sales quotas types, methods etc Advertising students B Com Hon Final yr

Sales Quota

Any kind of sales figures given to any particular person or region or distributor is called Sales Quota. It can be measured either in terms money or the stock of goods sold. It is particularly an amount of target sales that is assessed on daily or monthly basis. To assess the performance of an individual sales person, his/her ability is looked to meet the given target.

Types of Sales Quotas:

This can include many things from cold calling, Marketing emails, advertisements, invitation to executives for events and many more things. It’s always in the interest of the sales team as to how they should get the stuff out.

1. Sales volume quota: This always includes sales in monetary terms or units sold for a specific period of time. This type of sales quotas is always set for a given year. The sales teams are then assigned their yearly quotas to be accomplished. These quotas are set in the areas mentioned below:

(i). Product line

(ii). Product range

(iii). Branch offices

(iv). Individual sales person

2. Profit quotas: This type of quotas is very useful for FMCG companies as various products add to varying levels of profits. The advantage of this type of sales quota is that the sales person can use his time optimally. Hence he/she can strike a balance between high and low profit yielding products.

3. Expense Quotas: These are linked to selling costs with a realistic time frame. Few companies set quotas for expenses to different sales levels achieved by the sales person. The sales team may be given an expense budget which is a percentage of a particular region’s sales volume. He/She should spend only that sum as expenses.

4. Activity Quotas: Under such quotas the sales team is required to execute other activities that will have a long term bearing on the company’s goodwill. Here certain objectives related to the job are set in attaining the performance targets of the sales force. When it comes to the Indian companies we have few common types of these quotas as mentioned below:

(i). Quantity of sales presentation made

(ii). Amount of calls made

(iii). Number of dealer visits

(iv). Recovery calls made

(v). New clients procured

The given below graph represents the percentage of sales by using cold calling methods. We can easily find out the number of attempts with percentage success. It is relevant from the picture that more the number of attempts more are your success percentage.

Now let us see the various methods to calculate Sales quotas:

• Any previous year’s regional sales numbers.
• Cost to the company administration plus gross margin.
• Revenue goals dedicated in the beginning.
• Top sales person’s percentage achieved in his region.

Most companies use a permutation of these quotas. The best combined quotas are usually Sales volume and activity quota. Such combination influences selling and non selling activities. The above methods are only time tested from year to year to achieve the sales quota as these quotas are promised to vendors, investors and banking firms. They are also influenced by external factors and expenses which are not in the hands of sales personnel. It is advised not to have too many sales quotas as the sales person may not be able to equally concentrate on them.

What is the purpose of the sales quota?

(I) to provide standards for evaluating performance: Quotas provide a way to determine which sales people, territory, other units of the sales organization, or distribution points are on average lower than average or above average work. They are measures to measure sales performance. The comparisons with quota sales performance identify weak and strong points, but management must dig deeper to discover the reasons for variations.

(Ii) To provide objective and incentives for the sales force: Quotas provide vendors, distribution points and others involved in the sale of the activities, objectives and incentives to achieve certain level of performance. Many companies use quotas to provide their salesforce incentives of increased remuneration as commissions or bonuses if the quota is exceeded and / or recognized for superior performance. Needless to say that to be true motivators, sales quotas must be seen to be realistic and achievable and in a surpassable measure.

(Iii) To monitor the activities of sellers: Quotas offer the ability to direct and control the sales activities of the sellers. Sellers are responsible for certain activities such customer calls daily, calling for new accounts, which gives a minimum number of events and realization of the enterprise. If the sellers fail to meet these quotas, the company can take corrective action to remedy the error.

(Iv) To assess the productivity of sales people: Quotas provide a stick yard to measure the overall effectiveness of sales representatives. By comparing actual results with SELLERS quotas areas of activity are determined where the sales force need help to improve productivity.

(V) To control the selling: Quotas are also designed to keep selling expenses within limits. Some companies reimburse costs to sell only to a certain sales quota percentage. Other expenses bind to the seller of remuneration to limit unnecessary expenses. spending quota helps companies define profit quotas.

(Vi) To make effective compensation plan: Quotas play an important role in the company’s sales compensation plan. Some Indian companies follow the practice that their sellers receive a commission only when they exceed their allocated quotas. Companies can also use quota attainment in whole or in part as the basis for calculating the premium. If the seller fails to minimum
desired quota, it will not be allowed for any bonus.

(Vii) To evaluate the results of sales contest: sales quotas are frequently used in conjunction with sales contests. Companies use most of the time “performance against quota” as the main base giving rewards in sales contests. sales contests are more powerful incentives if all participants feel they have a chance to win prizes based on the quota realization percentage which is more or less equally common denominator. Therefore, it causes average seller to turn into an average return above.

Methods for Setting Sales Quota

Sales quota for any unit like salesperson, region, etc., should be a reasonable and an achievable goal, for it to be fulfilled at the provided time span. At the same time, quota should not be such that it doesn’t take much effort to achieve.

The following are some of the methods for setting the sales quota −

Total Market Estimate Method

Total market estimate method is used to determine sales quota in places where the management doesn’t have any data about the market potential. It can be determined by dividing the company’s sales quota with respect to regions or dividing sales quota according to relative sales opportunity as per region.

Territory Potential Method

Territory potential method directly relates territorial sales potential to sales quota. The potential here is total industry’s sales for that segment. Sales potential represents the maximum market size of the product; size of the market reflects the sales potential. This method gives precise results if territorial sales potentials are used with a combination of territorial design.

Past Sales Experience Method

Past sales experience method determines the sales quantity based on the previous year sales. Managements of organizations set this up by increasing some percentage from the previous sales record.

For more precision in the approach, managements most commonly use an average of several years as a base line for the measurement. This method is simple and doesn’t take much effort to implement.

Executive Judgement Method

In this method, sales quota volume is determined by the management, but it is more likely to be a guess. The management decides the sales quantity and no fixed procedures are involved.

This method is not precise and it’s mostly not used by organizations to determining the sales quota. This method doesn’t provide any estimate for territorial based sales volume.

Sales People Estimate Method

In this method, the sales quota is determined by the salesperson of the organization. Through this approach, a more relevant sales estimate can be maintained, which can be achieved by the salesperson.

Salesperson have better knowledge of the market conditions, so they can set the target as per their standards, and if the standards are set by the salesperson themselves rather than imposed by the management, their fulfillment is more likely possible.

Compensation Plan Method

Compensation method is based on management’s view of what a particular salesperson should receive as revenue; this method does not take into account the sales projection or territorial volume.

For example, if a salesperson has to receive 20,000 as salary, which can be received as 10 percent commission of the sales amount, then the salesperson has to sell products worth 200,000.