Yesterday, I was being interviewed by Pat Helmer for a podcast (it will be published in a few weeks.) He asked a question, “Should sales people be on quota?”
For a fraction of a second, I was stunned. How could anyone even ask the question? Not having a quota was something that was absolutely inconceivable to me.
Pat went on to describe that many sales managers he talks to have other goals/metrics they use–certain numbers of activities, other measures. (which when you look at it is really a form of quota).
Later in the day, I got an email from a GM for a division of a very large company. Coincidentally, he posed a similar issue. He said his sales people never had been on quota, they had certain guidelines on things they should be doing (activities) and some metrics associated with those activities.
Both of these happening on the same day caused me to pause and reflect on the issue of metrics and quotas.
In each case, there were metrics in place with goals for each of those metrics—number of phone calls per week, number of active proposals, etc. Those are all “quotas,” so what was the issue these people were referring to? In thinking about further, I realized I’d encountered a number of other organizations–some high performing in which the metrics by which sales performance was evaluated were in some way activity based.
After some reflection, I think both of these issues were really about whether sales people should have a metric related to Revenue/Orders/Margin?
After further thinking–partially aided by a glass of very nice Syrah (Thanks Amy and Ryan), I came to some opinions. Thought I’d share them with you to get your feedback.
I’m hard over on sales people having a goal or quota tied to Revenue/Orders/Margin. What we do as sales people has to be directly connected to the goals of the company. Every organization has performance measures related to Revenue/Orders/Margin. I think it’s critical that everyone can directly see how they contribute to the company goals and objectives. (I’ll come back to this later)
The top executives of the corporation are on a “quota,” they are accountable for Revenue/Orders/Margin—so since sales is responsible for the execution of the company strategy in front of the customers, I think it’s critical that sales have measures that are aligned with those at the top of the organization.
Let me be clear, though. While Revenue/Orders/Margin quotas are critical metrics, they are insufficient for managing our on performance or the performance of our teams. We know Revenue/Orders/Margin are trailing metrics, so we also have to have metrics that tell us we are doing the things that enable us to achieve those goals—do we have enough qualified opportunities? Do we have enough leads we can convert into qualified opportunities? Do we have enough engagement that will enable us to create those leads? Do we have the flow of these that enables us to provide Revenue/Orders/Margin at the pace/timing expected?
These leading, activity and other metrics were the metrics Pat and the General Manager were referring to. But I have a problem with those being the only metrics/quotas for sales people. I believe it’s critical for every person in the organization to know how they contribute to the goals of the organization. Revenue/Orders/Margin are the way we connect those dots——- “I’m responsible for $1M of our company’s $1B goal.”
I think there’s another important reason for this. If we only view our leading metrics–activity metrics, sometimes those become disconnected with the results produced. Today a goal of 10 prospecting calls per day might produce sufficient qualified opportunities in which we compete, which ultimately produce the Revenue/Orders/Margin targets. But things change, perhaps we become less effective, perhaps 10 prospecting calls per day ultimately falls far short of what’s needed for Revenue/Orders/Margin. But we are still making our 10 calls a day, we are still meeting those activity goals, but somehow they aren’t producing the same business results. Unless we can follow the chain of activities, the chain of metrics to the end result, it’s very easy for us to be “making our numbers,” but in reality we are far from it.
So while it may be fashionable or easy not to have Revenue/Orders/Margin goals and quotas, I think it’s wrong. I think it’s critical for sales people to be able to connect all the things they do directly to the goals of the organization.
Which brings me to that issue I raised near the beginning of this post, “Every person needs to see directly how they contribute to the company goals and objectives.”
As sales people, it’s easy for us to make that connection because we have revenue goals and targets. But it’s critical for people outside sales–marketing, manufacturing, development, operations, finance, HR to have measures that directly connect with the goals of the company. Marketing needs to have metrics enabling them to directly know, “Doing these things, in this timeframe, in this volume, with these results enable us to achieve this corporate goal (perhaps Revenue/Orders/Margin).” Development needs to tie their activities to the goals, “Developing this product, bringing it to market by this date, with these capabilities enables us to ……” The receptionist at the front desk needs to know, “My job is important because it contributes to……. which connects to…. which contributes to the attainment of this…… corporate objective.”
I think one of the critical issues facing organizations and performance is that people cannot connect the dots to what they do every day and how it impacts overall organizational performance.
So should sales people be on quota? Absolutely! Should that quota be tied directly to Revenue/Orders/Margin? Without a doubt!
I did not have to get through entire article to say the answer is “no”. I have built 5 companies and counting. I led the sales and businless dev efforts. My first rule is, we can’t manage a sales goal or spreadsheet. That is the first hurdle I insist upon before getting involved.
Bob: Thanks for the comment. I may not understand what you are saying. Like you, I’ve built a number of companies, as well as been at some very large companies. All the investors, top management, and I have always been driven by certain goals, whether it’s a product launch by a certain date, revenue/profitability goals, share goals, etc.
So those are important corporate goals and sales needs to be aligned with achieving those goals. So I think targets, quotas, goals are important for sales people (in fact I believe they are important for everyone in the organization).
Having said that, we can’t manage to the goal, we need to understand the activities required to accomplish the goals. It’s those things that we can manage on a day to day basis. If we do those correctly, we should be able to achieve the goals/outcomes we desire. So, as mentioned in the article, and earlier in this comment, I’m hard over on goals, targets, quotas. But the things we manage are the activities that produce those goals. So we have to set activities to a level that enables us to achieve the goals.
Thanks for the thoughtful comment.
David you have hit the nail on the head, ‘understand what we need to do in order to hit those goals’- whether start up or enterprise I’ve always encountered a KPI (where volume is considered the only answer) focused agenda. Not being funny but frankily a well placed call to a person and company that you have researched will derive much better results (either now if you are lucky or later than simply ‘hitting’ the phone as if you have an AK47 in hand- ‘it’s a numbers game!’ – sales managers cry… I disagree, yes activity is paramount but it’s a matter of focus.
Thanks Peter. Sales is a numbers game, but you have to be measuring the right numbers. Most of these activity based metrics have no relationship to the outcomes the create and managers don’t understand this. That’s why so many are clueless about why they are or are not making the numbers. Thanks for contributing to the discussion.