sales force quotas

2015

Management of

Sales Force Chapter ( 10 )

Prepared By

Omar Kotta

01116911852

Management of sales force

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Sales Force Quotas

Sales Quota

It’s a performance goal assigned to a marketing unit for a specific period of time. The marketing unit may be a salesperson ,branch office , district, region, dealer or

distributor This quota goal may be stated in dollars, products units, or selling activities.

(tyb el quota hya 7aga zai (Individual target ) ely mtlob men el wa7ed y7a2aha fe period mo3yna tyb el period de ad a ? ( momken tkon Month or quarter or six months or a year ) y3ni bekon mtolb menk te – achieve it , momken el shkra t7toha be dollars enk tbe3 msln be 50,000 $ per month , aw tbe3 10,000 SIM Cards per 3 months , w marketing unit brdo momken ykon branch fte7 gded lel shrka fe b7tlo ( حصه مبيعات) mtolb meno aw district b7tolo quota mo3na 3ashan a3ly el sales bt3ty w azwd customers bto3y)

Sales Quota & Sales Potential

Management sets volume sales quotas so that their total equals the sales budget.

Thus if all the reps reached their quotas, the sales budget would be met. If everyone reaches their numbers, the company fulfills its operational plan.

Sales Quota & Strategic Management:

It helps in planning & evaluating salespeople’s activities. It helps in guiding the sales reps’ activities.

(Ex - Law el shrka 7tet quotas that are too high , da he5ly el rep ysh8l t7t da8t 3aly w overload 3leh . law 7tet quotas that are too low . msh hetko motive le rep ysht9l)

It’s widely used for evaluating the sales force performance.

Purposes of a Sales Quota:

1) To indicate strong or weak spots in the selling structure: when accurate quotas are established for each territory, management can determine the extent of territorial development by whether or not the quota is being reached ( B3ml evaluation )

2) To furnish goals & incentives for the sales force: individuals perform well if they have goal to accomplish. (lazm kol wa7ed fe shrka yb2a 3arf goals el ftra gaia 3ashan y3rf ysht8l 3leha w ytl3 a7sn 7aga , a7na ely bshr msh bnsh8l mn nfsna)

It is not enough to say to a salesperson; “we expect you to do a good selling job” it is much more meaningful to express their expectation in a specific quota (sales volume or number of new accounts, during the next month).

3) To control salespeople’s activities: Through the use of the appropriate type of quota, executives can encourage a certain activity as getting orders from new customers. (feh


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types of quotas el shrka bt7dedha m3 reps bto3ha , w reps mb7bosh ysh8lo fe 7aga mo3yna ela ama shrka t2olhom)

4) To evaluate productivity of salespeople: By comparing a rep’s actual results with his/her quota, management can evaluate that person’s performance.

5) To improve effectiveness of compensation plans: Salespeople may receive a bonus if they achieve a certain quota or they may receive a commission on all sales above some preset level of sales.

6) To control selling expenses: Management can use the expense quotas alone, without tying them to a compensation plan & let the salespeople know that their effectiveness is being judged. ( ha7sb el expenses bt3ty lw7dha , w mo7thash fe compensation plan bt3ty ,3ashan kol rep his/ her expenses ely betklfo to control it )

7) To evaluate sales contest results: Sales people rarely have equal opportunities in a contest unless management makes some adjustment to compensate for variation in territories workloads & potentials.

Types of Quotas

The most frequently used types of sales quotas are those based on: - Sales volume - Activities - Gross margin or net profit - Expenses - Some combination of the four

The type of quota that management selects depends on several factors, including the nature of the product & the market.

1) Sales Volume Quota: The most widely used type of sales quota is one based on sales volume. A volume Quota: May be established for a geographical area, a product line, a

customer, a time period, or any combination of these bases. It’s more effective to set a monthly or quarterly quota than an annual one. Advantages: Simple to understand & easy to calculate.

