Quota-Setting Checklist for Next Year’s Compensation Plans
As manufacturers attempt to drive growth for next year, sales compensation is always an integrated lever to motivate the sales force. Among manufacturers, one notable change is an increase in TTC (total target compensation). Our recent manufacturing study indicates that this cohort has increased total pay up to 10-20%, outpacing other verticals in an attempt to increase motivation and reduce turnover.
Closely linked and often a part of next year’s growth strategy is redirecting sales compensation structure (many of which in manufacturing are simple revenue measures). Plan design changes that drive growth strategies are now starting to incorporate more product-specific measures, integrated services and digital channels. Other comp plan changes include adjustments, such as moving from single ramped commission rates to targeted account sales or new business measures.
Enter Quotas. With any structural comp change, and even with no change, setting reasonable quotas is likely the most enabling factor of success. In our latest comp trends report, as always the unrivaled and number one challenge to effective sales comp is correct quota setting.
To be sure, there are an array of quota-setting methodologies. Methodology is based on several factors, such as job roles, number/type of customers, sales cycle, knowledge of buyer behavior and others. Quota-setting principles that all methodologies should include are transparency of the quota-setting process, collaboration (top-down and bottom-up), believability, fairness and thorough communication. So assuming sound methodologies and principles, here are some additional and important end-of-year checklist items:
Over Allocation Check: In our experience, over allocation of quota tends to drive skewed distributions. On average, over allocations of 5-10% are typical and center practice for most clients. Issues such as planned rep turnover, industry vertical growth rates, market distortions (e.g., client bankruptcies) and other macro market drivers will determine the correct over allocation.
“Pre-Communicate” Quota Direction: Sales leaders not only ought to set fair individual quotas, but they also need to build confidence in the sales rep’s ability to achieve target. You can “pre-communicate” messages about the direction quotas are heading (e.g., up 10-15% from last year) and at the same time, communicate the key rationale for changes (new product releases, new marketing campaigns, increased pricing).
Process Check: You probably have a process for quotas outlining the “who, what and when” for setting, allocating and most importantly the communicating of next year’s quotas. Confirm that the serious one-on-one sit-down quota meetings are scheduled. Make sure quotas will be delivered as planned and in a consistent way to all. Leaders should understand any feedback and concerns from sales reps about hitting numbers; sellers should understand company goals, sales strategy and associated go-to-customer motions. This is a critical starting position for the sales team.
End of Year Results: Don’t wait until the end of the year for the final numbers. Make assumptions if you can, and determine probable Q4 and year-end performance. Too often, we observe clients waiting until all the year-end results are complete before assigning quotas. This by definition will have you behind in the release of quotas for next year.
Don’t Be Late!: One of the most disruptive actions in sales organizations in the beginning of the year is releasing quotas late. Some of our clients even conduct their annual sales meeting with the objective of “let’s get the sales force motivated”…before giving quota assignments. The sales reps are thinking, “Where’s the alignment if I don’t know my number yet?” Instead, you want sellers to perceive sales leadership as well-prepared and able to deliver quotas on time.
Contact us for expert help with your Sales Quotas concerns.
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