In my first year in business, it was hard to accurately set sales goals.  Fast early company growth would help blow a salesperson's goal out of the water one year, causing me to set it high the next year, only to revise it mid-year because it suddenly seemed far too high. In recent years, however, I've gotten better at getting the goals right.  In 2011, three out of five employees made the full goal, and the others achieved a portion of the goal. Last year, all five members reached their target--with a few doing so slightly earlier than year-end, and others making goal at the last minute. It all comes down to the components you use when setting the goal.

Here's what I do: 

1. Project company-wide sales for the coming year.

At Metal Mafia, I start the goal-setting process by looking at the company's overall business from the year before.  First, I check the increase of total sales over the prior year and account for where it came from month by month.  Did I add a sales rep in a certain month? Did I change the number of trade show or industry appearances in a specific season? Did I change the frequency or type of customer communications, and--if so--when? Once I gather that information, I project any changes I expect to make to those areas in the coming year. Because I can see approximately how much each source increased or changed our business, I can predict fairly accurately how much I expect the business to grow this year.   

2. Calculate an employee's potential percentage contribution. 

To do this, I measure the total sales for a given team member against the overall company sales, giving me the percent of business the individual team member generated in the prior year. For example, if I know that the company sold $1,000,000 last year, and that sales rep A accounted for 25 percent of that or $250,000, then I can reasonably expect that rep to account for 25 percent or $375,000 of the current year goal of $1,500,000.

If a team member is new, I project how much business she should be able to generate by taking an average of what all other sales reps have done in the first year at the company, and use that as the year one goal.    

3. Solicit employee input on the final goal.

In the past, the management team and I had always set the new year's goals based only on the aforementioned components. This year, we tried something different. After doing the analysis with each team member that I've already described--providing the facts that contributed to prior-year performance, and the company initiatives that we expect to shape growth for the new year--we asked each team member, based on the statistics shown, what she thought her growth goals should be for the current year.

The result was surprising. Every sales rep suggested growth goals that were higher than the ones management had set. We were worried about the higher goals, but decided to give them a try anyway, because our employees really believed in them. And as a result, throughout the first quarter, both customers and the company have benefited from an even higher level of engagement from each rep. Setting their own goals motivated them even more than the ones management set ever did. And because the sales staffers were willing to take a risk and commit to making the company an even stronger one, we sweetened their rewards if they are able to meet the higher goals they set.

The intent when setting goals should not be to create a pie-in-the-sky situation, which is never going to happen.  This kind of false "goal" could save your company money in the short term (when it comes to bonus time), but has disastrous consequences on the morale of employees, customer relationships, and company longevity. The goal cannot be a cakewalk either because goals that are too low don't present a challenge worth striving for.

The best kind of goal is one that requires an employee to work diligently, but which is ultimately attainable. After all, the rationale behind goals is reward, not punishment.