For sales quota periods, one size doesn't fit all

When it comes to stimulating sales, quotas are a tried-and-true tactic. But they don’t always provide the lifts companies hope for. A 2022 survey by Salesforce found only 28% of sales professionals were hitting their quotas.

New research suggests one reason: varying attitudes toward time periods. The lead researcher behind the project finds that salespeople respond differently to quotas of different lengths based on how forward-looking and motivated they are.

For some, the promise of a big reward far into the future is enough incentive to consistently sell. They tend to perform better with longer sales quota cycles.

Others need more frequent and short-term goals and rewards. Performers who aren’t future-motivated seem to thrive amid shorter cycles.

What the researchers say: “Sales compensation works,” he told us. “It’s a way to motivate people, and it does change people’s behavior. But if I don’t value the future at all, then there’s no point in putting in effort in January for a December reward.

“People who are less motivated by the future need pacers. They need more constant motivation,” he added

The Swedish/American team studied sales data from an electronics retailer with 100 retail stores.

The company had been operating on a monthly quota cycle. But executives noticed a problem. If business was slow during the first week of a cycle - for example, if the weather was nice, and consumers spent time outdoors instead of shopping - salespeople didn’t think they could reach their goals. As a result, they put in minimal effort for the rest of the month.

Midyear, in an effort to better motivate employees and boost sales, the company switched to daily quotas. Chung and colleagues compared sales data before and after the switch.

They discovered that after the quota cycle was shortened:

• Low-performing salespeople completed more sales. “These short quota cycles benefit the less motivated salespeople,” the researchers said. “It motivated them not to give up.”

• High performers, however, saw a small dip in sales performance with shorter cycles.

• Sales variability dropped, increasing overall predictability.

The findings suggest that when companies design sales compensation structures and schedules, one size may not fit all. Rather they should use short quota cycles to motivate low performers. But companies with many high performers will do better with longer cycles.

Time preferences are just one factor in structuring compensation, they noted. Quota cycles should also match sales cycles, which may differ from one industry to another. Long cycles may be disrupted if illness keeps people out of work.

The researchers are currently studying the sales impacts of another option: letting salespeople self-select which compensation cycle they prefer.

“Some startups are doing this,” they explained. “But it’s still rare because of the perception of fairness. In a company, you want a cohesive culture. Once sales comp is different, even if the salesperson selected it, they might question its fairness.”

My take: I am not sure that quotas can ever be fair or, over the long term, work at all.

A few years ago, a seminal study was done of the salesforce of a large US paint manufacturer. They found that no matter what quota they used, their sales volume was more or less the same.

Things changed rapidly when they switched to a new tactic: encouraging the salespeople to form collaborative relationships with each other where the emphasis was not on targets but on the salespeople enjoying working together. A system of high-performing sales teams emerged, which set their own targets and sales increased.

As has been noticed over and over again: team bonding increases productivity far more than material incentives or quotas.