What Is a Sales Quota? Types, Examples & How To Set Goals

We’ve all been there: It’s Q4 crunch time. Your numbers are slipping. Quotas seem out of reach and your team starts breaking into a cold sweat. Will they hit their numbers? Will the company hit its targets?

This is not how you want your team to feel. But it’s where a lot of sellers are. According to the latest State of Sales report, only 28% of reps are expected to hit their quotas in 2022. Demoralising.

The good news: With the help of sales software you can set motivating quotas that are challenging but not soul-crushing. Here’s how.

• What is a sales quota?
• Why are sales quotas important?
• 5 types of sales quotas
• How to set sales quotas
• Tips for setting sales quotas
• How to keep track of sales quotas
• Tips for your reps: how to hit sales quotas

A sales quota is a measurable goal sellers are expected to hit in a specific time period. It can be based on any number of metrics, but usually centre on total sales generated, number of deals closed or won, sales activities completed or a combination of these metrics. Sales managers typically set quotas that, if attained, allow the company to hit sales targets set by leadership.

For the sales rep, quotas provide accountability. They are concrete goals they can aim for with deadlines to keep them on track. Without these benchmarks to guide them, they have no sense of how much to sell or how they are performing. They get complacent — even lazy. Harvard Business Review found that reps without quotas often flounder, while companies with achievable quotas, complemented by bonuses, are effective at motivating low-performing reps and keeping high-performing reps hitting their numbers.

Equally as important, quotas are a way to align sales efforts with broader business objectives. They ensure reps’ combined sales will hit targets set by the executive leadership team.

While sales quotas are ultimately designed to help your company hit your sales targets, the type of quota you choose for your team depends on your product or service and business needs. The five most common are activity quotas, profit quotas, forecast quotas, volume quotas and combination quotas.

Here’s a closer look at each one:

These quotas are based on the number of lead nurturing actions your reps take to move a deal from early stage awareness to evaluation and close. This includes cold calling, sending emails or scheduling meetings. Activity quotas are often assigned when a company needs to focus on prospecting to build market share with a new product or service.

Activity quota example: Let’s say a software company launches a new AI product and wants to sell it to new clients that fit their buyer persona. Since it’s a new product, they need to build awareness and interest. To accomplish this goal, sales managers set activity quotas to help their team generate new leads - 25 calls, 40 outreach emails and 2 meetings booked with prospects per day.

A profit quota requires reps to achieve a certain amount of profit (sales revenue after subtracting selling expenses) by sale or by quarter. This type of quota aims for consistent revenue generation rather than trying to offset cost by selling a higher volume of products. 

Profit quota example: Back to the software company. Let’s say the sales manager sets a profit quota of $5,000 on each sale. Max, a sales rep, strikes a product deal worth $8,000 with a customer. His selling expenses, including airfare to meet with the client and materials needed to help nurture the sale, total $2,000. The profit on this sale is $6,000, so Max beats his profit quota.

To create a forecast quota, managers review sales numbers from previous years or quarters and look at market conditions, like supply chain issues, that could affect future sales. Then, they develop a projection for company sales in the coming year or quarter and use that to inform their quotas. Forecast quotas are often used when companies have performed consistently over time and sales-influencing factors like market conditions are stable; without changing variables, managers can accurately predict how much they will sell.
Forecast quota example: A retailer has enjoyed favourable market conditions at the end of every year for at least a decade. Last year, they landed a new sales record of $1.5 million. There were 100 sales agents onsite at the retailer’s locations in Q4, averaging $15,000 in sales each. This coming year, the company will onboard 30 more reps. With market conditions predicted to remain favourable, the company forecasts roughly $2 million in sales over the next year. Taking into account the newly hired reps, the quota for the next Q4 will be set at $15,400 per seller to meet the $2 million forecast.

A volume quota is based on the total number of units a rep sells. This type of quota is useful for motivating teams to sell more of a certain product, which is useful with new product or service launches. Volume quotas can also help move excess inventory.

Volume quota example: Next quarter, a car dealership wants to get rid of 45 old model vehicles to make room on the lot for newer ones. To make sure the cars are off the lot in time, they set a quota for their rep to sell 15 older-model cars each month (15 cars x three months in a quarter = 45 cars).

As the name implies, a combination quota combines different types of sales quotas. Companies will set this type of quota when they want to meet more than one objective, such as increasing market share for a specific product while keeping profits high.

Combination quota example: A delivery company is seeing low customer satisfaction rates and wants to boost their profit. By digging into their data, they discover that new customers are unhappy with the lack of communication from their sales reps. So, the leadership team sets a combination quota: each rep has a profit quota of $25,000 paired with an activity quota to call10 customers each week.

To create achievable sales quotas that also allow you to hit sales targets, you need to be able to track your sales data in real time. Start by pulling your data into a CRM that can serve as your single source of truth. Then, look at what your team can sell based on historical performance data and current market conditions. Use that information to guide either top-down or bottom-up quota setting. Here’s a look at each approach in detail:

In the top-down approach, sales leaders and investors set targets based on the company’s financial goals. These sales targets are divided among sales teams, which managers use to set quotas for each rep.

