Sales Quotas Explained: 5 Types of Sales Quotas

A sales quota is a set number of sales or a specific revenue amount that a sales management team establishes for a company. Sales managers assign these sales quotas to a sales team or individual salespeople.

Sales quotas are not the same as sales goals. A sales goal tends to be an aspirational projection based on past performance in a prior quarter or in the last year. Sales quotas also involve forecasting, but they tend to be fixed requirements that are tied to a sales rep's compensation plan. If the sales rep hits their sales performance quota in a given period of time, they receive compensation linked to those sales activities.

Sales quotas enable a sales organization to incentivize the work of prospecting for new customers and improve conversion rates in a specific period. Goal-setting sales quotas and paying sales commission lets a business management team link employee compensation to the revenue employees generate. If sales reps hit a certain dollar amount within a sales cycle, they share in the rewards.

Sales managers employ a wide array of quotas to motivate employees in the sales process.

1. 1. Volume quota: A volume quota is a sales quota that rewards sales reps for the number of deals or qualified leads they generate, regardless of deal size.
2. 2. Revenue quotas: This type of sales quota rewards gross revenue. If a team member only makes a single sale in a given timeframe, but the sale generates massive revenue, the sales rep can still meet a manager's sales quota.
3. 3. Profit quotas: A profit quota is similar to a revenue quota, but it considers the net income of sales activity. That is to say it calculates gross revenue minus selling expenses. This incentivizes sales reps to work efficiently in their sales calls and meetings.
4. 4. Activity quotas: This type of quota rewards volume of activity, such as requiring a certain number of phone calls (including cold calls and follow-ups), as well as various tasks in a consumer relationship management (CRM) system.
5. 5. Combination quota: A combination quota combines multiple sales metrics to reward different kinds of success in the sales pipeline. Different companies and different managers may employ their own templates for a combination quota.

Sales managers can employ a top-down or a bottom-up approach to setting sales quotas for their teams.

• Top-down sales quotas: In a top-down approach, sales managers and executive teams set quotas based on the company's revenue needs. They look at quantitative trends in the marketplace, identify needed growth, and set sales quotas based on data analysis and their aspirations for the company. Salespeople are then responsible for meeting these quotas to ensure that the company generates as much revenue as anticipated.
• Bottom-up sales quotas: Sales managers can also use a bottom-up approach to sales quotas; in this model, forecast quotas are based on the salespeople's past performance. This helps managers set reasonable goals and keep morale high, while still rewarding their team's sales leaders. Bottom-up sales quotas may be less ambitious in the short term, but they can be powerful tools for long-term employee retention.

Become a better communicator with the MasterClass Annual Membership. Spend some time with Daniel Pink, author of four New York Times bestsellers that focus on behavioral and social sciences, and learn his tips and tricks for perfecting a sales pitch, hacking your schedule for optimal productivity, and more.