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CHAPTER 7
SALES OBJECTIVES AND QUOTAS

Copyright 2001 by Harcourt, Inc. All rights reserved.

LEARNING OBJECTIVES
Objectives and quotas are fundamental parts of a company, because they provide the sales force with direction and goals. Selling by objectives (SBO) is a system that unites the sales force. This chapter should help you understand: The relationship between sales objectives and quotas. Why quotas are important.

The various types of quotas.

The methods for setting quotas. Criteria needed for a good quota plan.

Major areas for establishing objectives.

How organizations set objectives. The selling by objectives process.
Copyright 2001 by Harcourt, Inc. All rights reserved.

WHAT IS A QUOTA?
A quota refers to an expected performance objective. Quotas are tactical in nature and thus derived from the sales forces strategic objectives.

Copyright 2001 by Harcourt, Inc. All rights reserved.

WHY ARE QUOTAS IMPORTANT?

Quotas provide performance targets.

Quotas provide standards.

Quotas provide control. Quotas provide change of direction.

Quotas are motivational.

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TYPES OF QUOTAS
Sales volume quotas.

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Sales volume quotas includes dollar or product unit objectives for a specific period of time.

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TYPES OF QUOTAS
Sales volume quotas.

Break down total sales volume.

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 Product lines. Individual established and new products. Geographic areas based on how the sales organization is designed, which would include: Sales division. Sales regions.

Sales districts.
Individual sales territories.
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TYPES OF QUOTAS
Sales volume quotas.

Break down total sales volume.

Profit quotas.

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The two types of profit quotas: Gross margin quota determined by subtracting cost of goods sold from sales volume. Net profit quota determined by subtracting cost of goods sold and salespeoples direct selling expense from sales volume.

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TYPES OF QUOTAS
Sales volume quotas.

Break down total sales volume.

Profit quotas. Expense quotas.

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Expense quotas are aimed at controlling costs of sales units. Often expenses are related to sales volume or to the compensation plan.

Copyright 2001 by Harcourt, Inc. All rights reserved.

TYPES OF QUOTAS
Sales volume quotas.

Break down total sales volume.

Profit quotas. Expense quotas.

Activity quotas.

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Activity quotas set objectives for job-related duties useful toward reaching salespeoples performance targets.

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Customer satisfaction refers to feelings about any differences between what is expected and actual experiences with the purchase.

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TYPES OF QUOTAS
Sales volume quotas. Breakdown total sales volume.

Profit quotas.
Expense quotas. Activity quotas. Quota combinations.

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METHODS FOR SETTING SALES QUOTAS

Quotas based on forecasts and potentials.

Quotas based on forecasts only. Quotas based on past experience. Quotas based on executive judgments.

Quotas salespeople set.

Quotas related to compensation.
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TABLE 7.4 LEVELS OF ORGANIZATIONAL SALES PLANNING

LEVEL

PURPOSE: WHAT IS PLANNED

WHO (USUALLY) IS INVOLVED

1. Marketing

Organizational goals Upper management and (increase in market share or sales and marketing penetration, increase in executives customers, increase in sales dollars and units sold) Priorities (which regions, markets, and products to emphasize) Dollar allotment (for promotion, advertising, new employees, sales incentives, and so on) Regional and district sales managers (which input from sales reps) District managers and sales representatives

2. Regional plan

3. District plan

4. Territorial plan

Goals for number of new Sales representatives customers and for increased business with old customers in each region and territory

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SELLING BY OBJECTIVES SETS FUTURE TARGETS

Two basic steps to implementing sales strategies: Step 1: Step 2: Organize the jobs. Define annual objectives in important areas.

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FIGURE 7.2 THE FOUR MAJOR AREAS TO ESTABLISH OBJECTIVES WITH EACH SALESPERSON
SALES MANAGEMENT

Step 1: Organizing the Job

Salesperson

Territorial Management Limits Potential Business Size Customer Base Prospects Leads Market Share Growth Trade Relations Dealer Relations

Account Management Portfolio of Accounts Potentials Coverage Records Order Size Penetration Reports Customer Satisfaction

Call Management Preparation Selling Technique Training Communication Buyer Behavior Impact Handling Resistance

Self-Management Appearance Manner Communication Skills Abilities Attitudes Selling Abilities

Step 2: Defining Annual Objectives 1. Regular 2. Problem Solving 3. Innovative Copyright 2001 by Harcourt, Inc. All rights reserved.

