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Pros and Cons of Four Sales Quota Allocation Methodologies

The sales quota allocation methodology plays a critical role in the success of the sales force and in the quota planning process of the organization. Let’s look at four commonly used methodologies that can bring sales reps closer to their targets, and the company closer to its goals.

sales quota allocation

Each has advantages and disadvantages, but the key is to choose the sales quota allocation methodology best-suited to your business.

1. Trending leverages historical data to predict future performance. Using this methodology, each sales rep’s past trajectory is a guide to set their future quota.

Pros

Trending is an easy-to-understand sales quota allocation approach, which can be a big advantage if you need reps to embrace the new quotas quickly. This method also produces relatively fair quotas that take into consideration previous performance for an individual or geography.

Cons

Looking at past performance will not suffice to attain new targets, as trends will rarely add up to the new national goal the sales organization has to reach. The trending method can also prove generally inaccurate, as growth is allocated to those who have grown in the past, not to those with the highest potential for the future.

2. Account planning is a bottom-up sales quota allocation method that reconciles individual quotas to the national forecast. Reps forecast business for each account they own. Sales leaders allocate quota according to these forecasts, taking into consideration forward-looking local market knowledge.

Pros

Quotas are more accurate compared to the previous methodology. Situational knowledge can be applied at the lowest level to create goals that are a reflection of the current climate, rather than just what happened in the past. Because of the early involvement and direct contribution, sales reps and sales leaders are considerably more engaged in the quota allocation process.

Cons

On the other hand, account planning can be time-consuming, especially if you’re considering reps with a large book of business. This sales quota allocation methodology can also cause inconsistency, with each sales leader using the approach he/she considers best. It creates the opportunity for sales managers to play favorites.

3. Business insight uses customer and market data to identify the factors contributing to past sales success. The method implies estimating the impact of each factor, and then allocating forecast accordingly.

Pros

This sales quota allocation approach encourages stakeholder buy-in, as the forecast takes into account specific trends, challenges or local issues each has faced. Because of the amount of relevant data this process uses, the business insight method is also considered a relatively accurate approach.

Cons

Business insight also has a few disadvantages. For example, it is difficult to reach consensus around the weight of the factors, and the process becomes somewhat subjective. The methodology also requires additional data that can be hard (or expensive) to find. It can require mining several large data sets and applying them to specific geographies or territories. Some feel this approach may also underestimate momentum from past sales.

4. Regression. This method is based on quantitative, data-driven indicators. Leaders analyze results from previous periods to understand what worked and what did not. They use these lessons to adjust final factors and weights in the forecast for the upcoming period.

Pros

Compared to previous methods, regression is by far the most accurate and produces equitable goals.

Cons

On the downside, this complex method can become hard to execute and even harder to understand once it is communicated. Similarly to business insight, regression also requires additional data that is difficult to gather. The approach is backwards-looking, and does not take into account factors that are likely to become relevant in the future.

Takeaway

Depending on the source, you may also find these quota allocation methods under different names. Some classifications can also include other methods not described here. For example, equal division (which implies dividing the national forecast equally by the total headcount) or flat growth (which involves establishing a growth percentage for the national sales, and assigning it to each rep). These two methodologies are not viable over the long-term, as they are simplistic, do not reflect potential, and can produce inequitable quotas due to misaligned growth.

The secrets of great quota allocation are not set in stone. Most of the time, finding the best solution is an iterative process. Combine the strengths of different approaches to reach the accuracy you desire. Consider all available options rather than sticking to an old, bad habit, and review the methodology regularly to incorporate more information.

The Essential Guide to Quota Planning

Quota planning is a big concern for sales organizations. Read our guide to discover best practices in sales quota management and decide on the best approach for your business.

Get it here

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