Quotas have the power to become a very strong and effective tool to guide the field force towards the strategic goals of the organization. It not only helps you tie your strategy to your sales, market and financial bottom line but also assigns a time frame to everything. The right quota set can help you achieve your organizational goals with content and productive salesforce, whereas the wrong quota set can make things go haywire with a dissatisfied and demotivated salesforce.

Quota setting by itself is a challenging job. But the job does not end there, the quota set needs to be tested to make sure that it is fair, unbiased and pays the field force for the right metric. So once quota setting is done, the next step is to test it thoroughly against both current and historical markers. Quotas encourage salesforce to plan ahead and devise ways to meet their targets. Quota testing is meant to ensure that the effort and planning of the field force do not go in vain.

1. Seasonality

Before we go into the details of quota testing, we need to make sure that the seasonality of the product is accounted for in the goal set. Seasonality is the foreseeable and recurring ups and downs that occur periodically impacting the sales of the product. Ideally, the phasing or seasonality of the product is accounted for in the forecast itself. To accentuate this phasing, we also take a similar historical timeframe as the base while setting quotas. The combined effect of the factors makes sure that the result is accurate. From a result perspective, the phasing also ensures that the field force is able to focus its energy at the right time to get optimum results. Keep in mind that seasonality differs from market variation caused due to changes in the economy, strategy and market itself. The market variations are not periodic in nature but are often predicted and incorporated in the forecast and, in turn, quotas as a one off occurrence.

2. Goal vs Baseline Product Volume

Preset market elements and factors often define the baseline product volumes or territory size. The territory size can be used to assess the new quota set and ensure that territory size and goal set are comparable. A scatter plot of the goal set against the baseline product volume tells us if the goal set is in sync with the territory size. The idea behind this is to match the sales opportunity with the baseline sales. The ideal correlation between the goal set and baseline product volume is as close to 1 as possible. If the correlation is significantly lower than 1, it tells us that the quota for a large territory is significantly smaller than the baseline volume and for smaller territories it is significantly higher. Evaluating from a business perspective this is only possible if some big swing in the market or economy is in the wings and the quota set is accounting for that. Else, a lower correlation means that the goal set is completely skewed in favor of large territories.

3. Goal Growth Distribution

The growth objectives may differ from territory to territory depending on size, potential and other market factors. However, there are some broad guidelines you need to follow to help you ensure the correct growth objectives across the board. A distribution of the goal growth percentage tells us that if the growth percentage of the quota set is evenly distributed. The closer the distribution is to a bell curve the better the quota set. It also tells you about outlier territories with very high or very low goal growth at a glance. It's these territories that we need to re-evaluate in case the distribution is not even and skewed on either side of the bell curve.

4. Goal Growth vs Baseline Product Volume

We can also plot a scatter plot between goal growth and baseline product volume to know how the territories are growing. If the correlation here is closer to 1 it tells us that all territories are growing at the same pace but if the correlation is significantly lower than 1 then we can conclude that the growth of the larger territories is slow whereas the smaller territories are still growing fast. The inference from a lower correlation can also be that the larger territories are reaching their potential whereas smaller territories still have a lot of potential to grow. Comparing what we see on the scatter plot to the actual market dynamics tells us whether our quota set is in sync with the business and fair to all or not.

5. Quota Testing using Historical Markers

Once we have analyzed the current quota set, we move onto evaluating the bias of the quota set using historical markers. It tells us if the goal set is fair and pays for the right metric. We do quota setting for a historical period using the same methodology as the current one and evaluate the results using the sales in the market at that point in time, i.e. use historical territory achievement as the guide.

6. Achievement vs Baseline Product Volume

A perfect quota is one in which Territory Achievement has no relation to Territory Size. Essentially, regardless of the size of the area, it should have an equal potential to profit. Thus, the 1st marker to assess quota fairness is often the Baseline Product Volume. We must assess and ensure that the quotas set for the field force are reasonable and feasible. A harsh quota system not only discourages field employees, but it can also lead to significant attrition.

7. Achievement vs Volume Growth (Absolute & Percent)

A couple of other historical markers that can be used to indicate unreasonable or skewed quotas are absolute volume growth & percent volume growth when plotted against the territory achievement. The 1st indicates fairness, whereas the other tells whether we are paying the field force on the right metric. Either of these numbers should prompt you to look at the bigger picture, review, and take remedial action to improve your current quota system. When employing the statistic, the essential principle is that Percent Volume Growth should have had a strong and positive link with territorial efficiency; that is, the higher the territory's growth, the better the performance of the field force.
To summarise, Baseline Product Volume, Absolute Volume Growth, and Percentage Volume Growth are three measures to consider when assessing quotas. The quota should not be skewed by area size based on baseline product volume. Percent Volume Growth tells us if we are paying our field force on the right metric, i.e., performance. Absolute volume increase may not give us an exact answer but it is a useful indicator of whether or not we're on track to meet our objectives.