CHAPTER 7 SALES OBJECTIVES AND QUOTAS
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.
WHAT IS A QUOTA? A quota refers to an expected performance objective. Quotas are tactical in nature and thus derived from the sales force’s strategic objectives.
WHY ARE QUOTAS IMPORTANT? • Quotas provide performance targets. • Quotas provide standards. • Quotas provide control. • Quotas provide change of direction. • Quotas are motivational.
TYPES OF QUOTAS • Sales volume quotas.
Sales volume quotas includes dollar or product unit objectives for a specific period of time.
TYPES OF QUOTAS • Sales volume quotas. • Break down total sales volume.
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.
TYPES OF QUOTAS • Sales volume quotas. • Break down total sales volume. • Profit quotas.
The two types of profit quotas: • Gross marginquota determined by subtracting cost of goods sold from sales volume. • Net profitquota determined by subtracting cost of goods sold and salespeople’s direct selling expense from sales volume.
TYPES OF QUOTAS • Sales volume quotas. • Break down total sales volume. • Profit quotas. • Expense quotas.
Expense quotas are aimed at controlling costs of sales units. Often expenses are related to sales volume or to the compensation plan.
TYPES OF QUOTAS • Sales volume quotas. • Break down total sales volume. • Profit quotas. • Expense quotas. • Activity quotas.
Activity quotas set objectives for job-related duties useful toward reaching salespeople’s performance targets.
Customer satisfaction refers to feelings about any differences between what is expected and actual experiences with the purchase.
TYPES OF QUOTAS • Sales volume quotas. • Breakdown total sales volume. • Profit quotas. • Expense quotas. • Activity quotas. • Quota combinations.
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.
SELLING BY OBJECTIVES SETS FUTURE TARGETS • Two basic steps to implementing sales strategies: • Step 1: Organize the jobs. • Step 2: Define annual objectives in important areas.
FIGURE 7.2 THE FOUR MAJOR AREAS TO ESTABLISH OBJECTIVES WITH EACH SALESPERSON SALES MANAGEMENT Step 1: Organizing the Job Salesperson Territorial Management Call Management Self-Management Account Management Step 2: Defining Annual Objectives • Limits • Potential Business • Size • Customer Base • Prospects • Leads • Market Share • Growth • Trade Relations • Dealer Relations • Portfolio of • Accounts • Potentials • Coverage • Records • Order Size • Penetration • Reports • Customer • Satisfaction • Preparation • Selling Technique • Training • Communication • Buyer Behavior • Impact • Handling Resistance • Appearance • Manner • Communication • Skills • Abilities • Attitudes • Selling Abilities • Regular • Problem Solving • Innovative
SELLING BY OBJECTIVES SETS FUTURE TARGETS • Treating the territory as a business. • Managing each account.
Tactical plan for managing accounts: • Build the stars. • Harvest the cash cows. • Fix the problems. • Divest the dogs.
SELLING BY OBJECTIVES SETS FUTURE TARGETS • Treating the territory as a business. • Managing each account. • Managing each call.
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?
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?
SELLING BY OBJECTIVES SETS FUTURE TARGETS • Treating the territory as a business. • Managing each account. • Managing each call. • Managing oneself.
Self-management in selling includes the following: • Since selling involves making contact with strangers, dress, style, demeanor, and personal decorum are part of the salesperson’s 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.
BASIC LEVELS OF INDIVIDUAL OBJECTIVES • Regular, ongoing, and recurring objectives. • Problem-solving objectives. • Innovative or creative objectives. The highest level of excellence is reserved for people who are attaining all three.
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.
AGOOD OBJECTIVE AND QUOTA PLAN IS SMART • Specific • Measurable • Attainable • Realistic • Time specific
A simple three-way test to judge how well quotas and objectives are written: • Test 1: Does this quota state exactly what the intended result is? • Test 2: Does this quota specify when the intended result is to be accomplished? • Test 3: Can the intended result be measured?
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.
FIGURE 7.4 SETTING OBJECTIVES AND QUOTAS IS A TWO-WAY PROCESS BETWEEN MANAGER AND SALESPERSON
THE SALES TERRITORY IS WHERE QUOTAS ARE MADE The sales territory is “where the action is!”
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.