Using Quotas

Calculating commissions using quota may be a difficult method given the current economy.  Depending on the industry your company is in, the economy may be playing havoc with your ability to predict future sales and determine quotas for your sales people.

When determining quota for commission plans, it used to be fairly simple.  Generally, you’d assume a growth factor and use it against last year’s performance to determine the New Year’s quota.  In today’s world where we are less certain of the effect the economy may have on our forecast, you may want to consider another method of calculating commissions instead of quota attainment.

Consider using gross margin/profit to calculate commissions.  Using a gross margin/profit method will focus your sales people on profitability instead of revenue which given the economy may not be a bad thing. Not only should you be mindful of costs but also the affect of discounting to your bottom-line. Sometimes in an effort to close deals, sales people can be quite liberal with discounting which will increase your revenue but reduce your margin or profits.

I could tell you several stories of quota based sales compensation plans that provided increased revenue but resulted in overall losses, but lets save that for another time.  For now, having unattainable quotas can be demoralizing and unproductive.  Too low quotas makes for happy sales people but the unexpected increase in commission expense could negatively affect your bottom-line.  A profit/margin oriented commission plan may help you manage the bottom-line and keep your sales people focused on profitability. regal cinema augusta maine .'
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