There's something I've learned in the last 10 years as President of a growing small business that you probably won't hear elsewhere: For burgeoning small businesses, establishing a sales quota is more art than science.
I'm not saying you should change from rational forecasting to throwing a few arbitrary numbers in a hat and picking one, then dividing that number equally among your sales reps. I'm saying you should consider each rep's experience and performance as you create an overall sales number and individual quotas.
To get the most out of your sales team, see if these principles I've learned over the years can benefit your company.
1. If you want more, ask for less.
I know it sounds counter-intuitive, but my numbers don't lie. Every time my sales management has assigned sales numbers a little lower than what they think a rep can manage, that number is usually hit — and often exceeded. Asking a little more than what you find realistic is often a mixed bag.
Let's say you think with a little elbow grease your best sales rep can sell 100 units in Q1 2011. Your impulse might be to set the quota at 105, but try knocking it down to 95. In my experience, you'll hit 105 with the latter.
Of course, you have to take your business' culture into consideration. If meeting half of an audacious goal is considered a win in your book, the strategy I'm suggesting probably isn't a great fit. But if your organization equates missing quota by 1 with failure, I think you'll be pleasantly surprised if you relax your quotas a bit.
2. Comparing results to past performance is the most reliable metric of success.
Forecasting is an important tool for setting goals, but even the best and brightest titans of industry make predictions that are way off. We can't control the outside forces that impact the overall economy.
Instead of focusing on results vs. forecast, take a look at results vs. history. Let's go back to your Q1 2011 predictions. Your goal was to sell 600 units, and you sold 580. Before berating yourself, and your sales staff, take a look your Q1 2010 sales. How do they compare?
You may discover that it's your forecasting methodology, not your sales staff, that's off.
3. As your company prospers, so must your sales reps.
This may seem like a no-brainer, but make sure your compensation system is designed in a way that your sales reps make money when your company does.
If they are hitting quota consistently but not seeing any reward for their work, they won't be hitting quota much longer. And if you're paying them handsomely while you're losing money from low sales, they have zero motivation to close more business.
Keeping these 3 principles in mind has kept my company, SurePayroll, strong through a tough economy and the dot-com crash. I'm betting they can help you, too.
Do you have any tips for establishing sales quotas? Please comment below to share them so we can all learn.
MICHAEL ALTER is president of SurePayroll, America’s leading online payroll service. He received an MBA from the Harvard Business School and holds a bachelor's degree in economics from Northwestern University. @michaelalter