Goal-Setting Processes and Quotas

Understanding the Goal-Setting Process

The goal setting process can be challenging, as it is with any complex and collaborative process. It gets infinitely harder when you have to execute the process on spreadsheets with multiple copies of models floating around in your email. However, the Target setting process within the fullcast.io designers aims to make the process easier through:

  1. Single Source of Truth - everyone logs into one system and has access to the same information from one centralized location.
  2. Integrated Collaboration - Feedback is captured in one place, allowing everyone involved to see and react to changes made by others.
  3. Simplified Data Model - allows for territory planning and quota setting to be done on a standard format.

Principles

Designing your territories and goals requires you to establish a set of key principles. These principles should serve as a guiding light on how you execute your goal setting process. Here are some common principles that have served organizations well:

  1. Data-Driven - Make the process data driven. Backup the targets with data showing that they are achievable. Try to eliminate any personal basis in how you set goals. Eliminate any perception of bias in the process of setting targets for sales reps.
  2. Transparency - make the process transparent to everyone involved, especially the sales reps. Provide the necessary tools for the managers to explain the process of goal-setting and the data points considered in the process.
  3. Fairness - Sales reps are more likely to accept a goal they feel is fair and achievable. Unachievable goals not based in data are likely not to be received well, especially if there is perceived bias.
  4. Policy-Driven but Flexible - Changing market conditions and a whole host of practical situations require quotas to be changed and quota credits to be applied. These are essential tools at the disposal of any sales team to maintain fairness and to reward high performing individuals. But it's important to make these situations as policy-driven as possible. Document the policy and the process around how changes to a territory, quota, and credits will be applied. Allow the reps to have the means to challenge the process, followed with high-level sales leadership engagement.
  5. Customer Focused Design - make sure your process and policy encourage the best behavior by your reps that lead to the best outcome for the customer. Goals and targets have a significant impact on sales rep morale and sales rep behavior. Setting targets incorrectly can lead to sales behavior that can result in poor customer satisfaction.

Define these principles and communicate them widely to the teams involved in the goal-setting process, including sales reps and account executives.

Implementing Goals

  1. Goal Setting & Forecasting - successful goal setting requires an in-depth analysis of the scenario being used to set the targets. Forecasting plays a vital role in determining the goals being set. Top line goals are usually based on financial objectives for the planning period. The company's corporate finance teams typically establish them.
  2. Top-Down Distribution - Once the top line targets are known, planners can then focus on the process of distributing targets and the various factors to be considered in breaking down the top-line targets by territory, teams, products, etc.
  3. Bottom-Up Feedback - Involve the people that will be responsible for carrying the targets to help provide bottom-up feedback and ensure achievable targets. Remember that territory planning and quota settings are related, and there is a lot of information that reps and frontline managers have that are crucial to achieving targets.
  4. Communicate - Lock in the targets and communicate them to the sales reps once the Top-down and Bottom-Up process has been completed. This process conveys all the crucial factors and data to the sales rep.
  5. Adjust - Adjustments are inevitable, and are based on changing conditions and feedback from the market and sales team. Adjust in a way that is policy driven. Remember that the territory design has a lot to do with how quotas are assigned and achieved. Allow for a policy-driven method to handle changes within a territory, as they directly impact quota.

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Impact of Data Quality

Data quality in your territories will have an impact on your ability to build viable territories and also to calculate potential, total addressable market, or any other such metric that may be used to set goals. Therefore, provide a way to re-evaluate goals when significant data quality based impacts are detected and corrected.

Understanding Quotas

Sales leaders set quotas and provide them to salespeople to execute the goals for the business. Therefore, it isn't a good idea to keep changing the values of the goals when people are working towards them.

All changes made to the targets must be an explicit action done by someone accountable for making these changes. This is particularly important when we have dynamic or formula-based goals. It’s likely that the values of the variables used in the formulas can change, but that does not mean the quotas need to change – unless someone explicitly “Re-Calculates” the new values and sets it as the updated target.

So, even though formulas can be dynamic – it is only at the time of setting goals (i.e., Design Time) that the underlying variables change and not at run-time. You can recalculate values explicitly in the Design Module.

Planning Quotas

More often than not, companies use either one or a combination of the following approaches to establishing the right sales quotas. This list isn't exhaustive; however, this list describes several commonly used approaches:

Total Addressable Market Estimates

Well-established companies with well-defined markets often follow this method. The typical process involves:

  1. Estimating the next year's total market demand or the total industry sales forecast. Typically these numbers are available from research organizations that study various established industries (e.g., IDC or Gartner, etc.)
  2. Deciding the company's estimated market share for next year.
  3. Establishing the company's next year sales forecast = 1 x 2.
  4. Determining the contribution of each territory to overall sales last year.
  5. Setting sales quota by territory = 3 x 4.

Territory Potential

This method is used by companies that have a clear understanding of the product-market fit. To calculate the potential in a market, you need to have a clear understanding of your Ideal Customer Profile (ICP) and their buying patterns. The typical process followed involves:

  1. Estimating the next year's industry sales forecast or market demand.
  2. Estimating a multi-factor index (MFI) for each territory based on the factors that influence the sale of the product. These factors can be weighted based on historical performance and the degree of sales opportunity. For example, the historical win rates in a particular industry could be a factor. The demand from your ICP based on firmographic attributes, such as the number of employees, could be another factor.
  3. Territory Market Potential = 1 x 2.
  4. Territory sales quota = 3 x estimated target market share of the company in a territory.

Propensity Models

This method is similar to the Territory Potential method, but here you would calculate the propensity of your prospects and customers to purchase your products. If your sales growth is heavily based on related products, then this approach might be useful. The propensity is based on where the customer is in the use of your products, which in turn increases their tendency to buy an add-on product or additional products from your company.
For this method, you would need to have a good sense of the typical journey of your prospects and customers, and the anticipating demand based on the current usage pattern of customers in a territory.

Past Sales Performance

This process is perhaps the most commonly used approach. This process involves:

  1. Evaluating past years' sales performances (say 2 to 5 years)
  2. Estimating the percent growth of the market
  3. Territory Sales Quota = 1 x 2

The assumption that future sales may be related to past sales may not always be correct, and therefore, this method is typically used in combination with other methods to drive more accuracy in the target setting process.

On-Target-Earnings or Compensation based

Some organizations set quotas to align with salesperson compensation plans. The idea here is that you expect an appropriate factor return for a rep's salary or the fully-loaded cost of a sales resource. For example, if you pay your sales reps $200K, then you can expect a 5x return on that compensation, which means a $1M quota. To use this method:

  1. Take the average On-Target Earnings or the Fully loaded cost of a sales rep.
  2. Estimate the average rate of the return (based on historical performance) or an expected return rate.
  3. Territory Quota Target = 1x2.

Sales Rep Estimates & Executive Judgement

This process relies entirely on a bottom-up approach, where the sales reps provide sales forecasts for the next year, and their sales managers provide their judgment (they would either uplift or downgrade the forecasts based on their assessment.)

While this is a great way to cross-check a top-down process, setting primary quotas is not recommended using this method. Sales managers and sales reps can sandbag the numbers or be overly optimistic, leading to variability in attainment.