How to Set Appropriate Sales Goals
Be careful what you wish when you set sales goals: Setting your sights too high can do more harm than good.
Goals that are out of reach most often arise when an owner or manager thinks, “Asking sales people to ‘stretch’ to reach a goal motivates hard work and creativity, so asking them to ‘stretch farther’ must be even more motivating.”
But there’s evidence [PDF] that asking for too much often drives otherwise hard-working sales reps to disengage, feel discouraged, and ultimately give up — which, of course, hinders their performance. The most effective sales goals are high enough to be motivating, yet low enough to be achievable by most of the people on your team.
Here are five reasons your sales targets can become unrealistically inflated, plus some tips for setting appropriate goals.
1. Managerial Ambition — Just as pricing can be based on revenue aspirations rather than the competitive landscape, sales goals can be based on managerial needs instead of market realities. When sales goals are too high, they can threaten your company’s future. For example, salespeople often start cannibalizing long-term performance to hit immediate targets. A better approach is to set sales goals based on each rep’s past performance and the market realities he or she will face tomorrow.
2. Blind Padding — When sales goals pass through levels of administration or oversight, they often balloon a little at each step. A common reason for this is that people who aren’t out in the field reflexively prefer to see year-over-year increases to "prove" the business is growing. But by the time the goals get to the sales team, they’re out of reach. A better approach is to seek consensus on the final sales goal in the context of current market conditions.
3. Market Dynamism — There are inevitable delays between management setting sales goals and salespeople actively working to meet them. In dynamic markets, goals set in anticipation of higher demand can be put into play during uncertain economic conditions or even slumping demand. Sales goals should include a provision for feedback, so that the people on the front lines can report market changes to management and have their sales goals adjusted accordingly.
4. Across-the-Board Allocations — In many organizations, an expectation for a companywide sales increase of, say, 10 percent, may be reasonable, yet may get translated into unrealistic individual goals. For example, a new product line may easily yield 10 or even 20 percent sales increases by attracting new customers and finding business in new markets, while staple products sold to well-established long-term customers may have no real chance to nudge sales volumes upward. That’s why sales goals should reflect individual situations as often as possible.
5. Superstar Burdens — It’s equally unfair to ask a few top performers to provide the bulk of the asked-for sales increases. This approach turns the idea of rewarding good work on its head, because it lets weaker team members slide by with easier assignments and demands that top performers shoulder heavier burdens. It’s better to set goals so each member of the sales team faces the same degree of individual challenge.
Tips for Setting Appropriate Goals
Higher sales targets are rarely an effective solution to weak demand, sliding quality, increased competition, or other problems in your market. Sales goals based on organizational or psychological factors rather than market ones can have a negative impact on your business.
There’s no simple formula for setting appropriate sales goals. The trick is to balance such factors as:
- The sales rep’s skills and abilities
- The challenges of the sales rep’s prospects
- The temperature of the overall market
- The power of the competition
You want to fine-tune your team’s sales goals so that its overall performance matches the classic bell-shaped curve, with most people meeting their goals, a few exceeding them significantly, and a few missing the mark.
When too many of your salespeople fail to meet their quotas, look to management, which may be setting sales goals too high or hiring inadequate salespeople.
Robert Moskowitz is a business writer for Intuit and is passionate about solving small business problems.