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According to the U.S. Bureau of Labor Statistics, 14 million people, or about 10%1 of the U.S. labor force, are employed in personal selling but, how did the sales rep quota come to be? The practice of setting sales rep quotas originated unexpectedly in the bread industry during the 1930s.  

In 19392, the director of merchandising identified a progressive downward trend in bread sales. A research study was requested to understand the issue and devise a plan to improve bread sales.

The study revealed that bread sales, measured in pounds per $100 of grocery sales (excluding meats and produce), were declining as grocery sales increased. Moreover, the research indicated that self-serve stores sell less bread than service stores that handle the same grocery volume. 

In response, the company decided to close small service stores. To provide a clear and measurable goal, they introduced a merchandising plan called "The Ten Commandments of the Bread Business," which included setting sales quotas. These quotas were designed to be achievable with reasonable effort to ensure they did not penalize high-performing stores.  

They also designed the sales quota in a way to improve those with lower performance. What started in 1939 has become a standard practice in the industry, with U.S. firms now spending over $800 billion annually on personal selling. This blog will provide a comprehensive guide to implementing effective sales quotas, that emphasize their critical role in achieving business objectives. 

This blog will explore what sales rep quota is, create an understanding about the quota thoroughly so that you set forth a winning approach for your sales team. 

What is sales rep quota? 

According to Gartner, a sales quota is the performance expectation that sellers must achieve during a set period to earn their target incentive pay. Quotas are also called goals or targets and can increase seller motivation when opportunity varies by territory. 

So, in an applicable manner, a salesperson in a software company may be given a quarterly sales quota of $150,000. This means the salesperson is expected to generate $150,000 in sales within three months.  

To achieve this quota, the salesperson may focus on selling the company's software solutions to various businesses. They will track their progress regularly and adjust their strategies as needed. If they meet or exceed the quota, they may receive bonuses or other incentives as a reward. If they fall short, they may need to analyze their performance and find ways to improve for the next period. If set well, the sales quota benefits the representatives with: 

  • A clear set of goals that motivate sales representatives to achieve their targets. 
  • Measurement of the performance of individual sales representatives. 
  • Creating accountability by setting clear expectations for sales performance. 
  • Incentives and bonuses tied to quotas so that sales reps perform better. 

However, sales rep quota is very different from sales target and goals. 

Sales rep quota vs sales target vs sales goals: The differences 

Sales rep quota, goals, and targets are different aspects of selling.   

Aspect 

Sales rep quota 

Sales target 

Sales Goals 

Aim 

The quota refers to specifically well-defined revenue quotas or volumes that a representative needs to complete in a specific period.  

A sales target is a broader, overarching objective for a sales team or the entire organization. It represents the desired sales outcome for a specific timeframe. 

Sales goals are long-term aspirations that align with the overall company objectives. They provide direction and focus for the sales team and are often more qualitative. 

Set by 

Set by Managers based on past performance and potential. The set quota may be different for each rep. 

Set by Sales VPs or Leads for managers. The targets are based on the product lines or the territory. 

Are set for higher management in the sales team, for example, the Sales VPs, based on a growth trajectory and the sales forecasting methods.  

How the execution take place 

The sales representative needs to comply with fulfilling their quota within a quarter to get their commissions.  

Sales managers are responsible for the entire sales team to meet their target. So, they break the target down into dynamic sales quotas and provide additional incentives. 

The sales goals are made into smaller chunks, that are known as targets. These are split across all the sales teams. 

 

Sales quotas are very important in completing the overall sales goals. However, to ensure that these quotas are set aligned permissible limitations, and goals, one must know the different types of sales rep quotas that exist. 

Different types of sales quotas with applicable examples 

Sales quotas are essential benchmarks for measuring sales performance, and they can be categorized into several types:   

1. Volume sales quota

The quota is determined by the number of units a salesperson can sell within a specified period. Sales representatives receive their commission when they achieve the expected number of deals. The volume sales quota can also be divided for individual sales representatives based on territories and different products. 

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Example: A car salesperson must sell at least fifteen cars this quarter. His commission per car sold is 8%, and he receives an additional $15,000 if he meets his quota. For an average car value of $50,000, the salesperson will earn $75,000 ((15 cars * 50,000 * 8%) + 15,000) in commission. 

