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with ramps (progressive or regressive), the quota will provide one of the break-points where the formula rate changes For target incentive commission plans, the average territory quota provides the calculation basis for establishing the commission rate For target bonus incentive plans, quotas play a pivotal role in equalizing the earning potential of dissimilar-sized territoriesAdditionally, in target bonus plans, the quota is an integral part of the payout formula For this reason, quotas must be accurate if they are too easy, the plan will overpay; if the quotas are too difficult, the plan will underpay

Vocabulary Alert: Companies use words like forecast, plan, goal, and quota differently However, in all cases, these words describe objective-based numbers In some companies, management uses these words interchangeably; in other companies, each of these words has a specific meaning However, most companies use forecast and plan (a noun, as in the business plan) to describe a companywide commitment The forecast for the coming fiscal year is to hit $875M in sales Or Our plan is to achieve $875M in sales On the other hand, both goal and quota usually describe performance objectives for individuals or sales teams Your quota for your territory is $26M Sales forecasting establishes a company s overall sales objective and quota allocation distributes the forecast to sales personnel as individual quotas

Companies have numerous quota allocation methods to distribute the company s forecast to sales personnel Quota allocation methods feature a combination of analytical tools and process methods Regarding analytics, some quota allocation methods make scant use of market potential data and simply use last year s performance as the basis of this year s quota Others invest significantly in measuring territory potential, territory market share, account growth rates, and account intelligence to create advanced analytical models for allocating quotas From a process perspective, similar extremes exist In some compa-

nies, sales personnel are not involved in the quota allocation process and simply receive an assigned quota number In other companies, extensive field involvement in the quota allocation process includes active participation of sales personnel and field sales management The most popular quota allocation methods are as follows:

Top down/algorithm: For industries where the product sales growth is tied to economic cycles and there are numerous customers (too many to know individual buying practices), the top down/algorithm method is the best quota allocation method Management uses historical data and economic projections to create a mathematical model, an algorithm, to allocate quotas Top down/negotiated allocation: Another method brings organization peers together to negotiate quota allocation decisions The vice president (VP) of sales meets with his or her regional managers (RM) to allocate the VP s quota among the RMs Regional managers then meet with their respective direct reports, the district managers (DMs) Working with the district managers, the RM then allocates his or her number among the DMs and the process continues down the organizational chart until the process fully allocates all the forecast to individual sales personnel Top down, bottom up: A third method features parallel activities of top-down quota allocation and bottom-up quota estimates This process creates two quota allocation views A reconciliation process at each level helps align these two quota allocation estimates Account planning: Territories composed of a few large accounts use account planning methods to set quotas Major account sales personnel are the best qualified to help construct a sales estimate for their large customersAssembling a customer business plan, the major account manager presents this sales estimate to senior sales management for review and adjustmentsThe outcome of this planning and review process produces a quota for the large namedaccount territory

Most companies need to use a combination of quota-setting methods to fully allocate the company forecast