Importance%20of%20Sales%20Quotas

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Importance of Sales Quotas
Sales quotas serve several purposes. The
important objectives are shown in the diagram
below
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Types of Sales Quotas
A sales organization can set many types of
quotas. The most common quotas are shown in the
following diagram
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Sales Volume Quotas

• Sales volume quotas include sales in rupees or
  product unit objectives for a specific period of
  time. For example, New East India Ltd.
  calculates sales in rupees, whereas Bajaj Motors
  calculates sales as number of cars sold. Sales
  volume quotas are first set for the entire year.
  The yearly total volume quota is then set for
  shorter time periods, such as three months, six
  months and nine months. The sales force is
  assigned their yearly quotas. Sales targets are
  set for the year for sales force, so their aim is
  to sell throughout the year to achieve the total
  sales objective. The sales volume quotas can be
  set in the following areas

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Sales Volume Quotas (Contd.)
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Sales Volume Quotas (Contd.)
Example The following example of M/s South India
Ltd. shows sales volume quotas for Bangalore
territory.
Sales Volume Quota of M/s South India Ltd. for Bangalore
Sales force Sales Quota (in Rs) Actual sales (in Rs.) Difference Performance Index
S Kumar 56,96,000 57,92,000 96000 101.7
R Kumar 55,84,000 48,42,000 -742000 86.7
W Kumar 60,12,000 60,46,000 34000 100.6
P Kumar 43,10,000 43,34,000 24,000 100.6
2,16,02,000 2,10,14,000 -58800
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Profit Quotas

• Profit quotas are particularly useful in
  multiproduct companies where different products
  contribute to varying levels of profits. It
  creates opportunities for the salesperson to make
  optimum use of time. The following example shows
  a situation in which a salesperson optimally
  balances his time between high and low profit
  yielding products.

Product Sales price per unit Profit margin per unit () Volume per month (Mr Raj Kumar) Net profit per month (Mr Raj Kumar)
Product A Rs 400 Rs 280 (70) 60,000 1,68,00,000
Product B Rs 200 Rs 80 (50) 25,000 2,00,000
Product C Rs 100 Rs 20 (20) 10,00 2,00,000
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Expense Quotas

• Expense quotas are related to selling costs
  within reasonable limits. Some companies set
  quotas for expenses linked to different levels of
  sales attained by their sales force. Salespeople
  may receive an expense budget that is a
  percentage of the territorys sales volume. The
  salesperson must spend only this amount as
  expenditure.

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Activity Quotas

• These quotas set objectives for job-related
  duties useful for attaining salespeoples
  performance targets. Activity quotas are
  required to make the sales force perform other
  activities which have long term implications on
  the goodwill of the firm. A sales organization
  must set a target level of performance for
  salespersons. Some common types of activity
  quotas prevalent in Indian companies are as
  follows

• Activity quotas typically should not be a basis
  for rewards. Rather, their attachment helps
  the manager better understand why salespeople do
  or do not meet their sales volume quotas.

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Quota Combinations

• Many companies use a combination of these quotas.
  The two most commonly combined are sales volume
  and activity quotas. These quotas influence
  selling and non-selling activities.
• It is also important not to have too many quotas
  otherwise, the salespeople may become confused as
  to what is expected. Several quotas can be used,
  but they should be on the most important
  activities, total sales volume and the products
  that result in the most sales.