How to Set Realistic Sales Quotas That Boost Revenue and Motivate Sales Reps

Cassy Aite
August 14, 2022
How to Set Realistic Sales Quotas That Boost Revenue and Motivate Sales Reps

At its core, a sales quota is a time-bound numerical target that salespeople are expected to meet. A sales professional’s capabilities are measured using it — but so are their sales manager's.

That’s why sales managers spend a lot of time setting realistic sales goals for their team, and sales professionals try every in-person and virtual selling tactic to hit their sales quotas.

And while everyone involved talks a big game and claims to be excellent at what they do, the numbers paint a different picture. Case in point: only 24.3% of salespeople actually exceeded their quota in 2021.

What’s more, setting unattainable goals can demoralize sales teams, which may drive many of them to quit their current jobs and work elsewhere.

Clearly, sales managers and sales reps have a lot of work laid out for them to get to the next level, starting with setting realistic sales quotas and knowing how to crush the set target.

This Hoppier guide will dive deeper into the nitty-gritty of sales quotas, where we’ll discuss how sales managers can help their sales reps thrive by setting realistic sales targets.

But first, what is a sales quota?

A sales quota is the fixed target set by the management that sales reps must achieve during a specified time period to earn a target performance bonus. It can be a specific revenue amount, units sold, leads added, or deals closed.

It's important to note that, although closely related, sales quotas and sales goals are not the same.

  • Sales goals are long-term company objectives sales teams achieve by executing smaller actions, including meeting sales targets.
  • Sales quarters are a series of small victories that bring the entire sales department closer to achieving their sales goals.

For the sales rep, a sales quota outlines a goal that must be achieved within the deadline. For the sales manager, it helps measure the performance of an individual rep and the sales team as a whole.

What is the importance of a sales quota?

Setting sales quotas motivates reps to develop better strategies, enabling them to perform at the level expected of them. 

Once they meet these performance targets, they grow more confident and feel motivated to perform better. If the goal isn’t accomplished, they get a reality check and focus on improving their sales strategy.

Sales quotas also help organizations incentivize closing more deals and increasing their conversion rates for specific periods. Sales managers, for one, benefit from goal-setting sales quotas as they get more insights into their team’s success rate, productivity, and current sales processes.

Here's a quick rundown of the benefits setting sales quotas can have for your business:

  • Uncover overlooked gaps or bottlenecks in the sales pipeline
  • Effectively monitor and regulate selling expenses
  • Identify top-performing sales reps and find ways to replicate their selling approach and techniques
  • Provide sales reps with effective and fair compensation plans based on their performance 
  • Create achievable benchmarks and goals to facilitate the overall company growth

Interestingly, you can set different sales quotas to serve different purposes, which we'll discuss in more detail in the next section.

The different types of sales quotas

You can set sales quotas to serve different purposes. These are often based on factors like sales activity, volume, and revenue — and sometimes even a combination of all three. 

The following are the six types of sales quotas:

Revenue quota

Revenue quota, also known as the traditional sales quota, determines the total amount of gross revenue sales reps should generate during a specified time period.

Organizations generally choose this approach when they want to grow their business or when hiring and onboarding a new rep. Even sales reps prefer revenue quotas because of their greater flexibility, which lets them decide what products to focus on to meet their quota.

Volume quota

Where revenue quotas consider the total gross revenue a sales rep must generate within a specified time period, volume quotas determine the total number of products a rep should sell to meet their quota. For example, if you set a quota of 150 products, your reps would need to sell 150 units to meet their quotas and earn an incentive.

Adopting the volume quota approach has certain disadvantages, though. 

As the objective is to sell more, your reps will focus more on selling lower-priced products that are easier to sell. This will lead to the company making less profit because lower-priced products generally have smaller profit margins.

To combat this issue, you can adopt a differentiated approach. Determine volumes for every product the reps need to sell to achieve their quotas. This will shift their focus on the entire product range as opposed to a specific product line.

