A few weeks ago, I kneeled to help my younger son blow out his birthday candles. As he listed all of his new plans now that he’s 2 (Sleep in big-boy bed! Ride blue bike!), I found myself thinking about how we divide time into days and years, discrete periods for which we set objectives and plan achievements.
A month earlier, on New Year’s Day, I made my own plans, resolving to insert exercise back into my routine. But as I was discussing my goal, I could almost hear the echo of myself setting the same goal last year, and the year before, and every year since I ran my last marathon in 2003. I was pretty sure my 2-year-old would achieve his goals; what was I missing?
And last November, I spoke with a sales executive who was also planning. He was determined to finally set quotas that worked, and move his sales force back to a quota-based plan design in 2013. He was certain it was the right thing to do, but he also admitted he’d had this same thought each year since he moved to the commission plan. He was missing something, too.
He’s not alone.
Each year, we ask sales leaders about their biggest compensation challenges. For the past five, the top issue has been (you guessed it) setting effective sales quotas. I’ve taken note of what my 2-year-old is doing to achieve his goals—and it lines right up with what organizations with well-designed quotas are doing, too.
If you want to ride a bike, run a marathon or set better quotas, here are four ways to ensure this year is different:
1. Make the time. Companies spend enormous amounts of time designing sales compensation plans but not enough setting effective sales quotas. This can damage sales force motivation and compensation fairness, and inhibit even the most meticulously designed plan. Effective quotas require a significant investment in testing, analysis and communication. (To ride your new blue bike, you need time in the driveway practicing balance, agility and steering.)
2. Set the right goals. Motivation is a function of individuals’ assessment of whether or not they can achieve an expected growth rate. Setting effective quotas requires deep analysis of sales potential (market size and addressable market), a balance of accuracy and fairness and clarity for the sales force. (His bike may be exciting, but a ride the whole way around the block on day one might leave him and his bike damaged.)
3. Set reasonable goals. Goals work best when they are challenging and achievable. Ignoring major market movements or allocating a sales forecast that is too high or too low will not motivate and challenge the sales force, and will hurt sales and result in payouts unrelated to performance or misaligned with your compensation budget. (He doesn’t care about one day qualifying for the Tour, but a chance to race his brother around the park sends him running for his helmet.)
4. Use the buddy system. In quota setting, even the most rigorous approach won’t be perfect. Getting it right—and getting sales force buy-in—means engaging first-line sales managers. Giving managers the opportunity to make small, governed adjustments to quotas can incorporate local market knowledge and help overcome issues with insufficient sales or potential data. (My wife knows that the planned loop around the playground is too far—but by adjusting our plan to ride a different route, we get a happy and proud 2-year-old who has achieved his goal.)Quota setting comes up as a challenge year after year for a reason: It is not easy. Setting good quotas takes effort, organization, the right kinds of information and serious support. Above all, it takes discipline and commitment to the goal. But armed with my 2-year-old’s enthusiasm for achieving his goals, I am sure we can all do better this year.