2. Revenue quota

The revenue quota model refers to meeting the quota when the salesperson hits a particular quarterly revenue benchmark. The revenue quota works for product-type businesses where the sales cycle is standard, and the product price is fixed. However, it prevents salespersons from offering a better price or a discount while closing. And this may lead to missed opportunities. This quota works well for service and subscription types of businesses. 

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Example: A salesperson who has generated an MRR of $20,000 cracks two deals with an MRR of $5,000 and $4,500, respectively. Which brings up his total to $29,500 ($20,000 + $5,000 + $4,500). If the MRR quota for this salesperson was $25,000, these two deals have helped him exceed it, and he will receive the commission for it. 

3. Activity quota

The activity quota standardizes the sales process and reduces the length of the sales cycle. This model is also effective for training new sales employees and maintaining CRM hygiene.

It helps track the progress of SDRs and BDRs as they support sales representatives by making calls and leading initial demonstration sessions. Before implementing this quota, you must have a sales management tool, such as Compass, to track and review all the activities. 

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Example: A salesperson sends 100 emails and makes 300 calls in a month. They also update lead details in the CRM, follow up with contacts, and reach out to 30 people on social media monthly to meet their activity quota.

4. Profit quota

The profit quota plan is like the revenue quota in terms of setting goals in an advanced manner. The profit quota tracks and reports the profit benchmark that each salesperson must meet.

To calculate the gross profit quota, subtract the cost to sell and other expenses (such as showroom rent, telephone usage, advertising costs, and discounts offered) and the cost of goods from the revenue. This approach helps improve budgeting and overall profitability. Gross profits better represent the business's growth trajectory. 

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Example: For a deal worth $15,000, where the cost of goods is $5,000 and the overall selling expense is $3,000, the gross profit will be $7,000 ($15,000 – ($5,000 + $3,000)). A salesperson must make three such deals to reach a monthly quota of $21,000. 

Now that we know the different types of sales rep quota, let us know how you can set the quota in four steps. 

Set sales rep quota in 4 steps 

To set a sales representative quota in four steps, follow these guidelines: 

1. Establish a baseline: Begin by determining the average performance metrics, such as past sales data, to set a reference point for future quotas. 

2. Take a bottom-up approach: Gather input from sales representatives and managers to ensure quotas are realistic and achievable based on market conditions and individual capabilities. The bottom-up approach is effective for many businesses because it allows managers to assess past sales performance, potential for improvement, and the team's years of experience when setting quotas.  

After evaluating the team's current standing, managers and team leads can consider growth objectives and economic and market conditions to forecast sales. Setting sales quotas without accurate forecasts can lead to discrepancies between expectations and actual results. 

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To get this done calculate: The average number of deals closed per month x Average deal value = Baseline sales quota 

3. Adjust quotas for each rep: Customize quotas based on each representative's experience, territory, and historical performance to ensure fairness and motivation. Sales quotas affect your business's growth and your sales team's commissions. Over 64% of organizations find it difficult to set a quota that aligns with these factors.  

4. Set activity goals: Define specific activity-based targets, such as the number of calls made or meetings scheduled, to drive behavior that leads to achieving sales quotas.  

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Tie activity goals with sales incentive commission management platform. Compass is a comprehensive sales incentive management software designed to enhance sales team performance through automation and gamification.

Compass streamlines the calculation and distribution of sales commissions, allowing sales managers to automate complex commission plans easily. This includes handling accelerators, tiers, and workflow triggers with minimal effort. 

Following are the tips for your reps so that you can hit the sales quota. 

Tips for your reps: How to hit sales quotas 

Hitting sales quotas helps with coming up with strategies that ties with the company goals. Quotas can be aligned with broader business objectives, such as entering new markets, or increasing sales in a particular region. This ensures that the sales team’s efforts are in sync with the company’s strategic goals. Take Acacia for example.  

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Acacia achieves $5 million revenue with sales quota adjustment

Acacia is a leading provider of commercial facilities maintenance and improvement services in the eastern United States. They aim to help commercial real estate owners and managers significantly reduce operating costs, enhance efficiency, and maximize value through innovative sourcing, supplying, and managing building services. 

Their revenue target was $5 million and to achieve this, they needed an effective tool to track and compare annual sales for all representatives.

They needed to derive data on performance against established sales goals and objectives, including sales quotas by product, employee, and month, and comparative data on monthly quotas versus actual sales closed and assigned activities versus actual activities performed.

So, they used a tool to track performance and sales quota. The forecasting tool helped roll up summary reporting. The integrated content library helped them get the annual quota of activities.

