What makes a good or bad sales quota
Ahh, what commercial team doesn’t love the age-old saying: “ABC: Always Be Closing!”? But the truth of the matter is, if you aren’t dangling a carrot in front of your reps, how will they stay motivated to sell?
Your sales targets, sales goals, and sales quotas all serve a purpose. Only the sales quotas, however, are built for individual team members and directly impact their commission.
The critical need quotas serve
Often made up of its MRR “lifeblood,” forecasting sales performance for a SaaS business is crucial for all growing brands. More specifically, but not limited to, the companies that make the leap from generating $1M to $10M in revenue. Quotas can range from monetary achievements to activity levels, and companies of all sizes need to define this to drive accountability and alignment across the sales organization.
From your hunters to your gatherers, quotas build purpose into their work. And regardless if they are new to selling restaurant technology or are seasoned in their role, quotas become the “rules of the game” for every commercial team. The major difference you’ll find is that those competitive in nature count on quotas to plot out their deals, forecast their year, and define the quickest path to success.
It’s important to note that there are indeed “good” and “bad” quotas. Good quotas are achievable, and motivate reps to meet and exceed what both parties mutually agree to be attainable numbers. These goals are based on:
- clear cut territories
- historical data
- buying and selling trends
- the market in general
Bad quotas will quickly show their true colors when built and communicated hastily. An easy but common trap most brands fall into – letting pressure from the “higher-ups” take over.
If driven at the Board level, the targets can be based on antiquated methods of planning, like leaning on a simple Excel formula to dictate the sales strategy. They are often numbers prepared haphazardly, further cursed by slapping a 20% increase on top of each target for good measure. You’ll see the outcome of unchecked, unproven, or unattainable planning first in waning team motivation, then resentment, then the inevitable – missing every number.
The two ways to build a quota
Top down, and bottoms up. And unless you’re a startup or solely reliant on bad data, taking a top -down approach is not recommended. At the Board or executive level, leaders often mistakenly assign you a number that is built off of their investment, profitability, and generally what revenue the company wants to achieve irrespective of:
- Past performance
- Industry factors, or
- what is deemed possible or even attainable
This is risky, but not uncommon. Startups often find themselves at the mercy of their investors, who are results-driven and have less exposure to the details of how to realistically achieve those goals. What’s worse, the top-down approach speeds past historical data and previous rep performance in order to establish a sales target.
The bottoms up approach is the exact opposite, meaning decisions are truly ‘data-driven’ and take into account historical sales to build success criteria based on a % increase over time. It should be every organization’s goal to have sales org wide quotas derived from, or at a minimum strongly influenced by, past performance.
Considerations when building quotas
The hospitality industry is constantly evolving, with issues like inflation or supply chain adding another layer of complexity to restaurant operations. And it doesn’t stop there – factors like consumer demand and seasonality can directly influence their buying cycles.
Anyone with more than six months of experience selling to restaurants will tell you that the industry, for better or worse, is unique. Just how unique? Enough to justify changing the hiring criteria in order to secure long-term (presumably successful) sales reps. For instance, you might choose to hire someone with less experience but comes from the restaurant industry.
Historically, when a restaurant tech business hires for skill—like looking for candidates who are SaaS-knowledgeable and enterprise-ready, but not necessarily familiar with the industry—their departure quickly follows. Reps who are selling to the restaurant industry for the first time take longer to ramp, and will likely have difficulty keeping up with uncontrollable market trends. They’ll also get frustrated with inconsistencies across the sales cycle, which can be interpreted as an inability to control their commissions and overall income.
On the buying side, restaurateurs can assess the level of authenticity a sales rep has from a mile away. Have you really ‘walked the walk’ and ‘talked the talk’? Do you truly understand what keeps your audience up at night?
When you’re finally ready to put pen to paper and build out quotas for BDRs and AE’s, you’ll want to assess the purchasing behaviors and trends that drive each new opportunity forward.
There are early indicators of a good selling opportunity. You just have to be able to detect:
- The busiest times of year for restaurants: the summer rush and holiday rush. This varies by region and restaurant segment. As an example, in high-trafficked coastal cities, you might want to accelerate or delay your outreach until Summer ends. You cannot call or sell SaaS to a restaurant in Miami if it’s summer, they’ll laugh at you.
- Restaurants expect you to move at their pace, which often means a restaurateur can purchase SaaS and expect the entire installation process to span over 30-60 days. Perspective: this means they won’t purchase in October because they cannot implement it during the holiday rush.
- Historically, the slowest two months in restaurants are January (post holiday) and September (post summer). Pay close attention to these ‘shoulder’ seasons. It could be an opportune time to implement new software and take on a new initiative, especially for restaurant brands that recently made changes to their leadership team.
Your first red flag should be anytime you or a colleague takes a sales rep’s quota, divides it by four, and drops the final number across each of your fiscal quarters. If that has previously been the exercise in how you structure sales quotas, consider resetting. The risk outweighs the reward.
By equally distributing a sales rep’s quota, it shows your lack of knowledge of the industry. Don’t blatantly disregard the ebb and flow of a restaurant buying cycle!
To point you in the right direction, seasonal quotas might look something like:
Total Quota = 100 widgets
Q1 = 15 widgets
Q2 = 25 widgets
Q3 = 40 widgets
Q4 = 20 widgets
Note: this is aligned to a January 1 fiscal year start date.
While there are many variables that can undeniably influence your overall quota writing strategy, effective sales quotas only become effective when rooted in data. The process should be as valuable and rewarding as the outcome. And because they drive both predictability and accountability in your overall organization, quotas should be approached with intention— and caution— as you strive to make an impact for you and your company.