Originally published in Forbes
By Randy Illig
I was once working with a company as they brought in a high-powered CFO to prepare for a public offering. After the general managers presented their business plans during their annual planning meeting, the CFO said, “Those quotas don’t add up to our target… so we need to change the quotas.” One of the general managers responded, “What does changing the quotas do? We don’t have enough resources to hit that number. We would need more people to get that done.”
The CFO became almost irate, demanding that they raise the quotas to cover the gap. I watched as this very seasoned business leader created his own false sense of security. Eventually the general managers were brow-beaten into raising quotas. To no one’s surprise (except the CFO), they did not hit their annual targets.
Quotas often serve the quota-setters, not the sales teams meeting them. It makes leaders feel safer than they really are: Our annual target is $100 million, and we’ve got $120 million in quota assigned, so now I can rest easy! Quotas are often artificially set from the top down or by job category—all Sales Executives I’s get a $1 million quota, all Sales Executives II’s get a $1.5 million quota, etc.
Organizations put tremendous energy into quotas, but there’s one problem: a quota is not a number a salesperson can control.
They can control the actions that drive the quota, but not the quota itself.
All this focus on quotas—no matter how they’re set—is not helpful. They aren’t predictive of being successful. It’s like navigating with the rearview mirror. What would be more meaningful to publish is how teams and individuals are performing against lead measures, or actions you’re going to focus on every day, month or quarter that actually impact the number. These lead measures should be chosen in a collaborative way, with the salesforce, not in a leadership vacuum.
When these targets are set collaboratively, where you work from the bottom up and get feedback from the top down, you’ll arrive at numbers that make sense. Then you can sleep well at night knowing you have thoughtfully constructed plans to hit your target.
If you want to take this on, here’s how:
- Calculate your gap, not your quota. Start with the revenue target for the company/division/group. Most businesses have a certain momentum that will produce some amount of revenue, but rarely does that momentum cover the entire target for the year. So the difference between the target and the momentum is the gap. Clarify that number.
- Brainstorm strategies that would close the gap—then choose one. Common examples include cross-selling to existing accounts, releasing a new product or pursuing new logo accounts. The trick is to narrow that list down to one or two things. (By the way, the challenge that most organizations face is having too many campaigns to close gaps, which I’ll discuss in a future article.)
- Repeat this exercise at all levels. Don’t say, “Here’s the plan,” but rather, “Here’s our best thinking.” Then let teams do the exact same exercise from the bottom up, with awareness of the overarching plan: What should my target be, what’s my business momentum, and what’s the gap? What one activity would make the most impact in closing that gap? This isn’t a negotiation in which managers are trying to increase the number and individuals are trying to decrease it. The purpose of this collaboration is to arrive at a place where both leaders and salespeople have confidence.
- Finalize the lead measures. At the individual, team and VP level, select lead measures that are predictive of achieving your goal and influenceable by individuals. Again, limit these to one or two weekly activities. Say we’re pursuing a cross-selling strategy. Our lead measures might be presenting to one customer a week to explore their needs and how our other products could help them. Or in the case of new logos, a lead measure might be contacting five new prospects weekly to explore whether it makes sense to meet and discuss the opportunity. Measure and publish these metrics as intently as you used to track quotas.
Quotas are easy for financially oriented business leaders to conceptualize, manage, and assign, and it’s a traditional way of doing things. It’s comforting to leaders, albeit falsely. Working in the way that I described is more difficult. It takes more time and involvement. It lacks uniformity. But you get a much truer sense of what the business really looks like and what needs to happen to achieve growth targets.
The time to do this process is in your annual planning session. But if you don’t have this in place, it doesn’t matter when it is—you need to go through this process.
Randy Illig is global leader of FranklinCovey’s Sales Performance Practice.