Sales Quotas: Critical Interpretations and Implications.

Accomplishing sales objectives is a critical activity of sales organizations. Effected through the assignment of sales quotas, their impact on the firm can be enormous. Yet, despite the key role of sales quotas, very little is known about their use within marketing organizations. To address this issue, this article explores what levels of sales quota performance result in management evaluation of strong, average, and poor performers. From this basis, the consequences of salespeople who fail to make sales quotas are then examined.

Justin March [of Canton Media] missed his quota -- again. Every month since being hired six months ago he has sold 60 or 70 percent of quota, but he just can't seem to get any higher. His manager, Tom Dooley, knows March possesses the skills to be a star performer (he hired March with high expectations), so he's been patient. After looking over this month's numbers, Carlton's vice president of sales, Sarah Watts, told Dooley to give March three months to make his numbers; if he can't, fire him. Dooley is sure March will improve; after all, he's a natural once the account is established. Should Dooley keep investing his time in helping March to improve? Should he let March try to prove himself on his own? Or is there a better approach? [22].

Accomplishing sales objectives is a critical activity that provides the basis for individual (salesperson) and organizational (firm) success [e.g., 2]. Correspondingly, falling to reach sales goals may create negative impacts to both the salesperson who failed to make the goal, and to the firm who relies upon his/her success. These sales goals are typically referred to as sales quotas, representing the primary sales objective for salespeople and sales managers, as well as one of the most important issues of the selling profession [12].

While quotas typically are used for evaluation (i.e., objective accomplishment), and control (i.e., directing sales efforts), they also serve as motivators. In this vein, research suggests that goals, such as quotas, can serve as n motivating force, and may positively affect effort and performance [4, 5, 17]. Yet, despite their importance, only limited anecdotal information about the use of quotas is available [8, 11]. Therefore, given the ongoing interest that exists in understanding sales performance, it is important to extend our understanding of sales quotas, both from academic and practitioner perspectives. For example, can general observations be made about sales quotas and their usage, or are they unique performance assignments, which prohibit interorganizational comparisons [e.g., 6, 24]?

Given the general lack of clarity surrounding sales quotas, the purpose of this article will be to examine several key issues as they relate to sales quotas, by assessing salespeople's view on these assignments. This includes an investigation of the role of sales quotas in assessing salespeople's level of performance, as well as the development of an understanding of the linkage between performance and sales quotas. The consequences to salespeople who fail to obtain a satisfactory level of quota performance will also be examined. These findings, and the corresponding managerial implications, are designed to expand the general level of knowledge about sales quotas, and in turn, provide a stronger basis of information for managerial decisions addressing them.

Sales Quotas: Meaning and Purpose

In their most basic format, sales quotas represent an objective for the sales unit that is widely accepted as a standard of performance measurement [12]. For instance, if a salesperson is assigned an annual sales quota of $480,000, this suggests that she must average about $40,000 in sales per month. While sales quotas may be assigned to an individual person (e.g., salesperson, sales manager), the assignment may also be for a group of individuals (e.g., a sales district). Under such usage, sales quotas are typically used as both an indicator of performance level and a mechanism to provide seller motivation [8, 15]. Consequently, the sales quota may be the single most important outcome indicator of performance for salespeople.

Sales quotas can be based within the context of a variety of performance expectations [9]. For example, a sales organization may assign quotas based on the number of products that a salesperson is expected to sell (e.g., 500 units per year), or on dollar assignments (e.g., a $375,000 sales quota). Generally however, sales quotas represent some aspect of sales volume salespeople are expected to achieve [15]. An example of such an assignment is noted in Exhibit 1.

As demonstrated in Exhibit 1, sales quotas typically represent a figure from which actual sales results can be measured. Under this basis, salespeople can be comparatively measured through the percentage of quota they obtain, despite variations in assignments, territories, products sold, experience of the salesperson, etc. Yet, while quota can be a critical tool, the available information (e.g., literature and anecdotal stories) does not tell how quotas are used to evaluate sales performance.

Sales Quotas: Unanswered Questions

Several questions remain to be answered concerning sales quotas. This study looks at the classification of performance levels at different levels of quota attainment, as well as consequences resulting from failure to make quota assignment.

Classification of Performance Levels.

Because of the critical nature of sales quotas, there is understandably strong interest in their application within the context of the salesforce [e.g., 1,4,5,7,20,21]. However, while managerial and academic interests remain high, discussions of sales quotas frequently focus on their relationship to compensation and/or performance, with little insight as to what these assignments actually mean to salespeople [e.g., 20, 23].

The underlying purpose of sales quotas is to direct "salespeople's efforts according to management's priorities and/or for providing convenient benchmarks against which actual sales performance can be assessed and controlled" [8, p.1]. Accordingly, it is important to understand basic contextual applications and meanings of sales quotas. Hence, two questions need to be addressed that focus on explaining quota performance in this context:

1. What percentage of quota performance results in a salesperson being considered an average performer?

2. What percentage of quota performance results in a salesperson being considered a strong performer?

Consequences for Failing to Make Quota Assignments. An underlying purpose of sales quotas is to create immediate sales results [16]. Given the immediate nature of sales quota assignments, coupled with the relationship between objectives and outcomes, it is reasonable to anticipate, and consistent with basic managerial practices (e.g., rewarding success), that the failure to make sales quotas should generate negative managerial outcomes [13, 14]. Yet, because of the general lack of information available about sales quotas, the relationship between not making quota, and the consequences for not making quota, remain unclear. For this reason, the following two questions are addressed:

3. What percentage of quota performance constitutes poor enough performance to result in termination?

4. What managerial actions result when salespeople fail to meet expected quota performance goals?

To address these questions, we surveyed salespeople to determine their perspectives on sales quotas. The following sections provide a description of how the data was collected, sample characteristics, results, and a discussion about how sales quotas are managed within salespeople's firms.

Methodology

A questionnaire was constructed to assess several key aspects of sales quotas. Practicing sales managers and salespeople within the financial services industry were used both during the construction of the questionnaire, and as part of a pretest after its construction. Data was then collected via a nationwide mail survey conducted of financial services sales representatives. The names and addresses of these salespeople were obtained from a mailing-list broker. Of the 1,975 financial services salespeople who were sent questionnaires, 198 returned them. Sixteen of these questionnaires were incomplete and therefore considered unusable, resulting in a total return rate of 10.02 percent, and an effective return rate of 9.2 percent.

Several circumstances may have contributed to the low response rate. First, mailing list restrictions did not allow for follow-up contact with respondents. Second, the questionnaires included some confidential questions (e.g., punishment for not making sales quota). It is reasonable to conclude that the private nature of some of these questions may have discouraged some respondents from answering the questionnaire, despite the offering of anonymity [10]. Third, nonresponse is more common when salespeople are used, the study has no sponsorship, and rewards are not provided for questionnaire completion [25]. Finally, the historical turnover rate for the population from which this sample is drawn is approximately 50 percent, which makes it difficult to assure questionnaire delivery [26]. To estimate nonresponse bias, a time-trend extrapolation test was used [3]. Results suggest that nonresponse bias is not a likely problem.