Answer:
Sales quotas have two roles: demotivators and motivators.
Quotas predict sales in a region, district, territory, etc. Predictions are accurate when the future matches the prediction. Quota prediction error is the gap between quota and actual. If someone is at 103% of quota, then quota prediction error is 3%. Measuring quota prediction error is easy.
Quotas also motivate. They are used to encourage sellers and their managers to achieve excellence. Rewards such as bonuses and recognition are directly tied to quota achievement. Quota motivation error occurs when salespeople are discouraged by their quotas.
Measuring quota motivation error is difficult. Surveys can be used, but human motivation is so complex! Personal agendas can distort survey responses. “If I say my quota is demotivating, then maybe they will lower it next year.”
Suppose there is a strong causal relationship between quota prediction error and quota motivation error. As quotas become more aligned with actual performance, sales force motivation increases. Or, the greater the number of people you have below 90% of quota, the greater the level of demotivation in your sales force. If true, then we can focus on quota prediction quality, and let it drive quota motivation.
Consider the following five scenarios and see if you agree:
- Most between 90% and 110%: If year after year, most territories perform within ± 10% of quota, then quotas are largely motivational. This is the best “real world” quota motivation scenario.
- Consistent group below 90%: If a large group of territories (say 33%) consistently performs below 90% of quota, then this group will be consistently demotivated. This is far less effective than having high quota motivation across most salespeople.
- Most around 90%: If most territories (say 80%) consistently perform near 90% of quota, then the company consistently applies too much stretch to the overall quota. This is demotivating for a large portion of the sales force, and far less productive than having high quota motivation across most salespeople.
- Most around 110%: If most territories (say 80%) consistently perform near 110%, then the company consistently avoids adding stretch to the overall quota. This subtly encourages salespeople to underachieve, and is far less productive than having high quota motivation across most salespeople.
- Random “feast or famine:” If a large portion of territories (say 33%) randomly fall below 90%, and another large portion randomly falls above 110%, and this pattern persists year after year, the whole sales force will be demotivated. It is just a matter of luck whether you do well or poorly. This is far less effective than having high quota motivation across most salespeople.
- Our expert advise: Aim for scenario #1. Measure quota prediction error, and find the sweet spot, where quotas are highly motivating and sales performance is predictably excellent!
