Sales Quotas

Sales Quotas: Defined

The concept of sales quotas was propunded by Edwin Lockein his goal setting theory.it states that when goals are set for individuals,it motivates them to make an extra effort to achieve them,changing their attitude & behaviour Sales Quotas are sales goals assigned to sales people. Part of daily duties for sales manager & sales people After preparing sales forecast, company decides its sales budget which is then broken down to sales quotas for regions & sales territories.

Objectives of Sales Quotas:

Provide Performance Standards: Used as a tool to

measure the performance of a sales person. Making comparatives of actual performance against performance standards on quarterly and monthly basis.

Motivating People: Sales force compensation (Bonus/

Incentives) are generally measured against achievement of sales quotas. To keep the motivation of sales people alive the setting of targets should neither be too high nor too low. Special R&R could be set to motivate sales force e.g. trip to Australia, LCD etc.

Identifying Strengths/ Weaknesses: When actual

sales performance is compared with respective quotas of different territories & salesperson, Sales managers can easily identify successful and unsuccessful performers. Poor performance may reveal that training programme needs improvement, quality of product needs to be improved and repositioning of brand if required.

Controlling Performance:

Eg if quota of 8 calls per day is set,sales person knows that he has to make those calls.sales manager is indirectly controlling his activity Check wasteful expenditure-expense quota is made Reimbursement of selling expense

Sales Quota-Types

Sales Volume:
Cos set sales volume quota for individual salespersons,distributors,for a specific period Better to set quota for branches with in the region than for entire region Cos set sales vol.quota on -Rs/Dollar sales vol eg 20 lakh per month

-unit sales vol. eg 40 lakh units in 1 quater -point sales vol.

Financial Quotas:

These are goals set to control gross margin or net profit and expenses of various sales units like sales territories, salespeople & products.

Gross margin or Net Profit Quota Here the quota is decided by subtracting cost of goods sold from sales volume Eg Sales vol 20 lakh Cost of goods 15 lakh Gross margin 5 lakh Assuming for achieving 20 lakh sales 2 lakh was selling exp. Net profit 3 lakh

Expense Quotas :

These are used so that selling expenses are kept in line with sales volume, so generally they are stated in % of sales Eg sales vol is expected to be 20 lakh,expenses are fixed at 10% of SV ie 2 lakh rs

Activity Quota:

These type of quotas are set by the companies when they want to control salesforce performance both on key selling & non selling activities like building customer relationshios,after sales service,displaying cos product in shops..

Basis for Setting Sales Quotas

Territory Potential Past Sales Experience Total market Estimates Executive judgment Salespeoples estimates Compensation Plan

Territory Potential:

In this mkt potential/industry sales forecast for a product line for a geographical area is determined Then market factor index is determined for each sales territory Then expected industry sales in each territory(territory mkt potential)= industry sales forecast *multiple factor index Then cos expected mkt share is that territory is found out. Mkt potential/industry sales forecast for skin care products is 13.5 million in India Multiple factor index using population & buying power is 1.5 in Mumbai Expected industry sales 20.25 million(13.5*1.5) in mumbai Co, mkt share is 20%.co,s expected mkt share would be 20.25*20%=4.05 million

example

Used by large organisations for setting sales Quotas

Market factor index

For a co.,the estimation of market potential for a geographical location is done not by identififying households or individuals,bcz they are large in no.,but by identifying the factors that influnce the sales of that product or service. generally there are more than 1 sales factor like population and income..these factors are given weights corresponding to the degree of sales opportunity Example: HUL is marketing and manufacturing detergents all over india.they want to estimate the Mkt potential of detergents in mumbai

Potential of detergents in Mumbai. Major factor that influnced the sale of detergents were population,personal income & retail sales.weightage were gived as 0.4,0.3 &0.3 resp. Suppose Mumbai had .7% of indias population,1% of disposable income & .9% of indias retail sales Based upon this the Mumbais multiple factor index would be (0.4*0.7)+(0.03*1)+(0.3*0.9)=0.85 Indias detergent industry forecast is Rs 55000 million for 2010-11,then the expected mkt potential for Mumbai would be .85*55000=467 million for 2010-11

Executive judgement:

Cos use this method when Co. is new Product is new Territory is new

in such a situation senior managers use their judgements based upon their past experiences to perdict the sales quotas.

Sales people estimate:

Co s ask their sales persons to set sales quotas,this method is rarely used,as they can understimate/overestimate the quota

Past sales experience

Some cos take past yrs sales for each geographical sales territory,add a % and deciede the sales vol.quota Or they take the avg of pervious 3 or 5 yrs sales of each territory add a % by which mkt is expected to grow.

Disadvantage

Considering future is based upon past If past sales are achieved by poor mkt coverage,the forecast would be incorrect.so co,s should consider as one of the factor and not the only factor

Total mkt estimates:

Some cos set quotas for sales territories based upon total mkt estimates/mkt potential/industry sales forecast Then cos expected mkt share is found out from total mkt estimate Then each territory %age share of total cos share for previous yr is found out. Territory past yrs sales were 7% of total cos sales(43 million) This yrs territory sales quota would be 3.1 million(43*7%)

Example:

Compensation plan:

Cos often set sales quotas to fit their compensation plans Last yrs sales were 12 million,sales quota for this yr is 12 million & salesperson is paid an incentive of a fixed % of sales achieved over quota of 12 million Another method is co pays monthly salary of Rs.5k plus a commission of 3% on all monthly sales above 1 lakh.

Example

Importance of Sales Quotas

Provide Performance Targets:

They help sales manager to direct the activities of sales personnel Assigning challenging goals sales managers prompt sales people to work harder n perform better Each yr the targets should be revised so that sales people could device new ways to achieve them Moreover they should not be unrealistic.

Provide Standards:

Tool against which the actual performance can be measured

Provide Control:

Failure to achieve the quotas set for sales personnel provides the sales manager an easy index to spot the deviation in performance. Appropriate remedial steps can be taken

Tool for Motivating:

Help sales persons to compete among themselves leading to improved performance and sales volume.

Characteristics of a Good Sales Quota

Fair:

Sales manager should take into account factors like competiotion,eco.environment,territory potential while setting sales quota. There should be uniformity in setting quota

Challenging:

To motivate the sales force to perform better They should not set the quota that are not in the reach

Flexible:

Modified when required,without causing drastic changes in sales budgets o sales forecasts

Easily understandable:

Quotas should be easily understandable and interpretable Quotas should be set after mutual discussion with sales force.