsons point score)

 AN APPLICATION OF
COMBINATION QUOTA
 SUPERTECH
Real estate giant
Combination sales quota used
Sale through channel partners
Targets based on capacity; commission rates
based on value
Daily reporting
Combination and other Point System
Quotas
Sales Person A

Activity Quota Actual Percent Quota Weight Quota * Weight

Sales Volume 75000 67500 90 3 270

New accounts obtained 20 15 75 2 150

Calls on prospects 50 50 100 1 100

Displays erected 150 135 90 1 90

7 610

Sales Person A's score 610/7 87.14286

38
 Point System (Contd..)
Sales Person B

Activity Quota Actual Percent Quota Weight Quota * Weight

Sales Volume 90000 65000 70 3 210

New accounts obtained 30 27 90 2 180

Calls on prospects 90 100 111 1 111

Displays erected 200 190 95 1 95

7 596

Sales Person B's score 596/7 85.14286

39
Administering the Quota System
Accurate, fair and attainable Quotas.
Securing and maintaining sales personnels
acceptance of Quotas.
Participation by sales personnel in quota
setting.
Keeping sales personnel informed.
Need for continuous managerial control.

40
Quota Calculation Methods
Last year's territory sales numbers

Cost of the salesperson times a multiplier

General & Administrative Cost plus a gross margin

Total of the sales department's goals divided by the number of

salespeople

Salesperson's success the previous year

Quota Calculation Methods (contd.)

An imaginary compensation number that was sold to the

salesperson as their income potential if he/she hit 100% quota

Aligning sales quota with annual growth rate of the year (up
12%, quotas are up 12%)

Managers or Executives experience in other companies

A percentage of what the top salesperson did in their territory

Steps to Calculate Sales Quota
Analyze firm's current sales model metrics, corporate revenue objectives and growth
goals

Research and review the current market's size and growth potential nationally to
understand the industry's market demand

Investigate and analyze the market potential of the product or service in each
salesperson's territory

Integrate the data into an operating model where calculations of each salesperson's
sales quota as well as a cumulative sales quota for the whole sales team is done
Sales quota: Implications
Quotas serve two main function-
Motivation : attainable goals
Direction : Link failure with consequences
Average performer achieves 70-80 % of quota,
strong performer 100 %
Failure to achieve quota: informal reprimand,
manager helps out
Termination will not result unless 50 percent or
less of quota is attained
Sales Quota at GE Money
Structure :
NSM ( PL & Mortgages )

ZSM

RSM

ASM

Sales Team
Types of Leads Generated :

Through Customer Care Center

Through Internet

Directly by the sales team

Parameters for the Sales Quota :

Geographical Previous trends

Experience Projected Figures

Periodic Every 3-4 months

revision Quotas revised

Past records Efficiency of sales team

of Sales Team Performance reviewed
Sales Quotas at Reliance Life Insurance

Volume Sales Quota

Type of Sales Quota
Profit Sales Quota

National & Zonal Sales

Quota deciding authority Managers

Personnel Past
Performance, Experience
Basis for dividing Quota Territories Market &
Regional Factors

Performance Evaluation Ratings

Through Sales Quota Performance Slabs
Sales Quotas at Kotak Life Insurance
Volume Sales Quota
Type of Sales Quota Method

Quota deciding National, Executive & Zonal

authority Sales Managers

Personnel Sales Hierarchy

Basis for dividing Quota Territories Local Factors

Performance Evaluation Ratings

Through Sales Quota Expense to Profit ratio
Sales Quotas at Sahara Amby Valley
Combination Sales
Type of Sales Quota Activity & Expense
Quota

Quota deciding
Executive Sales Manager
authority

Agents Commission &

Basis for dividing Quota Performance

Performance Evaluation Profit Expense Ratio

Through Sales Quota Conversion Rate
Sales Quotas at Godrej
Combination Quota
Type of Sales Quota Emphasis on revenue

Quota deciding Area Sales Manager

authority

Market Consumption and

Basis for dividing Quota potential

% of quota completed
Performance Evaluation Timely delivery
Through Sales Quota Sales activity
Sales Quotas at Havells
Type of Sales Quota
Combination Quota
Volume and Profit Quota
Profit is adjusted by large product
line

Quota deciding Area Sales Manager

authority
Territory wise
Basis for dividing Quota Quota is divided equally among
sales person

Performance Evaluation % of quota completed

Through Sales Quota
Sales Quotas at Cipla
Combination Quota
Type of Sales Quota Volume and Profit Quota
Profit is key driver

Quota deciding Area Sales Manager

authority
Market Potential
Basis for dividing Quota Quota is divided on the basis
of experience

Performance Evaluation
% of quota completed
Through Sales Quota
Sales Quotas at Lupin
Combination Quota
Type of Sales Quota Volume and Profit Quota
Profit is key driver

Quota deciding Area Sales Manager

authority
Market Potential
Quota is divided on the basis of
Basis for dividing Quota experience
Region prone to particular disease is
considered

Performance Evaluation % of quota

Through Sales Quota completed
Sales Quotas at JSW Steel
Variants in product line is low
Type of Sales Quota Sales Volume Quota method is
used

Quota deciding Sales Head

authority
Project Potential
Quota is divided on the basis of
Basis for dividing Quota organizations served by the
company

Performance Evaluation % of quota completed

Number of companies
Through Sales Quota covered
Sales Quotas at MEC TUBES Pvt Ltd

Type of Sales Quota Sales Volume Quota

Quota deciding
Top Management
authority

Equally between
Basis for dividing Quota Sales Personnel

Performance Evaluation Profit Margin per

Through Sales Quota order
Thank You