- Disadvantages: a) It doesn’t tell the full story of a rep’s productivity & effectiveness. (el shrka hmha b3t ad a fe rep msh beshof el profile bt3o) b) It doesn’t indicate the profit generated by the person’s efforts. c) It discourages balanced activities by sales reps (ymkdn aktr no3 el shrkat btst5dmo hya volume quota , fe bekon ast5dmo aktr w ana b7otplans le areas el gdeda ely nazlha , aw line mo3yn fe shrka el nas btst5dmo kter fe bekon leh quota mo5tlfa , aw ftrat , hya a7sn 7aga btkon wd7a lel nas el kmya el mtolba , bs sa3t ama shrka btrkz 3ala volume aktr bekon feh stress 3ala reps w msh bekon feh balanced lel activities)

2) Profit Quotas: They are quotas based on gross margin or net profit. It may be set for a salesperson, a branch or group of products. High volume reps are not necessarily the best reps for company interests, because it’s

easy to sell items but it can be low margin items. ( el qsd hena enk 3ashan tbe3 kter momken tsrf kter fe msh shrt eny beb3 kter eny daym feh high profit ma feh items unprofitable fe msh shrt daymn )


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Disadvantages: a) The possibility that friction may arise between management &reps, reps may not

be able to understand how their quota is calculated & how their progress is measured. (El reps btebt3 w btgeb flos lel shrka bs sa3at sa3t bekon feh conflict ben el shrka w reps fe azai at7sbt el quota bt3to w donia bt3to mashya azai) b) Rep has no control over some of the factors on which the quota is based.

Compromise approach: To base the quota on a rep’s contribution to profit. Contribution-to-profit/Contribution margin: The amount left after deducting a

salesperson’s direct expenses from his gross margin. (Sa3at bekon feh unexpected high production cost fe de btl3 el shrka little profit or no profit ,fe el shrka ht7sb 3ala a el profit quota w de disadvantage ! )

3) Expense Quotas: Some companies attempt to encourage a profit consciousness by establishing a quota

based on the rep΄s travel and other expenses. Ex: A sales rep may be given an expense quota equal to 4 percent of sales . direct

expenses(such as travel , entertainment , food, and lodging) must not exceed 4 percent of net sales volume

Advantages: It encourages a salesperson to be more aware of costs & profits than volume goals. ( hekon 3arf besrf falso fe a )

Disadvantages: A rep’s attention may be devoted more to cutting expenses than to boosting the sales of profitable products. (he5af ysrf kter ,3ashan le shrka bt7sbo fe momken y3ly fe as3ar w mydesh output el mtolb meno , kol hamo eno y2lel msrfo msh yzwd el sales !)

4) Activity Quotas & Customer Satisfaction: One way to decrease the overemphasis on sales volume is to establish a quota based

on activities. Management may select from such tasks as: ( daily calls, new customers called on,

orders from new accounts, product demonstrations made & displays built) . It’s valuably used for missionary salespeople. Advantages: It’s properly established & controlled can do much to stimulate a fully

balanced sales job. Disadvantages: a) It’s difficult to determine whether activity actually was performed.

b) It’s difficult to find out how effectively it was done. (sa3ab eny a3od a2reb kol el activites bt3 reps mn fon calls w selling skills w kda , w Kaman el sho8l tel3 be quality el mazbota wala la ! )

Customer satisfaction is a nontraditional type of performance goal that has become very popular among many companies. Firms survey their customers about their sales reps' performance

5) Combination of Quotas: When companies may combine one or two types of them. Adv: It seeks strong points of several types of quotas. Disadvantages: a) It’s complicated that it’s not easily understood.

b) Quota may become a source of dissatisfaction rather than an incentive.


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c) Sales rep may become overemphasize one element in the quota plan.

(enk btsht9l 3ala kaza 7aga fe nfs el time sa3b w msh btfhm ana mtol meni abe3 volumes aktr wala ht7sb 3ala performance w msrefy , fe msh daymn btkon 7fz lek , w btkon

overload 3la rep , w tb3n 8sb 3nk htrkz 3ala type wa7ed mn quotas)

Bases for Setting a Sales Volume Quota:

Sales quota based on sales potential

Quotas are set on the basis of considerations other than sales potentials, such as past sales, executive judgment, salesperson determination, or compensation design.

A. Quotas based on sales potential: One common practice in quota setting is to relate quotas directly to the territorial

sales potentials Ex. Let us assume that the sales potential in territory A is 300000 or 4 % of the total

company potential. Then management may assign this amount as a quota for the salesperson who covers that territory.

