As I write this I am the CEO of a high tech company.  Amongst my many tasks of trying to get the company re-directed, I'm faced with the daunting task of trying to get the company’s sales numbers moving in the right direction, up! 

In reviewing the numbers for this year, my immediate challenge is to set a new target revenue or sales number for the upcoming year.  It would be nice to pick a number at random and hope we hit the target.  But as we all have learned early in sales, “hope is not a strategy”.  So here I sit analyzing this past year’s sales numbers and laying out a thoughtful strategy for meeting next years revenue target.

I’ve learned over the years that setting an aggressive number has both a positive motivating effect and a negative de-motivating effect.  The positive aspect of a high quota is that you 1) grab the attention of the salespeople who have to make it happen and 2) you get the team thinking ‘out-of-the-box’ as they try to figure out new ways and innovative ideas for hitting the high target numbers.

The downside of setting a high number is the de-motivating effect it can have on your salesperson or team.  The first reaction may be the negative effect of feeling the number is too high.  The result?  A salesperson who feels defeated before they even start. They're thinking, “There’s no way I can make that number.”  This attitude can quickly amplify into my second concern, their departure. 

Salespeople are driving by passion and the ability to make money.  I can’t tell you which is more important since each person is different.  If a salesperson feels that they won’t be able to hit their number, which means they won’t be making any commission, you've created an environment of apathy.  The salesperson can begin to think, “Hell, if I know I’m not going to make any money this year, why hang around?”  The good ones usually think this way because they know their value to the company and more distressing, the value they could bring to a competitor.

Sales managers also know that some people will leave a company if they believe they’re not going to make any money and probably get ‘beat up’ in the process by their managers for not hitting their sales quotas. 

The Ugly Side of Unreasonable Quotas

Aside from the ability to motivate and demotivate, a high quota can bring about another undesired behavior.  The third effect of an unreasonable quota is the possibility of some salespeople resorting to unethical tactics to make their number.  I’ve witnessed first hand, although rare, salesman pre-arranging sales with a buyer before the end of a quarter to hit their numbers.  How can that happen?  Well, for example, let’s say you’re a company pays on bookings (orders placed) and not shipments (physical material delivered to the buyer).  A salesperson can place or write an order towards the end of the quarter in order to make his or her number.  You, the company, jump for joy and are more than happy to pay the commission.  But the following month, the beginning of the next quarter, the order is suspiciously ‘cancelled’.  

Victor's Rule: Never pay commission on Bookings; only on shipments

As a company, you now have some issues to deal with.  One, you’ve paid out commission on the sales already, how do you get that money back?   What if the salesperson quit after getting their commission check?   And the second issue you have to resolve is if your company started ‘building’ the order based on the purchase order, you’re now stuck with the extra inventory.  Not good! 

A good example how this can be detrimental to a company is mentioned in Thomas Neff and James Citrin’s book, “You’re in Charge-Now What?  In it they describe another form of the aforementioned tactic of booking and canceling an order.  They tell the story of Jim Kilts who took over as CEO for Gillette. 

After reviewing many reports and speaking with suppliers he “…discovered Gillette’s dirty secret.  To hit their numbers each quarter, Gillette’s salespeople habitually resorted to a business practice known as trade loading (emphasis added): offer a cut-rate deal, rearrange product packaging, do anything to make a sale to a retailer to stock inventory.  While trade loading isn’t illegal, it is not a sustainable strategy.  In a pamphlet Kilts produced titled ‘Escaping the Circle of Doom,’ he pointed out that businesses get in trouble by setting overly ambitious objectives, such as increasingly unrealistic sales growth targets; then, in trying to meet those targets, making bad decisions, which lead to further misses, which lead to more bad decisions.”

The lesson here is quite simple, if you’re going to set aggressive sales quotas, you must also outline a plan for achieving that number that is realistic and believable.  Otherwise you may find yourself paying the price in more ways than one and still not achieving your revenue objectives.

Go to Setting Sales Quotas - Part 2: The Believability Gap

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Victor Antonio is a Sales Trainer and Motivational Speaker with 20 years of industry experience in the market.  He has a BS in Electrical Engineering and an MBA.

Copyright © 2005 by Victor Antonio   All rights reserved.  This article MAY be reproduced in any form or by any means, electronic or mechanical, including photocopying, as long as the author’s name, website and email address are included as part of the article’s body.  All inquiries, including information on electronic licensing, should be directed to Victor Antonio.