December is quota setting season—or it should be. The effective date for most sales compensation plans is January 1. Quotas should be in place by then, but too many companies release them in February, March, or even later.
A growing number of executives realize they should distribute quotas in early January, and that anything later is a bad habit. Best practice is to: finish business planning in November, set quotas in December, and release quotas to the field in early January.
Business plans contain critical strategic information and specify how success will be measured in the upcoming year. For salespeople to implement strategy, they need specifics. Quotas boil it all down. They define exactly how each salesperson must contribute. When quotas are late, salespeople only have abstract strategy descriptions to go by.
As a rule, sales forces don’t run on theory. They operate on the front line, where facts and specifics drive success or failure. Military leaders do not issue abstract commands like “go forth and defeat the enemy.” They put the troops in motion with succinct, specific orders. Sales forces need the same thing. To be fully launched, they need their quotas.
Late quotas give salespeople an excuse: “Why should we be expected to deliver 100% of quota when management can’t even get our quotas out on time?” Salespeople are held accountable for the full quota, even when they arrive late. This weakens the bond of trust between the sales force and the company, and undermines management’s credibility.
Companies rely on key accounts for success, but large accounts have long sales cycles driven by complex decision making processes. Key account selling must start in January to achieve success by year’s end. When quotas are late, the probability of current year success is reduced.
Most companies have zero tolerance for error when it comes to payroll: get it out on time, every time, without exception. The same philosophy should apply to quotas: get them out in January (or the first fiscal month), every year, without exception.
The only way to release quotas on time is to complete the business planning cycle in November. Working backwards, design a new planning cycle to hit the deadline. For example, rather than accumulate a full year of data before finalizing the business plan, use a forecast for the last month or two. To make this happen, you need forecasting sophistication.
For ideas on how to improve sales forecasting, click here.
To explore the first book ever published on quota setting, click here.