SELLING BY OBJECTIVES SETS FUTURE TARGETS

Treating the territory as a business.

Managing each account.

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Tactical plan for managing accounts:

1. Build the stars.

2. Harvest the cash cows.

3. Fix the problems. 4. Divest the dogs.

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SELLING BY OBJECTIVES SETS FUTURE TARGETS

Treating the territory as a business.

Managing each account.

Managing each call.

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Questions about the content of calls:

Is the sales rep properly armed with information, leads, and materials before the call occurs? Is the sales rep applying the major principles of selling technique during the presentation? Or is the sales rep inventing his or her own and perhaps making every mistake every salesperson in history has made?

Has the salesperson planned some coherent attack for the sales presentation, and is it working well?
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Questions about the content of calls:

continued

Does the sales rep have enough training in communication, in meeting sales resistance, in understanding buyer behavior, in improving call impact, in gaining greater account penetration, in follow-through methods to do the job? Does the sales rep have enough knowledge of the product and its applications, service and system backup, and technical problems to handle the toughest calling situation?
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SELLING BY OBJECTIVES SETS FUTURE TARGETS

Treating the territory as a business.

Managing each account.

Managing each call. Managing oneself.

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Self-management in selling includes the following:

Since selling involves making contact with strangers, dress, style, demeanor, and personal decorum are part of the salespersons tool kit.
Communication skills, memory, logical speaking

habits, and writing competence are vested in the person.

Attitudes and outlook toward the job, the product, the company, and the customers all have an important bearing in the results to be achieved.
The knowledge of selling techniques, what the various kinds are and how and when to use them, are personally vested in the sales rep and can be produced and polished by training.
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BASIC LEVELS OF INDIVIDUAL OBJECTIVES

1. Regular, ongoing, and recurring objectives.

2. Problem-solving objectives.
3. Innovative or creative objectives. The highest level of excellence is reserved for people who are attaining all three.
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THE PROCEDURES FOR SETTING OBJECTIVES AND QUOTAS WITH SALESPEOPLE

Prepare the way.

Schedule conferences with each salesperson.

Prepare a written summary of goals agreed upon.

Optional group meeting to share objectives.

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FIGURE 7.3 SELLING BY OBJECTIVES FORM

Name For Year List Your Responsibility Area Results Expected Output 1. $ Volume/month 2. $ Expense/month 3. Gross margin/month 4. 5. 6. 7. 8. 9. 10. 11. 12. Other Instruction: List the regular, ongoing, recurring objectives. Cover the ten major responsibilities of your job next year to manage territory, accounts, calls, and yourself.
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Pessimistic

Realistic

Optimistic

Results

A GOOD OBJECTIVE AND QUOTA PLAN IS SMART Specific Measurable Attainable Realistic Time specific
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A simple three-way test to judge how well quotas and objectives are written: Test 1: Test 2: Does this quota state exactly what the intended result is? Does this quota specify when the intended result is to be accomplished? Can the intended result be measured?

Test 3:

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SELLING-BY-OBJECTIVES MANAGEMENT
Selling by objectives (SBO) is the process elaborated on earlier whereby the manager and salesperson jointly identify common goals, define major areas of responsibility, and agree on the results expected.

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FIGURE 7.4 SETTING OBJECTIVES AND QUOTAS IS A TWO-WAY PROCESS BETWEEN MANAGER AND SALESPERSON

Mutually Set Objectives and Quotas

M e a s u r e P e r f o r m a n c e

E v a l u a t e P e r f o r m a n c e
Publicize Performance Results

R e w a r d o rP e n a l t y

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THE SALES TERRITORY IS WHERE QUOTAS ARE MADE

The sales territory is where the action is!

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THE BOTTOM LINE

Quotas are important to a company because they establish the end state sought, and they change according to external and internal forces.
Many different types of quotas exist. Methods for setting quotas may vary. Setting a sales quota can be an involved process. Selling by objectives (SBO) is a common concept and is widely used by sales organizations.

Copyright 2001 by Harcourt, Inc. All rights reserved.