A dilemma is a situation that offers two possibilities, neither appealing. Enter the unachievable sales forecast/quota dilemma. Mission Impossible, right? Not if we turn the question around on individual salespeople.
Over the past five years, a large number of sales compensation leaders have asked what to do when facing an unachievable forecast they are supposed to allocate out to their salespeople in the form of sales quotas. One possibility is to simply allocate out the national quota to salespeople, resigning a majority of salespeople to the fate of not achieving their individual quota—an unappealing outcome, to be sure, as it demotivates the sales force.
Another possibility is to allocate a lesser, more achievable number to the sales force. While salespeople will find their quota more achievable, finance will likely chafe at individual quotas that do not add up to the corporate number. Again, an unappealing outcome.
Is this simply an unwinnable situation? Throw up your hands since both options are equally unappealing? Or might there be a third way?
What if we allowed salespeople to pick their own quotas, within a predefined range? This concept was first introduced by IBM decades ago and we have seen a recent spike in interest in this approach. The big idea: You offer a range of individual quotas to each salesperson and allow individuals to select the quota he or she feels is the most realistic stretch goal. They own the goal.
I’m sure your mind is racing with the ways this scheme can go wrong. To prevent disaster, here are three must-haves if you are considering the "choose your own quota" type of plan:
- Meticulous Plan Design: In the plan design, assign the most lucrative payoff to choosing and hitting a high individual quota; similarly, do not reward the selection of a “sandbag” quota and grossly exceeding it. Also ensure that the incentive payouts will only add up to the incentive budget when the sales forecast is hit.
- Detailed Financial Modeling: There are so many combinations of individual quota selections and subsequent performance that accurately estimating the total sales incentive cost in hundreds of different scenarios is absolutely critical.
- Careful Rollout: The creation of the individual quota options for each salesperson is a very analytical exercise that must be done precisely. In addition, clearly communicating the plan design and the quota options is key to salespeople understanding their plan and quota options—and to their selection of the optimal quota for themselves and the company.
The "choose your own quota" plan is an extraordinarily innovative incentive plan design with many potential benefits. But it should not be entered into lightly. The execution required to effectively implement this plan should not be underestimated.
The upside of the plan is that it can make sales and finance both happy, an admirable outcome. So instead of attempting to solve the sales forecast/quota conundrum, consider letting individual salespeople solve the problem for themselves. The overall strategy is the company’s to plot, but each rep could determine the arc of his or her own story. How will your firm choose to proceed?