What is Sales Quota?
A sales quota is a standard for measuring the achievement of salesman in a sales organization. Sales quota is the estimated volume of sales that a company expects the salesman to secure within a definite period of time in his sales territory.
In other words, sales quota is the amount of business the sales manager has fixed for every salesman. In short, it is the target of sales or standard of performance laid down by the sales manager for each salesman.
How are Sales Quota fixed?
The sales quota may be fixed in terms of value (Rupees) or in terms of (physical) units of sales. The period for which sales quota is fixed varies from one firm to another.
The sales quota may be fixed weekly, monthly, fortnightly, half yearly or yearly or any other period found suitable for the company. It is a way of knowing continuously the contribution the sales organization is making to the company’s progress and also for evaluating each salesman’s work.
The sales quotas provide the management a yardstick for measuring the performance of salesmen. It is a managerial device for defining and stimulating sales efforts.
Factors to be considered while fixing Sales Quotas
A number of factors are used for establishing sales quota for salesmen. The quotas may be based on past sales records, buying power of customers, competition, company policies, total production for the year, etc.
1. Past sales records
Past sales of established organizations form a good index for future performance. Thus, future sales quotas are fixed keeping in view of the past sales. New companies can fix their sales quotas by observing past sales of competing firms.
2. Buying power of customers
A manufacturer can have a rough estimate of the purchasing powers of customers of a particular area can be known by the economic status; income of the customers living in the area, living habits, etc. Accordingly, the manufacturer can estimate sales quotas for that particular area.
3. Company’s policies
Company’s policies regarding credit, quality of goods, discount, selling terms have a direct impact while estimating sales quotas for salesmen. If the company has liberal credit policy, offers higher rate of discount and facilitates installment purchase, larger sales quotas can be set for salesmen. These policies help to increase the demand for goods and services and as such increases the sales quota of each salesman.
4. Total production for the year
A company’s total production in a particular year determines the size of sales quota. If, in a particular year, the production is high, then higher sales quota for each salesman is fixed. If it is normal in a particular year, moderate sales quotas are fixed.
5. Extent of competition
If the company is facing high competition, the sales quota size also becomes less. On the other hand, companies enjoying lesser competition or near monopoly, can have larger sales quotas fixed for each salesman as there is every possibility of larger volumes of sales.
6. Opinions of those who know
Experts in the sales field are of immense help in determining the sales quota. Dealers, agents, consultancy firms and other agencies which are closer to the market, are in a position to know the kind of goods that can be sold for certain quantities in a particular area. Companies can take the help of such persons or agencies in fixing sales quotas for each salesman.
7. Consumer Standards
The income of the people and their consumption level are also important factors in determining the size of the sales quota of salesmen. Consumers possessing luxury goods like refrigerators, cars, television sets, vacuum cleaners, computers, telephones, etc., indicates the living standard of the consumers. Economically well-to-do persons like doctors, engineers, businessmen, gazetted officers, etc., also constitute an important index for judging the standard of consumers. Accordingly, sales quotas can be fixed.
Besides the above, factors such as services performed, number of calls made, number of new accounts opened etc., help the sales manager in estimating the approximate demand for a product. The next step would be fixing sales quotas. It should neither be too high to fulfill nor too low to be achieved without any effort. The sales quota finally assigned to salesmen should be accurate, fair and attainable.