How to set volume-based sales quotas? (Part III)

Following up with the third part on identifying quota fairness for volume-based quotas. We learned the use of absolute volume growth in the previous version and will focus on using the Percent Volume Growth numbers this time around to test quota fairness. Percent Volume Growth (PVC) tells you how your territories are growing and whether the quota has been set keeping that growth potential in mind. So the analysis here is based on territory growth and its potential.

As we emphasized in the 1st one (Baseline Volume Growth) in this series of blogs the opportunity to earn should ideally be dependent on performance and this metric gives us growth and in turn performance on a platter. Thus the underlying guideline while using this metric is that Percent Volume Growth should have a strong and positive relationship with territory performance; i.e. higher the growth of the territory better the performance.

Similar to the Baseline Product Volume metric or Absolute Volume Growth metric, we used the Aurochs Quota Manager to determine a historical test period that would be used as a benchmark to evaluate the current quota set. Using the Aurochs Target Setting philosophy we proceeded to set quotas for the test period and calculate Territory Achievement.

Quota Fairness Test 1

The 1st way to evaluate the fairness of your quotas is by creating a scatterplot of Territory Achievement against the Percentage Volume Growth or territory growth for the test period.

The above out-of-the-box scatterplot shows the relationship between Territory Achievement and Territory Growth. Looking at the scatterplot we can say that:

Observation:

• The achievement for territories with negative or small percent volume growth is pretty evenly spread out
• Performance of territories with very low growth or very high growth are in sync with their growth.

Takeaway:

• The quota set cannot be called out as fair as there is a very small positive relationship between the growth and performance as this relation is seen only in the top and bottom performers.
• The lack of relation between growth and performance tells us that the quota has not been set keeping the territory potential in mind, i.e. territories with low growth are performing much better than territories with high growth and vice versa. which in turn tells us that the quota set may not be fair to all.
• Quota needs to be evaluated for skewness using territory potential as the metric. Territory potential can be quantized using any of the following:
  • patient population,
  • patient to physician ratio,
  • size of the field force
  • call planning for physicians….. to name a few
• All these factors need to be taken into account while setting quotas if they can affect the growth of sales in your territory. A small imbalance in the final quota can either be handled as a part of the quota refinement process or by adding a small tweak to the methodology/indices used for quota setting

Quota Fairness Test 2

The second way to evaluate quota fairness is to bucketize the percentage volume growth numbers using the 20-60-20 analysis which distributes the audience in small, medium, and large growth buckets. We then used the out-of-the-box capability to create a boxplot of each bucket with their territory achievement.

A boxplot or a box and whisker plot tells you how the values of a variable are spread out where the box has 50% of the concentration and the whisker tells you the top and bottom 25%.

The above box and whisker plot tells us the spread of territory achievement for each bucket. These buckets have been created based on the Absolute Volume Growth; small, medium, and large.

Observation:

• At a glance the above box and whisker plot tells us that percentage volume growth has a highly positive relationship with the territory achievement, the smaller the volume growth lesser the achievement, and the higher the volume growth higher the achievement.

Takeaway:

• The graph here clearly indicates that territory growth is completely in line with the territory performance, i.e. territories with small growth are at the bottom and territories with high growth are at the top.
• Similar to the scatterplot example, in case the above direct alignment of the box and whisker plot is not seen then we need to re-evaluate the metrics used to do quota setting and probably bring in territory potential while re-evaluating. Finally, we can always use the quota refinement process or tweak the methodology to get rid of the skewness determined in the quota set.

In conclusion, we need to evaluate and make sure that the quota set for the field force is fair and achievable. One should follow quota-setting best practices to ensure optimal quotas have been set with minimal to no need for adjustments or tweaks in the methodology.

As we come to the end of this series, a quick summary is in order. Baseline Product Volume, Absolute Volume Growth, and Percentage Volume Growth are few variations that we need to keep in mind while checking quota fairness

• Baseline product volume tells us that our quota is not biased on territory size
• Percent Volume Growth tells us if we are missing important factors, such as potential, in our quota setting process
• Absolute volume growth is a pretty good indicator of whether we are on track with our end goals or not