Answer:
Sales quotas should be set after market potentials have been derived and sales territories established. The potential for each territory is then known; but sales quotas must also consider past sales performance changes to be made in the amount of supporting sales effort during the coming year, and anticipated activities of competitors. Quotas are usually set for each sales territory and for each sales representative. They are ordinarily not the same as potentials or even of the same relative size. One market may have twice the potential of another, but may have local competitor that take so large a share that a given firm’s quotas may be smaller there than in as area with less potential.
Sales quotas set in light of sales potential furnish a much better basis for measuring the efficiency of sales representatives than do quotas set by the old rule of thumb, last year’s sales plus 5 percent. If two sales representatives turn in the same annual sales volume, they are usually paid about the same and are held in equal esteem by the sales manager. If market analysis shows that representative A has a territory with far less potential than sales representative B, the sales manager may wonder if representative A may not actually be superior. A shift of the two might lead to an improvement in total sales. The following table illustrates.
| Sales Representative A | Sales Representative B | |
| Sales last year | 500,000 | 635,000 |
| Territory potential | 2,000,000 | 4,000,000 |
| Percent of potential | 25.0% | 15.9% |
As noted above, however, market potential and sales representative effectiveness are but two of the basic determinants of sales result in a territory. To measure sales representative performance, it is necessary to take into account some of the other factors which influence sales results. One study of a national sales organization found that six factors explained 72 percent of the variation in sales among territories. These factors and the methods of measuring them were the following:
| S.No. | Factors | Method of Measurement |
| 1. | Market potential | Industry sales in territory |
| 2. | Territory workload | Weighted index based on annual purchases and concentration of accounts |
| 3. | Experience of sales representative | Length of time employed by company. |
| 4. | Motivation and effort of sales representative | Aggregate ratings by field sales manager on eight dimensions of performance. |
| 5. | Company experience | Weighted average of market share past four years Market-share trend same period |
| 6. | Company effort | Advertising dollar expenditure in territory. |
While sales potential is a key factor in establishing sales quotas, and other measurable factors such as those listed above also pay a role, it should be remembered that the setting of quotas also involves a complex interpersonal relationship between the sales manager and the salesman. The best quota is the one that stimulates the best effort by the salesman. Since salesman varies in personal reaction to the challenge and risk implied by quotas, the successful manager is one who can adopt the objectively determined quota to each individual salesman.