Activity quota

Activity quota requires sales reps to complete a set number of activities during a certain period. 

It doesn’t measure the total sales made or revenue generated by a rep and instead considers activities that don’t directly lead to increased revenue, making it a handy tool to gauge the performance of reps who aren’t directly responsible for closing the sale.

Activity quota mainly considers sales prospecting activities, like sending follow-up emails, making phone calls, leading demos, and scheduling sales meetings. Upselling activities, where reps contact existing customers to upgrade their subscriptions or products, also fall under this category.

Profit quota

Profit quota takes into account the gross margin or gross profit generated by a rep to measure their performance.

To calculate gross margin, subtract the cost of goods sold from the overall revenue. On the other hand, the gross profit quota is calculated by adding selling expenses and the cost of goods sold and then subtracting the total amount from the total revenue.

When implementing profit quotas, you have to be completely transparent in how much profit the company makes on every product. This will enable sales reps to track their progress better and see how many sales they need to make to meet their quotas.

Forecast quota

Forecast quota uses historical data on sales territories, market share, and other product performance to set customized quotas for your sales reps. It's helpful to gain market share in a new territory or when launching a new product.

Since it relies heavily on data, the forecast quota isn't calculated for individual reps but for the entire sales department or team. You can determine the quotas for individual reps afterward. Be sure you have the required data as you won't be able to implement forecast quotas effectively. 

Combination quota

A combination quota involves combining multiple sales quota approaches — revenue, volume, activity, profit, and forecast — to achieve certain sales goals that rely on different sales quotas. The fact that sales reps also get a mix of targets to focus on makes it easier for them to meet their targets.

If you decide to implement a combination quota strategy, you must define every individual quota separately. Try to combine these quotas to create a unique quota for every sales rep. 

For example, you can merge a revenue quota and an activity quota by setting a target for your reps, where they need to generate $5,000 monthly revenue, plus give 20 product demonstrations a month.

7 steps to set a realistic sales quota

Brian Tracy, the CEO of Brian Tracey International, encourages sales managers to set sales quotas. “I’m a firm believer in setting goals in every area of life — including in sales. Without a goal, your sales team will falter and not have a clear direction of purpose.“

We concur. But the key is to set realistic sales quotas that genuinely motivate sales reps and not just unrealistic benchmarks that leave them frustrated and discouraged.

The good news is creating a sales process isn’t very complicated — all you need to know is what to do and the order to do them. 

Step 1: Identify and leverage the resources already available to you

The first step is to sort out your numbers.

Instead of doing the complicated math yourself, use a sales quota calculator (for example, HubSpot’s free calculator) to know your drop-off rates, conversion rates, and other metrics. 

This will give you a complete picture of your current sales pipeline, where you’ll have more insight into how effective your team is at moving prospects through the different sales cycle stages. Then use the numbers and a sales quota template (you’ll find several free options online) to set realistic monthly and quarterly goals. 

We highly recommend integrating a sales CRM into your workflow to get access to a wide range of tools to better manage your sales pipeline.

Step 2: Determine your baseline

In sales, your baseline refers to the minimum number of sales your reps must make for the company to stay in business. It's necessary to determine your sales team’s minimum standard of performance and serves as the foundation to build a realistic sales quota.

To create your baseline, study the revenue your sales team closed over the last 12 months. Divide the number by 12 to determine the minimum sales your team must make every month.

It’s important to ground your baseline on data when determining your baseline. Adjust the number to account for time-off, rep productivity, territories, market opportunities, and seasonal fluctuations while you're at it.

Step 3: Pick a suitable sales quota approach

As discussed, you can choose between six options to set a suitable sales quota for your sales reps.

How do you choose the right sales quota strategy? There’s no cookie-cutter approach to sales quota strategy, which is why you need to consider factors specific to your business. This includes your industry, the size of your company, and business objectives.

Think about how you track your team‘s performance. We recommend using the combination quota strategy, where you use all revenue, volume, activity, profit, and forecast sales quotas. From there, determine which one would be the best fit for you and your team.

