Calculating accurate sales quotas is an important business variable for your firm to succeed. By implementing a sales quota based on market research, market gap size and definable business sales metrics, you can manage your firm profitably, satisfy your investor and funding sources, fund your growth, and capture sales at a lower cost.
When incorrectly calculated based on guesswork or industry estimates, your firm can fail.
Today, there are ten sales quota calculation methods currently in use by many firms. They include:
- Last year’s territory sales numbers;
- Cost of the salesperson times a multiplier (sales costs x 3);
- Cost of corporate General Administrative (G and A) plus a gross margin;
- Revenue goals committed to Wall Street or VC’s;
- Total of the sales department’s goals divided by the number of salespeople;
- Salesperson’s success the previous year;
- An imaginary compensation number that was sold to the salesperson as their income potential if he/she hit 100% quota;
- What the trade press says is the annual growth rate this year (up 12%, quotas are up 12%);
- The VP of Sales’ experiences at other companies; and/or
- A percentage of what the top salesperson did in their territory.
The above ten techniques represent the vast of majority of sales calculation methods used today.
These impractical and unscientific quota determination methods are used over and over in both public and private firms. More times than not, the sales quota number is created based on commitments to investors, bankers or Wall Street, combined with the perception of accounting regarding what the cost of sales should be.
The short-term losers are the sales reps as they struggle to make their monthly numbers.
The long-term losers are the companies and the operating departments because business models have been budgeted on these inaccurate sales quota calculations.
What do these measurements have to do with the potential of a particular salesperson’s territory? The fact is none of these methods are accurate.
These quotas are based on outside influences and expenses not related to the sales potential of the salesperson’s product or service in an assigned territory. When these quota determination models are used, more times than not, they just frustrate everybody.
The Operations Department is upset because their bench utilization is low and management is forced to reduce payroll.
The Accounting Department is upset because the company’s business budgets are inaccurate causing operating expenses to be disproportionate to forecasted corporate revenues.
The Sales Department is frustrated because they can’t hit their targeted numbers and no one is making their commissions.
Investors and Stockholders become disenchanted, lowering their commitment to your senior management team.
So, How Does Value Forward Group Calculate Sales Quotas?
At Value Forward Group, we use a four-step process.
Step One: First, we analyze your firm’s current sales model metrics and your corporate revenue objectives and growth goals.
Step Two: We then research and review the current market’s size and growth potential nationally to understand your industry’s market demand.
Step Three: After this process is completed, we then investigate and analyze the market potential of your product or service in each salesperson’s territory.
Step Four: Lastly, we integrate the data into an operating model where we then calculate each salesperson’s sales quota as well as a cumulative sales quota for your whole sales team.
Where Do We Get The Data For Both
Local and National Market Gap Potential?
The Value Forward Group collects data from multiple local, national and government business market sources both directly and indirectly and through data research aggregators including but not limited to:
Thomas Register, Yankee Group, Emarketer.com, Forrester Research, Boston Consulting Group, International Data Corporation (IDC), Gartner DataQuest, national credit bureaus, state and federal agencies, Bureau of Tax Statistics, Library of Congress, National Archives, US Census Bureau, SEC, Global Computing Agency, Info USA, national trade publications, Direct Marketing Association (DMA), Computer Economics, iLogos Research, AM Best Company, US Census Bureau, Better Business Bureau, Reveries Research, Net Ratings, Manhattan Research . . . and many more.
So, is your firm interested in having a third-party independent calculation of what your sales forecasts should be?
If so, give us a call at 770-632-7647.