What Is a Sales Quota? Types, Examples & How To Set Goals

We’ve all been there: It’s Q4 crunch time. Your numbers are slipping. Quotas seem out of reach, and your team starts breaking into a cold sweat. Will they hit their numbers? Will the company hit its targets?

This is not how you want your team to feel. But it’s where a lot of sellers are. According to the latest State of Sales report, only 28% of reps are expected to hit their quotas in 2022. Demoralizing.

What is a sales quota?
A sales quota is a measurable goal sellers are expected to hit in a specific time period. It can be based on any number of metrics, but usually center on total sales generated, number of deals closed or won, sales activities completed, or a combination of these metrics. Sales managers typically set quotas that, if attained, allow the company to hit sales targets set by leadership.

Why are sales quotas important?
For the sales rep, quotas provide accountability. They are concrete goals they can aim for with deadlines to keep them on track. Without these benchmarks to guide them, they have no sense of how much to sell or how they are performing. They get complacent — even lazy. Harvard Business Review found that reps without quotas often flounder, while companies with achievable quotas, complemented by bonuses, are effective at motivating low-performing reps and keeping high-performing reps hitting their numbers.

Equally as important, quotas are a way to align sales efforts with broader business objectives. They ensure reps’ combined sales will hit targets set by the executive leadership team.

5 types of sales quotas
While sales quotas are ultimately designed to help your company hit your sales targets, the type of quota you choose for your team depends on your product or service and business needs. The five most common are activity quotas, profit quotas, forecast quotas, volume quotas, and combination quotas.

Here’s a closer look at each one:

1. Activity quota
These quotas are based on the number of lead nurturing actions your reps take to move a deal from early stage awareness to evaluation and close. This includes cold calling, sending emails, or scheduling meetings. Activity quotas are often assigned when a company needs to focus on prospecting to build market share with a new product or service.

Activity quota example: Let’s say a software company launches a new AI product and wants to sell it to new clients that fit their buyer persona. Since it’s a new product, they need to build awareness and interest. To accomplish this goal, sales managers set activity quotas to help their team generate new leads – 25 calls, 40 outreach emails, and 2 meetings booked with prospects per day.

2. Profit quota
A profit quota requires reps to achieve a certain amount of profit (sales revenue after subtracting selling expenses) by sale or by quarter. This type of quota aims for consistent revenue generation rather than trying to offset cost by selling a higher volume of products.

Profit quota example: Back to the software company. Let’s say the sales manager sets a profit quota of $5,000 on each sale. Max, a sales rep, strikes a product deal worth $8,000 with a customer. His selling expenses, including airfare to meet with the client and materials needed to help nurture the sale, total $2,000. The profit on this sale is $6,000, so Max beats his profit quota.

3. Forecast quota
To create a forecast quota, managers review sales numbers from previous years or quarters and look at market conditions, like supply chain issues, that could impact future sales. Then, they develop a projection for company sales in the coming year or quarter and use that to inform their quotas. Forecast quotas are often used when companies have performed consistently over time and sales-influencing factors like market conditions are stable; without changing variables, managers can accurately predict how much they will sell.

Forecast quota example: A retailer has enjoyed favorable market conditions at the end of every year for at least a decade. Last year, they landed a new sales record of $1.5 million. There were 100 sales agents onsite at the retailer’s locations in Q4, averaging $15,000 in sales each. This coming year, the company will onboard 30 more reps. With market conditions predicted to remain favorable, the company forecasts roughly $2 million in sales over the next year. Taking into account the newly hired reps, the quota for the next Q4 will be set at $15,400 per seller to meet the $2 million forecast.

4. Volume quota
A volume quota is based on the total number of units a rep sells. This type of quota is useful for motivating teams to sell more of a certain product, which is useful with new product or service launches. Volume quotas can also help move excess inventory.

Volume quota example: Next quarter, a car dealership wants to get rid of 45 old model vehicles to make room on the lot for newer ones. To make sure the cars are off the lot in time, they set a quota for their rep to sell 15 older-model cars each month (15 cars x three months in a quarter = 45 cars).

5. Combination quota
As the name implies, a combination quota combines different types of sales quotas. Companies will set this type of quota when they want to meet more than one objective, such as increasing market share for a specific product while keeping profits high.

Combination quota example: A shipping company is seeing low customer satisfaction rates and wants to boost their profit. By digging into their data, they discover that new customers are unhappy with the lack of communication from their sales reps. So, the leadership team sets a combination quota: each rep has a profit quota of $25,000 paired with an activity quota to call 10 customers each week.

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