Also, some strategies won’t work with the information you currently have. You can cross them off from your list to narrow down your options.

Step 4: Decide how to implement your sales quota

Not many sales managers know there’s a difference between the sales quota they select and its implementation. That’s where the crazy starts.

When implementing your chosen sales quota approach, you can choose between the top-down approach or the bottom-up approach. 

Under the top-down approach, the upper management of a company (CEO, VP of Sales, Founder) sets the sales quota based on the organization’s objectives. They communicate the quota to the sales manager, who then brainstorms the next steps to achieve the determined targets and assign the quotas to sales reps or sales teams.

The problem with this approach is that the upper management can be a bit overambitious. Seeing the high and seemingly unattainable numbers may demotivate sales reps rather than motivate them.

It’s why most organizations prefer using the bottom-down approach. Under this approach, the sales manager takes a hands-on approach, where they analyze each rep’s capabilities, past performance, and market opportunity. Then, based on the data, they create realistic goals for individual sales reps or sales teams. 

Since this approach also considers factors like the number of sales reps, average deal size, the number of qualified leads, and lead-to-close ratio, the quotas are likely to be more realistic as well.

Step 5: Calculate your team’s sales quota

Now that you know your company’s baseline figure, set a realistic quota representing growth. For example, if your baseline amounts to $100,000 per month, 10% growth will give you a sales quota of $110,000 per month.

Another way to calculate your sales quota is to multiply the average number of closed-won deals a month by the average contract value. While this formula requires historical data, it's handy for setting accurate quotas. 

Once that's done, adjust your sales quota keeping in mind market influences, historical trends, and seasonal variations as you did when establishing your baseline. 

Out of all the factors, predicting market influences is slightly trickier. You have to consider the shortage of supplies, dramatic market growth (or contraction), level of competition, and so on. We recommend using your forecasting data to better understand market influences.

You can also tailor your sales quotas to account for seasonal variations by setting individual goals for each quarter based on your projections.

Step 6: Set a review period

Choose a review period that makes the most sense for your business.

Depending on the length of your sales cycle, your review period can be weekly, monthly, or quarterly. The idea behind having a review period is to identify bottlenecks and issues and take corrective measures before the end of the quarter.

Having extended review periods also gives sales reps more time to make up for lost sales and meet their quotas.

Step 7: Inform sales reps

The last and final step of setting a sales quota is communication. 

Hold a sales kickoff meeting, and inform your reps about performance expectations and the specific number they must achieve within the specified time period. 

Explain the rationale behind the figure and how you’ll measure their performance. Considering incentives are a significant motivating factor behind sales rep performance, be sure to include your sales compensation plan in the discussion as well.

Remember, a sales quota will only be fruitful when everyone is on board. Encourage feedback and make adjustments when necessary. If you cannot make any changes right away, save the input for a future date after reviewing your team‘s performance. 

Help your sales reps achieve their sales quotas with Hoppier.

Hoppier makes it easier than ever to send virtual rewards and incentives, including lunch, coffee, happy hour drinks, and charity donations. Your reps can use it to send prospects gift cards or offer attractive incentives to book more meetings and engage customers

Here’s how it works — you can choose an allowance per prospect and fund it to a Hoppier virtual card. Customize the cards with your colors and logo for a branded touch while you're at it. 

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Your sales reps can then offer the card to prospects as an incentive to book a meeting. Once they confirm their attendance, the reps can send the magic link to activate the card, after which prospects can shop from millions of vendors globally.

Hoppier works in 60+ countries and has partnerships with millions of vendors around the world, including Apple, Spotify, Uber Eats, and Starbucks.

Alternatively, you can also use Hoppier to recognize your sales team's hard work. Set up an employee appreciation program that allows you to reward your sales reps for their efforts. Keep the vendor list open, so your reps can spend their allowance anywhere they like.

Sales are changing, and Hoppier can help you stay on top of your sales goals. Don’t wait any longer, talk to the Hoppier team to learn more.

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