When do growing companies usually create sales quotas?

By Zeeva Viola | July 20, 2017

Question:

Does it usually revolve around a level of revenue, number of salespeople, number of total employees, or something else entirely? Is there even such thing as a point where companies usually implement sales quotas? If there was one thing that usually marks the point at which quotas are implemented, what would it be?

Answer:

As soon as possible, with the understanding by both sides that the quotas may change over a reasonable period of time (say every 6-12 months). If you make changes too frequently, you’ll demotivate your reps. Calculate as best you can how much time was devoted to sales, examine conversion rates, total number of calls, and sales cycle length when the founder/CEO (you I’m assuming…) led the sales efforts to determine the initial quota levels.

Begin your quotas with the first salesperson so that you can test your quotas and have a documented method for evaluating sales performance in case you decided to make a change. It’s a huge decision to hire the first full-time sale rep because you only have one sample of how sales are progressing.

Managing Quotas:

Be clear and transparent with feedback. If your rep isn’t hitting their quota and there’s not a clear path to achieve it, cut bait and find someone else. Don’t justify the cost center with mind tricks like – “Well at least I’m getting market outreach” or “I can always call those people back” or “He’s filling our CRM with contacts that we can email later in a marketing campaign.”

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Expect your reps to do their jobs, but don’t assume it. Set up a monitoring system as well (“trust then verify”). Early in the process, consider setting monthly/quarterly objectives around the total number of accounts and total revenue run rate then let the rep determine the best course of action to reach these objectives. Run this process for a few months/quarters and then you’ll have more specific metrics on which to base a hard quota. Sit in on calls regularly. Have your reps record calls for you to review later to assess performance.

Share the company’s business model to illustrate how the quota fits into the larger growth plans of the company and where shortfalls equate to slower engineering hiring, and thus slower product development. This hits home for every sales rep because they’ll consistently hear from the market – “Can you add this or that feature? If you do, I’ll buy it.”

Consider adding a “discretionary” quarterly bonus for cases where you want to reward a sales person’s work but because of product development delays or technical issues implementing the sale, they weren’t able to achieve their quotas. Heed caution but definitely worth considering in the early part of your work together.

Be sure that you can handle the upside payout in the event that the rep blows out their goal AND protection against consequences of cancellations.

Remember: Whatever incentive program you develop is what you shall get.

Example: Selling $500/month enterprise software where the commission structure pays the first month’s revenue to the rep then 5% for the next 11 months of the subscription, your rep has a heavy incentive to close new customers but not necessarily retain them.

Here are a few outside resources:

Harvard Business Review: http://blogs.hbr.org/cs/2012/07/…

Harvard Business Review: http://hbr.org/2006/09/the-new-s…

Mark Suster: http://www.bothsidesofthetable.c…

**This Q&A article was originally posted on Quora. Check out Scott’s Quora page here.