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Even before the COVID-19 pandemic flipped the economy on its head, sales teams were falling short of their quotas. More than half (57 percent) of sales representatives were expected to miss their quotas in 2018, according to the State of Sales report from *Salesforce Research). And, if you take the pandemic’s effects into account, an astounding 84 percent of sales reps missed their 2020 quotas.
These dismal statistics call into question the maxim that 80 percent of your sales teams should meet quotas. So what’s broken? And, more importantly, how do we fix it?
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Let’s dive into the good, the bad and the ugly of sales quotas and how to modernize these metrics for today’s knowledge worker:
The good: Why sales quotas are critical
Sales quotas are critical to performance management. They set clear, specific targets for both individual and team achievement, and these expectations serve as valuable performance metrics. This mission clarity is vital to motivating knowledge workers, including sales reps. In this case, motivation often comes in the form of compensation, but quotas fulfill something deeper for the modern-day knowledge worker: meaning.
Because sales teams are often an organization’s primary revenue driver, providing meaning to your salesforce should be pretty straightforward. Managers can tie sales representatives’ contributions back to the company’s revenue goals so they can see how their personal successes or failures directly impact their company’s success or failure. In other words, thanks to sales quotas, employees understand why they are reporting to work every day.
The bad and the ugly: Why sales quotas need to evolve
Sales quotas aren’t going anywhere, but they can and should evolve, especially because traditional quotas only offer a partial view of success. While quotas report on performance, they are too broad to gather insightful details. We often ask ourselves:
- What worked?;
- Did an increase in product demonstrations increase sales numbers or was it new client contacts?;
- And, importantly, how do we continue to improve numbers?
Additionally, quotas are lagging indicators. These back-loaded metrics report on goal achievement at the end of a given time period, typically a quarter. And in the real world, many sales reps engage in a flurry of activity leading up to the end of a quarter, backloading achievement. Basically, once your employees’ quotas come in, it’s already too late to course-correct.
Imagine you’ve reached the end of the quarter and you’re left with a disheartening reality: 84 percent of your salesforce missed quota—and you don’t really know why. That’s a lost opportunity.
Successful sales teams need real-time performance metrics that measure more than just win rates. They need an ongoing measurement of key metrics associated with desired outcomes.
Sales velocity: Close but no cigar
Sales velocity gets you closer to an efficient success indicator. The metric calculates how fast your team,or each account executive, generates revenue based on the number of opportunities, average deal value, and win rate over a set time horizon. In real-time, sales velocity shows a snapshot of the expected daily revenue add—and how it trends over time. Unlike traditional quotas, sales velocity is a leading indicator and minimizes surprises.
Measuring sales velocity is more telling than an industrial era quota. However, it’s still not quite up to snuff in today’s environment because sales velocity lumps each element into one overarching measurement. On the one hand, it’s great to have a single health metric for decision-making. On the other hand, it can become another missed opportunity, as each of the elements that make up sales velocity is a valuable performance metric. Even if you break down each individual component, simply telling your sales reps to increase their win rates or strengthen their deal values is very similar to telling them to just hit their quotas.
But, sales teams are still missing the how.
How to improve your measurement of sales success
The key to improvement is effective instrumentation of your sales process. Increase sales success by identifying the critical actions that will move the needle on your sales velocity’s constituent parts (i.e., opportunities, deal value, win rate and length of sales cycle). Then create goals around these elements, remembering to be specific and actionable. Instead of using a goal like, increase your opportunity metric by 15 percent, drill down on which actions will drive the desired outcomes.
In this case, actually improving the key metric might be to increase your opportunity by completing 20 new demos this quarter. Improving the sales velocity’s constituent parts lifts the sales velocity itself and helps teams rise to meet their ultimate goal: reaching and exceeding their quotas.
So, how do you set these clear goals and then keep your team focused and accountable? The Objectives and Key Results (OKRs) methodology can help you identify aspirational sales objectives and quantitative key results that provide specific and actionable goals. The OKRs methodology doesn’t replace sales quotas, but it helps with reaching them.
To take advantage of the OKRs mindset, the first critical step is for sales representatives, and more importantly managers and executives, to understand the instrumentation of their sales processes. Knowing which inputs will likely lead to the desired outcome is critical to setting effective key results and ultimately improving metrics. For example, you can ask yourself questions like: Do we close more sales with an increased number of demos or are cold calls more important? Should we prioritize asking for referrals, multithreading or increasing the sales bucket?
When you understand what success looks like, you can start setting OKRs. For example, if your sales representative’s quota is to bring in $25,000 in revenue, then the rep’s OKRs could look like this:*
- Objective: Crush sales quota.
- Key results:
- Perform 35 percent more prospect demos.
- Schedule a next call or meeting 100 percent of the time prior to ending a prospect call.
- Secure one introduction to a new prospect from every customer.
- Obtain one introduction to an internal decision-maker from each active opportunity.
*A third-party partner can develop effective OKRs for you and your team. After all, these experts live and breathe OKRs and know from experience which key results lead to sales success.
Many sales teams used to scoff at OKRs because they’ve always relied solely on sales quotas. And, some managers have tried using OKRs but saw no leverageable value because they set the traditional sales quota as the key result, in which case you don’t gain much.
But the benefits of using an OKRs methodology are numerous. By focusing your team on key result attainment, quota achievement naturally follows. OKRs provide transparency along the way, enabling sales reps to see their own progress toward success. From a managerial perspective, OKRs’ transparency allows you to see how employees are performing as individuals, track how your team is functioning as a whole, and analyze how quantifiable key results are flowing into quota achievement.
In the past, developing and sharing OKRs would have been cumbersome. But in today’s world, CRM platforms track each and every task a salesforce completes. And, if you use software for OKRs deployment, these systems link up, update in real-time and don’t bog down the rep with any additional reporting.
Successful modern sales teams need modern sales quotas that propel them forward, not hold them back.
Create these smart quota systems for your team by dissecting the sales velocity and creating metrics associated with each element. And then reinforce success and achievement by using technology to support goals and motivate reps. By making investments early in your sales quarter, chances are teams will achieve their objectives to crush that sales quota.
Seth Elliott is the COO at Gtmhub and has over 20 years experience as a founder or senior executive of growth and middle market enterprises with a focus on business and strategic planning, marketing, distribution, business development and operational execution.
*Salesforce is a Crunchbase investor.
