We are living in an era of constant change. The speed of change is simply astonishing. Though all of us are aware of this and the impact it has on businesses (more significant for the small businesses), not many have changed the way we conduct the business and subsequently, the way we define and set sales targets for our sales force.
The most common way to define this is still to decide an annual quota for each sales person (probably an increase by a certain % on his previous years sales figures) and incentivize him/her if they over achieve on this quota. This worked in the past, when there was a lot more stability in the environment and pace of change was slow.
There are two possible outcomes at the end of the year.
Sales targets are met or over-achieved:
We all are aware of the tendency of sales teams to bring in only so much business so as to meet or slightly exceed their sales quotas. They tend to defer the additional sales to the next quarter or year as they know that their quotas will become even higher the next year if they over-achieve significantly. So, unless the sales person knows that he will not get the additional sales quota next year, the chances of him significantly over-achieving are very slim.
Sales targets are not achieved:
If the sales team is not able to achieve their quotas either due to a change in the environment or over-expectation from the organization, their morale goes down. There is hardly a downward revision of the sales quotas for any sales team in any sales organization. So, the business might suffer further loss of sales due to low motivation levels in the sales team and hence accelerating the business’s downward spiral.
In all eventualities, the ability of the business to adjust to the changes in the business environment is greatly hampered. And in a world where the pace of change is very fast, this could even question the very survival of small businesses.
How do you set sales quotas?
The answer to this question lies on the typical sales cycle and how long does it take to close a sale from the time we receive the lead. I think that the best duration would be twice the time it takes to close a sale. So, if the typical sales cycle for your organization is about 2 months, the best way to assess and re-define the sales quotas and change the rewards accordingly would work the best.
This gives a business the time to adjust to any change in the environment. Also, the smaller this duration, the more sales the team will close.
By simply changing this one parameter, businesses can see significant increases in their overall sales.