This blog is the third in a series of sales planning fundamentals written by Xactly Chief Sales Officer Marc Gemassmer. Read part 1 on sales planning fundamentals, part 2 on ramp time and attrition, and part 4 on territory mapping.
Stop Playing Quota Planning Roulette
With Thanksgiving over, we’re in a countdown to the end of the year. If you’re in sales, this also means that you’re probably in the midst of planning season. Leaders are scrambling to put together plans for the new fiscal year—looking back at what worked or didn’t work over the last year—in order to form a blueprint for the next. Part of this includes quota planning.
In part one of my sales planning blog series, I discussed the importance of adopting the right approach for this process. In today’s day and age, sales planning must be data-driven, automated, and collaborative. My second blog looked at the need to evaluate rep ramp time and attrition to ensure accurate resource planning.
In today’s post, I’ll address what is arguably the most emotionally charged sales planning function—quota planning. Quota allocation elicits strong feelings for reps, managers, and executive leadership.
The Price of Poor Quota Planning
For reps, their very livelihood is tied to achievable and fair quotas. Inaccurate quota planning means less money in their pocket. Moreover, if reps don’t have the potential to hit quotas, managers set themselves up for failure—unable to meet their own goals. For the business, both mean missed revenue targets.
In my career as a sales leader, I’ve frequently witnessed the pain of poor quota setting—and I’m certainly not alone. Inaccurate quota allocation has significant consequences for a business.
Consider the following from Accenture Strategy1:
- A quota that is 10% too low may result in 30 points of extra payouts.
- A quota that is 10% too high might translate into no incentive pay at all.
Despite this, according to Accenture, in today’s environment, quotas continue to be “based on a toxic fusion of past performance, feelings, and guesswork.”
Determining Quota Based on Data, Not Desire
Too often, companies often simply allocate quotas based on the numbers they want to hit. They rarely take the time or apply the data to determine if those quotas are realistic or not.
Quotas inform or control nearly 25 percent of an organization’s total sales-related spending. 1 Why would an organization gamble on how that money is spent?
To adopt a data-driven approach to quota planning, organizations need timely visibility into sales team performance at a granular level. Leaders should have insight into the variability of a sales team’s performance and understand:
- Are there regions where quota attainment lags versus other regions?
- Do certain types of sales reps consistently lag behind others for quota? And by how much?
- Are reps selling particular products more prone to hitting or not hitting quota compared to others
Having detailed and historical insight into quota attainment patterns is vital to establish reasonable quota allocation.
Using advanced planning software, such as Xactly Sales Planning, organizations can apply historical performance and product data to simplify quota allocation. Leaders can quickly see whether their assumptions on quota sizing and expected achievement are in line with historical data. With a fully automated system, they can make adjustments faster.
Balancing Territories to Ensure Fair Quota Allocation
In addition to evaluating past performance, effective quota planning depends upon appropriate territory design. It’s difficult to set achievable quotas if you’re relying on imbalanced territories. Poorly planned territories can also result in a number of different sales performance issues, in addition to misallocated quotas.
Organizations must ensure that territories are balanced between rep workload capacity and sales potential before setting quotas. When you have imbalanced territories in relation to quota, it drives attrition and lowers morale.
Monitoring Your Quota Assumptions
As stated earlier, we’re in what’s traditionally been called sales planning “season.” However, the new reality is that you can no longer afford to relegate sales planning to a particular time of year.
Companies need the ability to continuously monitor their assumptions on quota sizing and achievement. You need to see how reps are performing against quota.
If you finish the first two months of Q1, and 90 percent of your reps are performing 50 percent below average compared with the previous year’s performance, you need to figure out why. If you made an error with quota allocation, you need to fix it—or you will face a massive exodus of sales talent.
Driving a Strategic Dialogue
With an automated and intelligent sales planning tool, you facilitate a data-driven versus an emotional discussion versus about quota allocation. With a tool, you can show how you set the quotas, so that all parties have a solid understanding about the reasoning behind them.
For example, if you’re increasing quotas from 1 million to 1.5 million, you can show why you made that change. This ability changes the conversation from an emotional, knee-jerk response of “I don’t think that’s fair” to a data-driven discussion regarding the information.
Data gives you the narrative on why your quota allocation makes sense.
Increasing Productivity and Morale
If reps don’t perceive quotas as being fair, their trust goes down. This, in turn, impacts your compensation plan’s ability to incent desired behavior. With realistic quota targets and attainable incentive compensation goals, you empower reps, increasing productivity and morale.
When quotas are incorrect, you suffer, your team suffers, and performance suffers. Poor quota setting puts you on a path to unhappy reps, missed numbers, and attrition.
With so much at stake, it’s time to stop playing quota roulette. We need a new model for quota allocation—one that is data-driven, automated, and not limited to a once a year planning cycle.