Chapter 07
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Copyright © 2001 by Harcourt, Inc. All rights reserved.
CHAPTER 7 SALES OBJECTIVES AND QUOTAS
Copyright © 2001 by Harcourt, Inc. All rights reserved.
LEARNING OBJECTIVES Objectives and quotas are fundamental parts of a company, because they provide the sales force with direction and goals. Selling by objectives (SBO) is a system that unites the sales force. This chapter should help you understand: The relationship between sales objectives and quotas. Why quotas are important. The various types of quotas. The methods for setting quotas. Criteria needed for a good quota plan. Major areas for establishing objectives. How organizations set objectives. The selling by objectives process. Copyright © 2001 by Harcourt, Inc. All rights reserved.
WHAT IS A QUOTA? A quota refers to an expected performance objective. Quotas are tactical in nature and thus derived from the sales force’s strategic objectives.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
WHY ARE QUOTAS IMPORTANT? • Quotas provide performance targets.
• Quotas provide standards. • Quotas provide control. • Quotas provide change of direction. • Quotas are motivational. Copyright © 2001 by Harcourt, Inc. All rights reserved.
TYPES OF QUOTAS • Sales volume quotas.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Sales volume quotas includes dollar or product unit objectives for a specific period of time.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
TYPES OF QUOTAS • Sales volume quotas. • Break down total sales volume.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
• Product lines. • Individual established and new products. • Geographic areas based on how the sales organization is designed, which would include: • Sales division. • Sales regions. • Sales districts. • Individual sales territories. Copyright © 2001 by Harcourt, Inc. All rights reserved.
TYPES OF QUOTAS • Sales volume quotas. • Break down total sales volume.
• Profit quotas.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
The two types of profit quotas: • Gross margin quota determined by subtracting cost of goods sold from sales volume. • Net profit quota determined by subtracting cost of goods sold and salespeople’s direct selling expense from sales volume.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
TYPES OF QUOTAS • Sales volume quotas. • Break down total sales volume.
• Profit quotas. • Expense quotas.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Expense quotas are aimed at controlling costs of sales units. Often expenses are related to sales volume or to the compensation plan.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
TYPES OF QUOTAS • Sales volume quotas. • Break down total sales volume.
• Profit quotas. • Expense quotas. • Activity quotas. Copyright © 2001 by Harcourt, Inc. All rights reserved.
Activity quotas set objectives for job-related duties useful toward reaching salespeople’s performance targets.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Customer satisfaction refers to feelings about any differences between what is expected and actual experiences with the purchase.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
TYPES OF QUOTAS • Sales volume quotas. • Breakdown total sales volume.
• Profit quotas. • Expense quotas. • Activity quotas. • Quota combinations. Copyright © 2001 by Harcourt, Inc. All rights reserved.
METHODS FOR SETTING SALES QUOTAS • Quotas based on forecasts and potentials.
• Quotas based on forecasts only. • Quotas based on past experience. • Quotas based on executive judgments. • Quotas salespeople set. • Quotas related to compensation. Copyright © 2001 by Harcourt, Inc. All rights reserved.
TABLE 7.4 LEVELS OF ORGANIZATIONAL SALES PLANNING
LEVEL
PURPOSE: WHAT IS PLANNED
1. Marketing
•Organizational goals Upper management and (increase in market share or sales and marketing penetration, increase in executives customers, increase in sales dollars and units sold)
2. Regional plan
•Priorities (which regions, markets, and products to emphasize)
Regional and district sales managers (which input from sales reps)
3. District plan
•Dollar allotment (for promotion, advertising, new employees, sales incentives, and so on)
District managers and sales representatives
4. Territorial plan
•Goals for number of new Sales representatives customers and for increased business with old customers in each region and territory
Copyright © 2001 by Harcourt, Inc. All rights reserved.
WHO (USUALLY) IS INVOLVED
SELLING BY OBJECTIVES SETS FUTURE TARGETS Two basic steps to implementing sales strategies: Step 1:
Organize the jobs.