The benefit of this approach is that sales quotas are closely aligned with the company’s goals. There are pitfalls, however. Top-down quotas are usually set based on feedback from investors and executives, without much input from the sales reps who will actually do the job. That makes it easy to set unrealistic quotas, which can lead to seller burnout and, potentially, rep turnover.

The bottom-up approach takes the opposite tack. Rather than passing revenue goals down from the executive level and letting managers set quotas to achieve those goals, managers work with their reps to set quotas they believe are achievable. Then, sales teams pass their quotas up to leadership. Executives propose adjustments based on desired sales targets and managers/reps review. This back-and-forth continues until the company has both reasonable quotas and the ability to hit targets that deliver growth. The idea here is to get greater buy-in from reps by giving them a voice in setting their sales goals.

This approach has drawbacks, too, though. Desired quotas from managers and reps may not be high enough to hit the growth targets leaders want. If this happens, leaders may override the quotas reps and managers request. This could result in friction between sales teams and leadership.

I’d love to tell you there’s a clear right and wrong way to set sales quotas. The reality is somewhere in between. Most companies approach sales quotas with a mix-and-match approach. They test out different scenarios, then apply what they learnt to set the next round of quotas. I recommend the following approach:

• Understand how much your team can actually sell. Using the data from your CRM, look at your team’s sales capacity or how much you think your team can actually sell based on past performance. Also, get input from your sales teams. Given what they know of their own performance, what do they think is achievable in the coming year? Let’s say that last year, almost all of the sellers on your team hit quota, averaging $100,000 in sales. But you lost two of your top performers and the other five reps on your team averaged closer to $80,000. They don’t think they can hit much higher than what they did last year, which means you likely have to drop your quota.
• Factor in external influences that impact quota. External factors vary depending on the moment, but typically include changes in buyer interest or demand, economic conditions and industry trends. Lean into online research, professional networks and news sources to help you stay on top of these factors. Some CRMs, like Sales Cloud also allow you to gather and analyse this data quickly so you don’t have to search in multiple places. If you find external influences are favourable, like an increase in demand, adjust your sales quotas up. If they are likely to have a negative impact, adjust your quotas down.
• Aim for a realistic stretch goal. If 100% of sales reps achieve their quota, your lowest performers appear to be performing at the same level as your high performers. That means you’re not getting as much as you can out of your best talent and not giving your underperformers a chance to improve. Here’s a guide I give my clients: Set a quota you think at least half of your sellers can hit. This keeps your high performers engaged and gives low-performing reps an opportunity to up their game.

Once you’ve set your sales quotas, stay on top of sales performance data to see how your team is progressing. As noted above, that’s where a CRM comes in. Pull in all relevant sales performance data to this single source of truth, create dashboards to help you to track it and review progress during regular rep pipeline reviews and one-on-ones.

1. Set up a CRM with analytics tools and pull in all sales data.

The CRM you choose should allow your reps to track progress of each deal and give you insights into their overall quota attainment in real time — for whichever quota you choose.

2. Create dashboards with relevant metrics and share with reps and leaders.

Using the sales performance data in your CRM, build two dashboards: one that allows you to track each rep’s performance individually and one that tracks total quota attainment by team so leadership can view progress toward sales targets.

3. Using the dashboards you’ve set up, keep an eye on progress.

Regularly review each rep’s quota attainment to date during pipeline reviews and at the end of every quarter. Use this information to adjust strategy or set new quotas that meet seller capacity and business objectives.

You’ve set the quotas. You’ve aligned with leadership. Now how does your team hit its numbers? It comes down to planning, customer focus and consistent execution against your goals. Here are some tips:

You can’t fake your way to a quota. It takes careful planning. Based on your yearly quota and the length of your sales cycle, determine how much you need to sell each month to achieve 100% quota attainment. Then, break these monthly goals down into smaller activity milestones: calls to make, emails to send, demos to share etc. For example, if your goal is to close three major deals by December and you know it typically takes six months from start to finish, set milestones beginning in June for each deal, including prospecting calls and sales meetings. Identify any additional activities you need to complete in order to hit these milestones, then schedule those on your calendar.

This may seem obvious, but sellers tend to focus on closing. To hit your quotas, stop thinking about inking the deal and start thinking about how to help your customers. If you take the time to actively listen to their needs and connect the dots with your solution, the close comes more naturally Sales coaching sessions are also an effective way to improve your team’s customer-facing skills.

Whether you’re using a CRM like Sales Cloud or a paper planner to track your sales, you will need a calendar to keep you organised or you will eventually forget something important. Put all your commitments on your calendar and be self-disciplined about sticking to the schedule you’ve laid out for yourself. And yes, unexpected things will arise, so plan ahead so you can adjust easily as needed.

Strategic quota planning is the key to motivated reps and big business wins. Use your CRM to study your sales data, measure past performance and try out different types of quotas to find the one that works best for your business. But also, keep in mind that this isn’t a one-and-done exercise. Revisit quotas yearly at a minimum to make sure they are motivating — and achievable.