As a result of the integration of the tool for sales quota and report, the company could easily track and monitor the sales goals. The solution helped the sales manager with real-time visibility into the sales pipeline, including opportunities by sales representative, month, and product.

The team managed to meet their $5 million revenue target in time. 

Acacia’s step towards adjusting and streamlining the sales quota underscores the significance of alignment. So, here are some key tips to help your sales reps hit their quotas: 

 

  • Understand your sales quota thoroughly, including exactly what you are expected to sell. 
  • Keep yourself organized by carefully recording all conversations with prospects in your CRM. 
  • Ask satisfied clients for referrals to their connections who could benefit from your product or service. 
  • Track your progress toward your goals daily, as studies show this increases the likelihood of achieving them. 
  • Always be prospecting and adding new leads to your pipeline. 
  • Set realistic activity goals for calls, emails, demos etc. that will likely lead to closing deals based on your historic performance. 
  • Discuss quotas with your team to get their input on what is achievable based on market conditions. 
  • Establish a long-term annual plan for hitting your quota, breaking it down by quarter and month. 
  • Explore new use cases and industries for your product beyond your current customer base. 
  • Utilize sales technologies and tools like conversation intelligence to optimize your sales process. 

Why set and track sales quotas with Compass? 

Sales quotas provide clear targets for sales teams to aim for, which can increase motivation and focus. Knowing what is expected of them helps salespeople to prioritize their efforts and maintain momentum throughout the sales period. That is why you need Compass. Compass allows sales managers to quickly establish realistic quotas based on historical data and market trends. With Compass, you can: 

 

  • Accurately set quota based on historical data and market trends. 
  • Access predictive analytics levied via Compass AI. Forecast the trends easily. 
  • Get nudges and notification with Compass AI. 
  • Automate the commission management, Compass allows commission calculations and supports customizable commission plans. 
  • Get real-time analytics of sales performance so that sales managers can monitor progress quotas and make timely adjustments as needed. 
  • Add gamification elements to make the sales process more engaging for team members. 

 

Integrate your system with Compass for seamless data flow and better alignment of sales strategies with organizational goals. 

Wrapping up 

By setting sales quotas, companies can better predict their revenue streams. This helps in financial planning, budgeting, and resource allocation. Moreover, sales rep quotas can create a sense of accountability among salespeople. When targets are clear, it’s easier to track individual contributions to the company’s overall success, which can be tied to compensation and recognition. So, schedule a demo call with the experts from Compass to offer a benchmark against which sales performance can be measured. Identify high performers, those who need additional support or training, and overall team effectiveness. 

FAQs  

1. What is the purpose of a sales quota agreement? 

A sales quota agreement aims to show reps how their quota aligns with company sales goals and team sales targets. It provides a clear understanding of expected performance and serves as a basis for compensation plans and incentives 

2. How do you calculate sales quota attainment? 

Sales quota attainment is calculated by dividing the salesperson's actual sales by their quota and expressing it as a percentage. For example, if a rep's quota is $100,000 and they sold $80,000, their attainment would be 80% 

3. What is the sales quota level? 

The sales quota level refers to the specific sales target set for an individual, team, or territory. It is typically based on factors such as historical sales data, market conditions, and team capabilities. 

4. How to set quota for sales? 

To set effective sales quotas, follow these steps: 

Analyze historical sales data to establish a baseline 

Consider market conditions, competition, and growth goals 

Allocate quotas based on territory potential and rep capability 

Communicate quotas clearly and provide support to achieve them 

Monitor performance regularly and adjust quotas as needed 

5. What is the average quota attainment for sales reps? 

The average quota attainment for sales reps varies by industry and company. A typical range is 70-90%, with the average around 80%. Factors like product complexity, sales cycle length, and market conditions can impact attainment levels. 

6. What percentage of sales reps hit quota? 

Approximately 60% of sales representatives hit their sales quotas. This percentage is often viewed as a healthy benchmark, indicating that quotas are set at a challenging yet achievable level. If all sales reps consistently meet their quotas, it may suggest that the quotas are set too low, failing to effectively motivate the team. 

Citations 

  1. The effects of quota frequency: sales performance and product focus. (2019). In Working Paper 17-059. https://www.hbs.edu/ris/Publication%20Files/17-059_a6331b07-0c41-4988-8496-d8633c3071c6.pdf 
  2. A case history of sales quotas on JSTOR. (n.d.). www.jstor.org. https://www.jstor.org/stable/1245840  
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