Quotas. The term carries a negative connotation to some. Quotas can be a “black box” to a sales force, they lack the clear line of sight of commissions, and they can be a challenge to set equitably. While I agree with these challenges, quotas can have significant benefits when used at the right time in the right way. When I talk to companies about quotas, I love using analogies to describe their benefits. Two of my favorite analogies deal with running.
Analogy 1: Imagine you are an advertiser who is going to sign a contract with an up-and-coming sprinter. The more successful the sprinter, the more bang you will get for your advertising buck (since he will be more popular and better known). The sprinter currently runs a reliable 10.3-second 100-meter dash.
You say, “We’ll give you a $2 million signing bonus and a sponsorship deal if by the end of the year, you run the 100 meter in 10.5 seconds.” How effective is that as a goal to the sprinter? Not really effective, because he is already comfortably running at that level. There would be little incentive to improve, and you would be throwing away your money.
Conversely, if you offer $2 million and the sponsorship for running 9.3 seconds, the sprinter is probably going to say, “Impossible. That’s faster than the world record time and I’m not even close right now … I’ll go find another sponsor!”
The most effective goal is realistic yet challenging, say 9.9 or 10.0 seconds. Similarly, if your salespeople see their goals as being too high, effort will drop; if they see their quotas as too low, they will exert less than the optimal effort.
Analogy 2: If you are running a 5K race, you don’t take off like a shot, sprinting like you are running the 100-meter dash. In a longer race, runners must pace themselves. Strategy and planning come into play. Now, imagine a race where you line up at the start with 10 other people and are told that the winner will get $10,000, but no one knows the distance of the race. The starter says, “On your mark … Get set … Go!” and the runners take off.
Some sprint, hoping the race is short; others pace themselves, thinking the race could be a longer distance and don’t want to expend all their energy. If the race ends in 800 meters, the people who sprinted are upset, saying, “I didn’t know I needed to cover that much distance.” The people who paced themselves for a longer race are upset: “I was conserving energy!” Both groups feel they would have done a better job if they knew the expectations in advance.
Similarly, quotas provide expectations to the sales force regarding the appropriate effort and timing we are asking of them. Without these expectations, reps who are “sprinting” may take too short a time view and sacrifice longer-term sales opportunities or relationships; reps who are “pacing themselves” may not be closing deals as fast as they should.
As noted at the start of this blog, the use of quotas can be a challenge, particularly setting ones that are fair and motivating. However, I would not let these challenges discourage you. Given the previous analogies, quotas do offer notable benefits. If you are interested in learning more, ZS has several white papers, conference materials and webinars that discuss when and how to set appropriate quotas. You can find many of these materials available for download at www.zsassociates.com/publications.