There are a lot of posts, some of them very thoughtful, about whether “Quota” is a reasonable measure of sales performance.
I have to admit, I’m torn by this issue, but tend to think Quota is an important measure–though not the only measure.
If you’d allow me to think out loud.
- Everyone in an organization is accountable for producing “outcomes” they are responsible for producing. The CEO is held accountable for revenue, profit, growth, and other outcome issues. Product development is held accountable for new product development goals/launches/performance. Manufacturing is held accountable for output, quality, and other measure. Marketing is held accountable for……. OK, I won’t get into that. For sales, it’s not unreasonable to think that sales people/managers should be held accountable and measured on outcomes–which generally take the form of orders, revenues, growth. That becomes a goal, which is sometimes called a “quota.”
- Perhaps repeating myself, everyone in an organization is accountable for producing results–not just doing activities. If organizations are to achieve their purpose and goals, each person in the organization must have goals that contribute to those results and their progress in achieving the goals must be measured. Sales people/managers are no exception, order/revenue/growth goals and attainment against them are important.
- Clearly, as a performance management tool, these goals have challenges. Since they are outcome measures, they are historical–we only know our performance after the fact. It’s critical to have measures that help us understand that we are on track to achieve those goals. Identifying and tracking some of these critical leading activities help us assess whether we are on track to meet our goals. Things like pipeline metrics (quality, volume, velocity) have been very powerful as leading metrics that help us understand whether we are on track to achieve our goals (quota).
- But for these leading metrics to be meaningful, it’s important that we understand the specific cause/effect relationships between the goal (Quota) and the leading activities that enable us to achieve that goal. Here’s where the process of establishing these leading metrics go off the rails. To often we don’t understand these linkages, too often, we don’t recognize these are different for each sales person. As a result, we establish leading metrics and goals that are arbitrary and not connected to the outcomes we are trying to achieve. Some examples:
- Let’s say we have 2 sales people, each with $1M quotas. One has average deal sizes of $100K and win rates of 50%. For that person, a healthy pipeline is 20 deals valued roughly at $2M. The other has average deal sizes of $50K and win rates of 25%, or 2 times coverage. For that person, a healthy pipeline is 80 deals valued roughly at $4M or 4 times coverage. Yet too often, management establishes an arbitrary pipeline metric, for example 3 times coverage. In this example, the second sales person meeting this 3 times coverage metric will not achieve their goal. In fact, is likely to achieve only 75%. You might think, the top performer will offset that. But what happens is that forcing that person to get a 3 times coverage pipeline, defocuses the person on the opportunities they need to win. She spends time hitting this arbitrary metrics, reducing focus on those deals they should win. The other fallacy is that if the organization is more balanced to the lower performer than the higher performer, the 3 times metric sets things up for under performance.
- Another popular metric, is an arbitrary “calls” metric. “You have to make 25 calls per day…..” There are a number of issues with this–is that the right number, is it the right number for each person? Do we understand the cause/effect relationship and how they relate to our ability to achieve our goals (quota)? Too often, managers leveraging this arbitrary goal, upon seeing the team isn’t achieving the goal, sets another, equally arbitrary, but higher number. At the same time, they have no call quality metric. Are the calls to the right people, with value based/high impact discussions. I once saw a sales person that met every call volume metric set. When you looked at his calls, 25% were to his friends planning what they would do on the weekend, 50% of the calls were to people far outside the company’s ICP—yet he was always meeting his call activity goal. The manager could never explain why this person met every call activity goal, but was never meeting his revenue quota.
- For these leading/activity metrics to be effective, managers must dig in and understand the cause/effect relationships that drive sales performance for each of their sales people. Too few managers do this, they don’t take the time, they don’t understand the strengths and weaknesses of each sales person, they don’t understand the critical drivers for sales performance of each of these people.
- There is an argument that quota is not a great measure. Recently, I commented on stunning research results from CSO Insights. To get the details, click here: Thinking About Sales Performance. But roughly speaking, 94% of organizations are meeting their plans, yet only 54% of sales people are achieving their quotas. Looking at this data, one might come to the conclusion that quota attainment is meaningless when compared to plan attainment. Many would say, quota attainment is meaningless in looking at overall performance. I, actually, come to a different conclusion, I think this data represent gross sales management malpractice. Please read the article to understand my argument on this.
- Perhaps the problem with “quota” as a key metric, is that we are measuring the wrong things when we assign quotas. Or in fact, what we think of as “quota,” is misunderstood. Too often, quota is is established simply by looking at order, revenue, growth goals. But sales is responsible for executing the corporate business strategy. Corporate business strategies are never just focused on on revenue. There are market, product line, customer satisfaction, retention, new customer acquisition, quality and other goals important to the corporation in achieving it’s goals. Since the corporate goals are not simply order, revenue, growth goals, establishing key sales goals that look only at those items is not appropriate. Perhaps, it is important to establish goals, consequently measure progress (which is what quota is) against a number of those key goals. For example, goals around product line mix, around new customer acquisition, customer satisfaction more appropriately align our expectations of sales performance with the goals of the corporation.
- Related to the previous point, we automatically think of the word “quota” as a surrogate for revenue attainment. The concept of quota is simply the measurement of our progress in achieving a goal. In organizations, we have all sorts of “quotas,” some good, some bad. For example, a goal of what % of new hires should be college hires, what % of orders are shipped on time, what % of bills are paid within a specified time. The concept of quota is simply about establishing a goal and measuring our progress against that goal. As we start to think about whether having quotas as a measure of sales performance is meaningful, we begin to see it’s a meaningless question. We have to have goals, we have to measure our progress against those goals. As a result, quotas are meaningful and important. An issue is, are we measuring the right things and setting appropriate goals for what we are measuring?
- There is a separate issues about how we establish goals, which drive our “quotas.” Very often, goals are arbitrary and unreasonable. Whether they are revenue goals or activity goals like call volumes. are not established in ways that make sense or can be connected to the corporate goals. For example, using the previous data, if roughly 94% of organizations are meeting their goals, yet only 54% of sales people are achieving their “quotas” or personal goals–there is a huge disconnect between organizational goals and individual goals. This disconnect should cause us to think not about the value of quotas, but about the rationale we use in establishing performance goals and quotas. This disconnect does not make sense and is demoralizing to sales people. For example, how can a top managers be “meeting” their goals, yet so few of their people are achieving their goals? Of course some overassignment is necessary, but this level of disconnect is unexplainable and irresponsible.
- Too often, when we speak about quota, what we are really talking about is compensation. These are separate issues. The establishment of goals, measuring our attainment against those goals, and how we pay compensate our people are different issues.
- As individuals and managers, we are responsible for maximizing individual and organizational performance. To do this, we have to establish meaningful goals and we have to measure our performance against those goals. We use those metrics to identify opportunities to improve.
As I walk through these thoughts, the issue of “is quota meaningful,” is really misleading. Our goal is to maximize performance. We need to establish goals by which we measure our attainment. We need to make sure we are measuring the most meaningful/impactful way possible. We need to make sure the goals we have established are reasonable. Then we must hold ourselves and our teams accountable for achieving those goals.
As a result, quota is meaningful–but quota isn’t just about orders, revenue, growth.