Tag Archives: Quotas

Adjusting quotas mid-year. . . Should we? And if so, how?

The problem

Sometimes our sales people lose business due to factors outside their control (e.g., customer bankruptcy, mergers, incompatibility of our offering with their requirements). Do we reduce quotas when this happens? 

Why do you have a sales incentive plan?

The first thing to keep in mind is that the sales compensation plan, and the quotas, are in place to do something very important:

Provide motivation and focus for sales people so that they deliver more and better results than they would have without a sales incentive.

Of course this needs to happen at the right cost of compensation for the business, and with fairness among sales people in mind, and in a way that helps attract and retain key talent, and without encumbering the company with excessive risk or administrative burden, and. . . But it’s good at these moments to go back and remember the main objective of our efforts with sales compensation, as this will help us find the right answer in tricky situations.

How much “lost” quota before an adjustment

So, with the goal in mind, it’s usually best to adjust the quota if it appears that failing to do so would undermine the motivational value of the plan. Usually this happens when a meaningful chunk of the sales person’s quota is “lost” due to forces beyond their control.

How much is “meaningful” depends on the degree of accuracy in the quotas.

  • If the role is primarily new account development, then you’d expect substantial variability in quota attainments (say, 80% of people end the year between 50% & 150% of quota). In this case, you might adjust the quota if as much as 30% is “lost.”
  • However, if the role is primarily account management and quotas are therefore more accurate (say, 80% of people end the year between 80% & 120% of quota), you might have a threshold in the plan of 75% of quota, and so might need to adjust the quota for “lost” business of only 10% of quota.
How much to adjust

The lost business should free up some sales capacity, allowing the sales person to pursue other opportunities. So clearly 100% of the lost business would be too much to adjust out of the quota. Something between 30% and 70% of the lost amount would probably be reasonable as an adjustment, depending on the length of the sales cycle and the degree of penetration of the assigned accounts/territory.

Managing the adjustment process

Businesses that make a regular habit of adjustments will find they receive more and more requests for adjustments unless they have an adjustments policy and process.

An adjustment policy should cover:

  1. What the criteria are for considering an adjustment (e.g., at least 25% of the annual quota is no longer attainable due to circumstances outside the control of the sales person)
  2. What the process is for requesting an adjustment (e.g., submit a request to your manager, who will then need to approve it and forward it on to the sales compensation committee for review at the quarterly meeting)
  3. Likely adjustment outcomes (e.g., the sales compensation committee may approve a quota adjustment of up to 50% of the lost business if they feel it is warranted).
What do other companies do?

WorldatWork, along with Better Sales Comp, completed a Quota Practices Survey in 2012. Click through to find answers to questions about prevalent practices.

Sales Forecast Accuracy and Incentive Design – streaming webinar

How much will we sell of each of our offerings? Who will sell it? When will they sell it? At what margin? These questions are all vital to businesses, and better accuracy in forecasts leads to many great benefits including reduced costs through better operations management, the ability to manage investor expectations and stabilize stock prices, and of course accurate sales quotas.

In this recorded webinar sponsored by Anaplan, hosted by the Sales Management Association, and co-presented with Kevin Gray, we discuss the challenges of sales forecasting and plan design. Kevin starts out with a discussion of what makes sales forecasting both difficult and important, and some great ideas about how to improve it.

Next, starting on slide 14, I discuss three vital ways the sales forecast touches incentive compensation: (1) How should forecast accuracy affect plan design? (2) What can you do to make your quotas more (or less) accurate, even when your sales forecast accuracy is just what it’s always been? (3) What about forecast accuracy as a sales incentive measure – if it’s so important to the business, should we incentivize it?

[Preview of answers: (1) It’s in the payout curve shape. (2) Have fewer of them. (3) No.]

Click through for practical and specific insights and guidelines that will inform the next sales compensation plan you design. The sales compensation plan can rarely improve your sales forecast, but a good understanding of your sales forecast accuracy can definitely improve your sales compensation plans.

What are the best measures of quota quality?

Accuracy

Accuracy is an important measures of quota quality, measured in standard deviation for the statistically trained, or just % of people within a reasonable band around quota (e.g. +/- 20%).

Distribution shape

Another important measure is the shape of the distribution – is it a normal-type curve balanced around 100%, or is there a systematic skew to it? Bi-modal distributions may indicate quota setting issues for a particular category of sales person (new hires, small quotas, etc.). A typical dysfunctional quota distribution is left-skewed with a long right tail indicative of most people under-performing vs. quota offset by a few over-performing outliers, a very expensive way to deliver compensation in a plan with any meaningful acceleration over quota.

Credibility and sales force motivation

Motivation and sales force credibility are most likely only measurable via an opinion survey or poll of the sales team. If sales people understand how their quotas are set, and believe they are generally achievable and equally challenging across the sales team, they will be motivating and help create maximum sales productivity and predictability. If any of these sales force perceptions is unfavorable, it will tend to undermine the value of the quotas to the organization.

How does your team measure quota quality?