Step 2:
Define annual objectives in important areas.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
FIGURE 7.2 THE FOUR MAJOR AREAS TO ESTABLISH OBJECTIVES WITH EACH SALESPERSON
Step 1: Organizing the Job
SALES MANAGEMENT
Salesperson
Territorial Management • Limits • Potential Business • Size • Customer Base • Prospects • Leads • Market Share • Growth • Trade Relations • Dealer Relations
Account Management • Portfolio of Accounts • Potentials • Coverage • Records • Order Size • Penetration • Reports • Customer Satisfaction
Call Management • Preparation • Selling Technique • Training • Communication • Buyer Behavior • Impact • Handling Resistance
Step 2: Defining Annual Objectives 1. Regular 2. Problem Solving 3. Innovative Copyright © 2001 by Harcourt, Inc. All rights reserved.
Self-Management • Appearance • Manner • Communication Skills • Abilities • Attitudes • Selling Abilities
SELLING BY OBJECTIVES SETS FUTURE TARGETS • Treating the territory as a business.
• Managing each account.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Tactical plan for managing accounts: 1. Build the stars. 2. Harvest the cash cows. 3. Fix the problems. 4. Divest the dogs.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
SELLING BY OBJECTIVES SETS FUTURE TARGETS • Treating the territory as a business.
• Managing each account. • Managing each call.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Questions about the content of calls: • Is the sales rep properly armed with information, leads, and materials before the call occurs? • Is the sales rep applying the major principles of selling technique during the presentation? Or is the sales rep inventing his or her own and perhaps making every mistake every salesperson in history has made? • Has the salesperson planned some coherent attack for the sales presentation, and is it working well? Copyright © 2001 by Harcourt, Inc. All rights reserved.
Questions about the content of calls:
continued
• Does the sales rep have enough training in communication, in meeting sales resistance, in understanding buyer behavior, in improving call impact, in gaining greater account penetration, in follow-through methods to do the job? • Does the sales rep have enough knowledge of the product and its applications, service and system backup, and technical problems to handle the toughest calling situation? Copyright © 2001 by Harcourt, Inc. All rights reserved.
SELLING BY OBJECTIVES SETS FUTURE TARGETS • Treating the territory as a business.
• Managing each account. • Managing each call. • Managing oneself.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Self-management in selling includes the following: • Since selling involves making contact with strangers, dress, style, demeanor, and personal decorum are part of the salesperson’s tool kit. • Communication skills, memory, logical speaking
habits, and writing competence are vested in the person. • Attitudes and outlook toward the job, the product, the company, and the customers all have an important bearing in the results to be achieved. • The knowledge of selling techniques, what the various kinds are and how and when to use them, Copyright © 2001 by Harcourt, Inc. All rights reserved.
BASIC LEVELS OF INDIVIDUAL OBJECTIVES 1. Regular, ongoing, and recurring objectives. 2. Problem-solving objectives. 3. Innovative or creative objectives. The highest level of excellence is reserved for people who are attaining all three. Copyright © 2001 by Harcourt, Inc. All rights reserved.
THE PROCEDURES FOR SETTING OBJECTIVES AND QUOTAS WITH SALESPEOPLE • Prepare the way. • Schedule conferences with each salesperson. • Prepare a written summary of goals agreed upon. • Optional group meeting to share objectives. Copyright © 2001 by Harcourt, Inc. All rights reserved.
FIGURE 7.3 SELLING BY OBJECTIVES FORM
N am e F o r Y ear L is t Y o u r R e s p o n s ib ility A r e a R e s u lts E x p e c te d O u tp u t
P e s s im is tic
R e a lis t ic
O p tim is tic
R e s u lts
1 . $ V o lu m e / m o n th 2 . $ E x p e n se/ m o n th 3 . G r o ss m arg in / m o n th 4. 5. 6. 7. 8. 9. 10. 11. 12. O th er I n s tr u c tio n : L is t th e r e g u la r, o n g o in g , r e c u r r in g o b je c tiv e s. C o v e r th e te n m a jo r r e s p o n s ib ilit ie s o f y o u r jo b n e x t y e a r t o m a n a g e t e r r it o r y, a c c o u n t s, c a lls, a n d y o u r s e lf . Copyright © 2001 by Harcourt, Inc. All rights reserved.