( ya3ny zay el example, law el sales potential 300,000, hankhally el sales quota beta3et el rep 300,000)

These potentials are adjusted for the following factors: 1) Human factors: A quota may have to be adjusted downward because an older

salesperson is covering the district. (fe awl kam sana le new reps aked msh hadhom quota kbera 3ashan y7a2aoha la7d ama ywsl le sn mo3yn hekon qualified w y2der yshel district kamel )

2) Psychological factors: Management understands that it is human nature to relax after goal reached; therefore some sales executives set their quotas a little higher than the expected potential.

3) Compensation: Some companies relate their quotas basically to sales potential but adjust them to allow for compensation plan.

B. Quotas based on factors other than potential: 1) Quotas set based on past sales alone: alone it is subject to sever limitations. It ignores

possible changes in a territory‘s sales potential (be3tmd 3ala atb3 abl kda w ybd2 y7ot el quota el gdeda 3leh , bs fe 3ebha eny kol ftra el zarof btt8er) It ignores the percentage of sales potential already achieved.

2) Quotas determined by executive judgment “Guess Work”: Using it alone is not recommended because too many risks are involved in relying solely in this factor without referring to quantitative market measures.

3) Quotas related to compensation design: Company may prefer to pay its reps by straight commission, salary or may adopt combination plan.

4) Salespeople setting their own quotas: This allows reps to reflect their individual abilities and they will be closer to their territories and can do better jobs.

From practical point of view, salespeople may set unrealistically high quota because they tend to be optimistic about their capabilities & can’t reach these goals.

(enta ely bt7kom 3ala nfsk w t7ot quota bt3tk , w de bekon challenge lek , bs tb3n de according le sayset el shrkat msh 3nd kolo y3ni :D )


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Administration of Sales Quota:

Characteristics of a good quota plan: 1) Realistic attainability : if it is too far out of reach , the salespeople will lose their

incentive 2) Objective accuracy : it should be related to potentials , executives judgment also

is required 3) Ease of understanding and administrating. 4) Flexibility. 5) Fairness.

Practical part

Actual sales (y3ni ely atba3 . 5als w done) Law commission htkon 2 % for 1st then 7 % for 2nd ay % btzed = progressive rate . Law commission htkon msln 6 % for 1st , 2 % for 2nd ay % bt2al = regressive rate . Total income= salary+ commission + bonus

Ashof 3ayz total monthly income wala total annual income (law annual * 12 months)

Na5ly blna sa3at bekon bonus mkotb fe a5r line fe problem (sometimes bekon fixed to all aw lel nas ely achieved el quota fe nshof howa fen)

Sales efficiency = (actual sales/sales quota )x 100

Example (1): Given the following data: (DR Amira)

Sales manager “A” Sales manager “B” Sales manager “c”

Actual sales in LE 100,000 120,000 150,000

Selling price/unit 10 9 12

Annual quota 10% net profit 13% 18%

Monthly salary 5000 5000 5000

Actual net profit margin

11% 13% 15%

Commission 2% for the 1st 100,000, 3% for more Bonus: 1000 for who achieved quota

Required: 1) Calculate the annual income for each sales manager 2) State quota type and when it should be use? 3) What are the commission base and rate? 4) Which one of them needs training?


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Solution: 1)

Items A B C

Salary (5000x12)=60,000 (5000x12)=60,000 (5000x12)=60,000

Commission: 2% for the 1st LE10,000 3% for more

(2%x100,000)=2000 -zero-

(2%x100,000)=2000 (3%x20,000)=600

(2%x100,000)=2000 3%x50,000=1500

Bonus 1000 1000 Zero

Total annual income

63,000 63,600 63,500

2) It is profit margin quota and it should be used when the company wants to increase

productivity level as it reflects the importance of profit compared with sales volume. 3) Commission is based on actual sales amount and it has a progressive rate (increasing

from 2% to 3%) 4) All of them need development programs

Example (2): Given the following data: (DR Amira) Salesmen X Y Z

Annual quota in LE 300,000 350,000 400,000

Actual annual sales 280,000 390,000 380,000

Monthly straight salary 1000 1000 1100

Non selling activities - 5calls/month -

Commission: 5% for over quota, and 100 LE bonus for calls Required:

1) State type of quota and commission? 2) Calculate the annual income for each rep. 3) Calculate sales efficiency (he may mention it as productivity) 4) Which one needs training?

