min(s) to read
/
April 24, 2025
Improving the Sales Quota Setting Process
Nobody really likes to talk about it, but many companies have seen what appeared to be a logical incentive plan fall apart when stressed by the sales quotas or market condition changes.
When this occurs, salespeople and their managers often demand that changes to quotas be made midstream, but reactive solutions that are rapidly developed and implemented in response to some specific circumstances typically bring some unforeseen consequences. Planning ahead is critical for prevention. Below, we examine some of the common issues around the sales quota setting strategy and how to address them.
In our experience, organizations should employ differentiated growth targets for their sellers because it’s nearly impossible to make apples-to-apples comparisons between sales territories and sets of accounts. Each territory or segment is unique and continuously evolving. When there is a disparity in their account base, sellers with less-desirable territories and accounts can easily lose their motivation out of frustration. This is especially true once the seller compares their opportunity against their peers who have more fruitful accounts and territories (Think of the salesmen in Glengarry Glen Ross complaining that they don’t have the “Glengarry leads” to help them win the sales contest). Adding to seller frustration is the knowledge that no matter how much effort they may put forth, their earnings will likely be lower than those with stronger account bases.
The best way to address this situation is to rebalance sales territories and accounts, which brings several benefits. First, it levels the playing field for sales reps, at least in the near term. It can also help by providing better customer coverage, as each customer will be reached more frequently by a sales rep in an effort to improve account engagement.
In terms of setting new differentiated growth targets, one proven tactic is to differentiate growth within a segment based on the degree of sales penetration. For example, a company may look at how many different services a customer has traditionally purchased in order to develop an understanding of how much room there is to grow that account.
A second challenge that sales organizations often face regarding sales quotas is around decision rights and governance. Who should make which decisions regarding the process for setting quotas and implementing those decisions? Clear governance frameworks ensure sales strategy alignment with organizational goals, help to improve efficiency, and create a more collaborative sales environment.
Getting decision rights and governance correct is especially important in those organizations where a single function has outsized influence or power. Oftentimes this power resides in the sales organization, which can create a “fox in the henhouse” situation in which sales is expected to regulate itself without meaningful oversight from other parts of the business. Beyond this problem, without proper governance we’ve seen insufficient time and resources allocated to perform data analysis. This leads to the all-too common and problematic situation in which the organization takes the previous year’s sales tally for every rep or territory and just adds a flat growth rate across each.
The RASCI (responsible, accountable, supported, consulted, informed) framework can also be used to improve quota-setting decisions rights and governance. Typically, the parties included in RASCI-style quota setting are finance, demand planning, sales leadership, sales operations, human resources, and legal. The project team should factor in all of the core processes required for setting quotas when calculating, including commission budget planning, forecasting, top-line goal setting, quote assignment, adjustment and finalization, communications material development, and systems tracking and reporting.
As happens with all business processes, there will be times when an exception process will be called for vis-à-vis sales quotas. Among the reasons for this mechanism to be enacted are those occasions when inconsistent exceptions are applied to individuals, a poor goal allocation methodology is applied, or when a rep and their sales manager feel that unrealistic expectations have been placed upon them. Because exceptions only ever increase rather than go down in number, they can easily lead to a misalignment of the sales payout to target when compared to company performance to budget.
To help minimize exceptions, we suggest forming an dedicated committee with three key stakeholders: sales, finance, and a human resources rep who works in compensation. These three individuals should start by defining the exception criteria as an initial stake in the ground (while remaining open to the fact that the process may evolve).
When an exception is requested, the sales rep or first-line manager should complete a form documenting the request and provide evidence backing it. Quarterly, these reports should be reviewed in a meeting and any credit adjustments documented. To keep the volume of exceptions at a reasonable number, wherever possible, exceptions and adjustments should be net neutral; if credit for a sale is adjusted then the increase should be offset with a decrease.
An impact threshold for changes should be strongly considered, limiting changes to no more than 5 to 10 percent. When a change impact is called for, pay adjustments should be instituted rather than goal adjustments in order to preserve the integrity of the goal. This better enables comparisons of sales reps based on performance; if goals are shifted then the process’s integrity becomes eroded.
With these three approaches, you can create a more sound quota setting process that will minimize disruptions.