A GOOD OBJECTIVE AND QUOTA PLAN IS SMART Specific Measurable Attainable Realistic Copyright © 2001 by Harcourt, Inc. All rights reserved.
A simple three-way test to judge how well quotas and objectives are written: Test 1:
Does this quota state exactly what the intended result is?
Test 2:
Does this quota specify when the intended result is to be accomplished?
Test 3:
Can the intended result be measured?
Copyright © 2001 by Harcourt, Inc. All rights reserved.
SELLING-BY-OBJECTIVES MANAGEMENT Selling by objectives (SBO) is the process elaborated on earlier whereby the manager and salesperson jointly identify common goals, define major areas of responsibility, and agree on the results expected.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
FIGURE 7.4 SETTING OBJECTIVES AND QUOTAS IS A TWO-WAY PROCESS BETWEEN MANAGER AND SALESPERSON
M u tu a lly S et O b j ect i v es a n d Q u ota s
M ea s u r e P er f o r m a n ce
E va lu a te P er f o r m a n ce P u b l i ci z e P er f o r m a n ce R es u l t s
R ew a r d o r P en a l t y
Copyright © 2001 by Harcourt, Inc. All rights reserved.
THE SALES TERRITORY IS WHERE QUOTAS ARE MADE The sales territory is “where the action is!”
Copyright © 2001 by Harcourt, Inc. All rights reserved.
THE BOTTOM LINE Quotas are important to a company because they establish the “end state” sought, and they change according to external and internal forces. Many different types of quotas exist. Methods for setting quotas may vary. Setting a sales quota can be an involved process. Selling by objectives (SBO) is a common concept and is widely used by sales organizations.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
CHAPTER 7 SALES OBJECTIVES AND QUOTAS
Copyright © 2001 by Harcourt, Inc. All rights reserved.
LEARNING OBJECTIVES Objectives and quotas are fundamental parts of a company, because they provide the sales force with direction and goals. Selling by objectives (SBO) is a system that unites the sales force. This chapter should help you understand: The relationship between sales objectives and quotas. Why quotas are important. The various types of quotas. The methods for setting quotas. Criteria needed for a good quota plan. Major areas for establishing objectives. How organizations set objectives. The selling by objectives process. Copyright © 2001 by Harcourt, Inc. All rights reserved.
WHAT IS A QUOTA? A quota refers to an expected performance objective. Quotas are tactical in nature and thus derived from the sales force’s strategic objectives.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
WHY ARE QUOTAS IMPORTANT? • Quotas provide performance targets.
• Quotas provide standards. • Quotas provide control. • Quotas provide change of direction. • Quotas are motivational. Copyright © 2001 by Harcourt, Inc. All rights reserved.
TYPES OF QUOTAS • Sales volume quotas.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Sales volume quotas includes dollar or product unit objectives for a specific period of time.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
TYPES OF QUOTAS • Sales volume quotas. • Break down total sales volume.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
• Product lines. • Individual established and new products. • Geographic areas based on how the sales organization is designed, which would include: • Sales division. • Sales regions. • Sales districts. • Individual sales territories. Copyright © 2001 by Harcourt, Inc. All rights reserved.
TYPES OF QUOTAS • Sales volume quotas. • Break down total sales volume.
• Profit quotas.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
The two types of profit quotas: • Gross margin quota determined by subtracting cost of goods sold from sales volume. • Net profit quota determined by subtracting cost of goods sold and salespeople’s direct selling expense from sales volume.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
TYPES OF QUOTAS • Sales volume quotas. • Break down total sales volume.