Solution: 1) Sales volume quota, and the commission is also based on sales volume 2)

Salesmen X Y Z

Annual Salary (1000x12)=12000 (1000x12)=12000 (1100x12)=13200

Commission: 5% for above quota

Zero

5% x 40,000=2000

Zero

Bonus Zero 100 Zero

Total annual income

12000 14100 13200

3) Sales efficiency = (actual sales/sales quota )x 100

For “A” = 280,000/300,000=93.34% For “B”= 390,000/350000=111.4% For “C”=380,000/400,000=95%

4) All of them need training in selling skills, communication skills, and also new technologies.


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Example (3): ( 2013 )

The following table presents the quotas & the actual sales of 2 sales reps during the year 2012.

Rep A Rep B Rep C

Quotas (LE Millions) 13 14 7

Actual sales (LE Millions) 14 12.5 7.8

The compensation system of the company is as follows: - Monthly fixed salary LE 1200 - A commission as follows:

2% for the first 5 million LE 3% for the second 5 million LE 4% for the third 5 million LE or above

- A bonus of LE 5000 for meeting the sales quotas. Required: Calculate the total annual income for each rep.

Solution Sales reps A B C

Salary 1200 X 12 = 14,400 1200 X 12 = 14,400 1200 X 12 = 14,400

Commission: 2% on 1st 5 million 3% on 2nd 5 million 4% on 3rd 5 million or above

(2%x5,000,000)= 100,000 (3%x5,000,000)= 150,000 (4%X4,000,000)= 160,000

(2%x5,000,000)= 100,000 (3%x5,000,000)= 150,000 (4%X2,500,000)= 100,000

(2%x5,000,000)= 100,000 (3%x2,800,000)= 84,000

Bonus 5,000 Zero 5,000

Total Annual income 429,400 364,400 203,400

Example (4): ( 2009 )

The AAA Company employs 3 sales reps in Alexandria. Their sales quota & actual sales last year were as follows (in $ Thousands):

Rep 1 Rep 2 Rep 3 Total

Quota 360 360 360 1080

Actual sales 400 360 140 900

The compensation system requires paying $1000 fixed monthly salary, & a commission of 1% for the 1st $100 Thousands, 2% for the 2nd $100 Thousands, 3% for the 3rd $100 Thousands. 4% for sales above $300 Thousands, & a bonus of $5000 to reps who meet their quotas. Required: Calculate the annual income of each salesperson.

Solution

Rep 1 Rep 2 Rep 3

Quota 360,000 360,000 360,000

Actual sales 400,000 360,000 140,000

Annual salary 12000 12000 12000

Commission

1% X 100,000 = 1000 2% X 100,000 = 2000 3% X 100,000 = 3000 4% X 100,000 = 4000

1% X 100,000 = 1000 2% X 100,000 = 2000 3% X 100,000 = 3000 4% X 60,000 = 2400

1% X 100,000 = 1000 2% X 40,000 = 800

Bonus 5000 5000 Zero

Total annual income 27,000 25,400 13,800


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Example (5): (DR Esraa )

Salesmen Zozo Bella farawola

Actual sales LE 650 600 400

Sales quota 500 500 500 Monthly straight salary 400 400 400

Commission: 15% on at least the 1st 500, and 20% on the 2nd LE100, bonus 10% of the total income Required:

1. State type of quota and commission? 2. Calculate the monthly income for each rep

Solution:

1) It is sales volume quota with a progressive commission rate based on sales volume.

Salesmen Zozo Bella Farawola

monthly Salary 400 400 400

Commission: 15% on 1st 500 20% on 2nd 100

(15%x500)=75 (20%x100)=20

(15%x500)=75 (20%x100)=20

Zero Zero

Bonus (495x10%)/90%=55 (495x10%)/90%=55 (400x10%)/90%=44.45

Total monthly income

550 550 444.45

Note: he said that bonus is 10% of total monthly income not from (salary + commission) only, so as u know:

Total income= salary+ commission + bonus

And bonus is only 10%, so (salary + commission) = 90%

Salary + commission = 90%

Bonus = 10%

Total income = 100%

By cross multiplication you can calculate bonus for each rep:

Zozo:

495 LE 90%

???? 10% so bonus = (495x10%)/90%=55

End of the chapter

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