Optimizing Sales Performance: A Comparison of 6 Different Sales Quota Approaches

Are you looking to optimize your sales performance? When it comes to setting targets for sales teams, managers often face the question of what approach to take. There are different ways to set targets, each with its own advantages and disadvantages.

A company that is failing to increase sales month-over-month and year-over-year is at risk of failing to exist altogether. As a sales leader, the pressure to hit your numbers can be overwhelming and can lead to chaos within your team. But, it's important to remember that missing sales quotas is often not a reflection of your leadership skills, but rather how the quotas were assigned in the first place.

Hitting your sales quotas is the story of your life. You live and breathe ‘sales quotas’.

As a sales leader, you may have many questions:

• How can we close that one big deal to make the quarter?
• Why is one of your strongest performers tracking poorly?
• How can you prevent losing key sales reps?
• How can you get more from your team without increasing quotas and risking them leaving for competitors?

According to a recent Salesforce study, “57% of sales reps are expected to miss their quotas this year.” This highlights the importance of properly assigning sales quotas in order to set your company for optimal growth.

There are a number of different types of sales quotas to consider. Let’s review a few common approaches that help drive high performing sales teams.

Revenue-based Quota 

Revenue is typically how we think about quota. This approach focuses on securing a specific amount of dollars for every unit of time (i.e. Week, Month, Quarter). This is a simple approach, easy to understand and communicate to the sales team. Most companies will implement revenue-based quotas in the early stages of the company’s growth.

Profit-based Quota

This approach focuses on gross profit or margin instead of revenue. This approach better represents growth and encourages the sales rep to sell customer value, reducing any price discounting. When customer renewals are the driver, you want to assess which customers are profitable and which customer are not. Increasing customer retention by 5% boosts profits by 25%–90%

Volume-based sales quota

This approach focuses on the volume of sales deals closed in a given time period. Companies with the objective of market penetration often apply volume-based sales quotas. Volume-based sales quotas are also often the preferred method for sales quotas in SaaS companies where the sales rep needs to close a certain number of deals in a month or quarter to receive credit. 

Activity-based sales quota

The activity-based sales quota approach is a way to drive and evaluate a sales rep's contribution to sales efforts that are not necessarily tied to revenue or profit. This approach assigns specific activities to be completed within a certain time frame, such as making prospecting calls or delivering product demos. For example, a sales rep may receive credit of $1,000 if they've completed 100 prospecting calls in a month. This approach can be effective for an inside sales team or customer success team, where they might be measured on the number of cross-sell deals they bring in within a certain timeframe.

Prospecting can be a difficult task for sales reps, with more than 40% of salespeople saying it's the most challenging part of the sales process, according to Spotio. Activity-based quotas can focus sales teams and make them much more productive, preventing lost productivity and poorly managed leads which--per the CMO council-- cost companies at least $1 trillion every year.

Forecast Revenue Quota

The forecast revenue quota approach uses historical data such as sales territory, market or product data to set targets for sales reps. For example, if you're moving into a new market, you would assess historical territory data of a similar territory you already sell into and how your sales rep performed in that territory over the last few quarters. This approach allows you to justify the quota you are setting for the sales rep, but can only be used if you have enough historical data and the sales territory is truly similar.

Combined-base Quota

A combined-base quota approach can be more effective than simply selecting one method. For example, you may consider setting quotas in the last quarter of the year to motivate the sales team to close as many deals as possible to end the year strong (i.e. Revenue-based quota) and increasing call prospecting so that the sales pipeline is healthy going into the new year (i.e. Activity-based quota). By mixing different quota methods, you can effectively motivate your sales team and drive optimal performance..

There is no perfect approach

When it comes to setting sales quotas, there is no one-size-fits-all approach. Each method has its own advantages and disadvantages, and it's essential to evaluate which approach will work best for your company and sales team. From revenue-based quotas to profit-based quotas and volume-based quotas, each approach can drive optimal performance in specific situations. As a sales leader, it's essential to take into account the growth stage of your company, the experience of your sales team, your corporate objectives and any historical data or trends before making a decision.

But don't stop there, don't be afraid to experiment and even combine different quota approaches together to achieve the best results. It's not just about hitting numbers, but also about motivating your sales team and ensuring their success. With the right approach, you can take your sales performance to the next level and set your company on a path to success.

And you can try the Arithmix Quota by Rep template, free, to build a quota plan in minutes and play around with different versions of your plan.