• Profit quotas. • Expense quotas.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Expense quotas are aimed at controlling costs of sales units. Often expenses are related to sales volume or to the compensation plan.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
TYPES OF QUOTAS • Sales volume quotas. • Break down total sales volume.
• Profit quotas. • Expense quotas. • Activity quotas. Copyright © 2001 by Harcourt, Inc. All rights reserved.
Activity quotas set objectives for job-related duties useful toward reaching salespeople’s performance targets.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Customer satisfaction refers to feelings about any differences between what is expected and actual experiences with the purchase.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
TYPES OF QUOTAS • Sales volume quotas. • Breakdown total sales volume.
• Profit quotas. • Expense quotas. • Activity quotas. • Quota combinations. Copyright © 2001 by Harcourt, Inc. All rights reserved.
METHODS FOR SETTING SALES QUOTAS • Quotas based on forecasts and potentials.
• Quotas based on forecasts only. • Quotas based on past experience. • Quotas based on executive judgments. • Quotas salespeople set. • Quotas related to compensation. Copyright © 2001 by Harcourt, Inc. All rights reserved.
TABLE 7.4 LEVELS OF ORGANIZATIONAL SALES PLANNING
LEVEL
PURPOSE: WHAT IS PLANNED
1. Marketing
•Organizational goals Upper management and (increase in market share or sales and marketing penetration, increase in executives customers, increase in sales dollars and units sold)
2. Regional plan
•Priorities (which regions, markets, and products to emphasize)
Regional and district sales managers (which input from sales reps)
3. District plan
•Dollar allotment (for promotion, advertising, new employees, sales incentives, and so on)
District managers and sales representatives
4. Territorial plan
•Goals for number of new Sales representatives customers and for increased business with old customers in each region and territory
Copyright © 2001 by Harcourt, Inc. All rights reserved.
WHO (USUALLY) IS INVOLVED
SELLING BY OBJECTIVES SETS FUTURE TARGETS Two basic steps to implementing sales strategies: Step 1:
Organize the jobs.
Step 2:
Define annual objectives in important areas.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
FIGURE 7.2 THE FOUR MAJOR AREAS TO ESTABLISH OBJECTIVES WITH EACH SALESPERSON
Step 1: Organizing the Job
SALES MANAGEMENT
Salesperson
Territorial Management • Limits • Potential Business • Size • Customer Base • Prospects • Leads • Market Share • Growth • Trade Relations • Dealer Relations
Account Management • Portfolio of Accounts • Potentials • Coverage • Records • Order Size • Penetration • Reports • Customer Satisfaction
Call Management • Preparation • Selling Technique • Training • Communication • Buyer Behavior • Impact • Handling Resistance
Step 2: Defining Annual Objectives 1. Regular 2. Problem Solving 3. Innovative Copyright © 2001 by Harcourt, Inc. All rights reserved.
Self-Management • Appearance • Manner • Communication Skills • Abilities • Attitudes • Selling Abilities
SELLING BY OBJECTIVES SETS FUTURE TARGETS • Treating the territory as a business.
• Managing each account.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Tactical plan for managing accounts: 1. Build the stars. 2. Harvest the cash cows. 3. Fix the problems. 4. Divest the dogs.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
SELLING BY OBJECTIVES SETS FUTURE TARGETS • Treating the territory as a business.
• Managing each account. • Managing each call.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Questions about the content of calls: • Is the sales rep properly armed with information, leads, and materials before the call occurs? • Is the sales rep applying the major principles of selling technique during the presentation? Or is the sales rep inventing his or her own and perhaps making every mistake every salesperson in history has made? • Has the salesperson planned some coherent attack for the sales presentation, and is it working well? Copyright © 2001 by Harcourt, Inc. All rights reserved.
Questions about the content of calls:
continued
• Does the sales rep have enough training in communication, in meeting sales resistance, in understanding buyer behavior, in improving call impact, in gaining greater account penetration, in follow-through methods to do the job? • Does the sales rep have enough knowledge of the product and its applications, service and system backup, and technical problems to handle the toughest calling situation? Copyright © 2001 by Harcourt, Inc. All rights reserved.
SELLING BY OBJECTIVES SETS FUTURE TARGETS • Treating the territory as a business.
• Managing each account. • Managing each call. • Managing oneself.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Self-management in selling includes the following: • Since selling involves making contact with strangers, dress, style, demeanor, and personal decorum are part of the salesperson’s tool kit. • Communication skills, memory, logical speaking
habits, and writing competence are vested in the person. • Attitudes and outlook toward the job, the product, the company, and the customers all have an important bearing in the results to be achieved. • The knowledge of selling techniques, what the various kinds are and how and when to use them, Copyright © 2001 by Harcourt, Inc. All rights reserved.
BASIC LEVELS OF INDIVIDUAL OBJECTIVES 1. Regular, ongoing, and recurring objectives. 2. Problem-solving objectives. 3. Innovative or creative objectives. The highest level of excellence is reserved for people who are attaining all three. Copyright © 2001 by Harcourt, Inc. All rights reserved.
THE PROCEDURES FOR SETTING OBJECTIVES AND QUOTAS WITH SALESPEOPLE • Prepare the way. • Schedule conferences with each salesperson. • Prepare a written summary of goals agreed upon. • Optional group meeting to share objectives. Copyright © 2001 by Harcourt, Inc. All rights reserved.
FIGURE 7.3 SELLING BY OBJECTIVES FORM
N am e F o r Y ear L is t Y o u r R e s p o n s ib ility A r e a R e s u lts E x p e c te d O u tp u t
P e s s im is tic
R e a lis t ic
O p tim is tic
R e s u lts
1 . $ V o lu m e / m o n th 2 . $ E x p e n se/ m o n th 3 . G r o ss m arg in / m o n th 4. 5. 6. 7. 8. 9. 10. 11. 12. O th er I n s tr u c tio n : L is t th e r e g u la r, o n g o in g , r e c u r r in g o b je c tiv e s. C o v e r th e te n m a jo r r e s p o n s ib ilit ie s o f y o u r jo b n e x t y e a r t o m a n a g e t e r r it o r y, a c c o u n t s, c a lls, a n d y o u r s e lf . Copyright © 2001 by Harcourt, Inc. All rights reserved.
A GOOD OBJECTIVE AND QUOTA PLAN IS SMART Specific Measurable Attainable Realistic Copyright © 2001 by Harcourt, Inc. All rights reserved.
A simple three-way test to judge how well quotas and objectives are written: Test 1:
Does this quota state exactly what the intended result is?
Test 2:
Does this quota specify when the intended result is to be accomplished?
Test 3:
Can the intended result be measured?
Copyright © 2001 by Harcourt, Inc. All rights reserved.
SELLING-BY-OBJECTIVES MANAGEMENT Selling by objectives (SBO) is the process elaborated on earlier whereby the manager and salesperson jointly identify common goals, define major areas of responsibility, and agree on the results expected.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
FIGURE 7.4 SETTING OBJECTIVES AND QUOTAS IS A TWO-WAY PROCESS BETWEEN MANAGER AND SALESPERSON
M u tu a lly S et O b j ect i v es a n d Q u ota s
M ea s u r e P er f o r m a n ce
E va lu a te P er f o r m a n ce P u b l i ci z e P er f o r m a n ce R es u l t s
R ew a r d o r P en a l t y
Copyright © 2001 by Harcourt, Inc. All rights reserved.
THE SALES TERRITORY IS WHERE QUOTAS ARE MADE The sales territory is “where the action is!”
Copyright © 2001 by Harcourt, Inc. All rights reserved.
THE BOTTOM LINE Quotas are important to a company because they establish the “end state” sought, and they change according to external and internal forces. Many different types of quotas exist. Methods for setting quotas may vary. Setting a sales quota can be an involved process. Selling by objectives (SBO) is a common concept and is widely used by sales organizations.
Copyright © 2001 by Harcourt, Inc. All rights reserved.
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