Recently, I was catching up with a dear sales colleague. We were talking about “sales life”, she told me how frustrated, anxious, defeated, and feeling a bit light in the pocketbook she was.
In a nutshell, her startup never took the time to understand their marketplace or their true customer/buyer profile. When the time came to establish sales quotas, they used an arbitrary number that was driven by a very green leadership team.
That number came from one rep out of a team of 26 that had finally managed to hit a big number the year prior. For the record, it took this person 18 months to hit that number. Only one out of 26—and this is on a team that includes my colleague who has been a consistent top performer and overachiever in every other role she’s held!
But now that outlier of a sales number is being used as the quota for everyone’s performance. My defeated colleague feels like a failure and is thinking of heading out the door if a performance improvement plan (PIP) doesn’t catch up to her first.
This certainly doesn’t seem right. After all, if the norm is truly only one member of a team with the ability to hit sales quota, doesn’t that seem to imply that there might be more of a problem with the sales goals than with the sales staff?
There are articles upon articles upon articles that speak to how one should set sales goals, what to do when a rep doesn’t meet their goals, and how to get the most of your team to crush quota.
Unfortunately, unattainable sales goals seem to be one of the dirty little secrets of our industry that nobody likes to talk about… a problem that happens far more often than we’d like to admit (I hear about this daily from both clients and candidates). I’m afraid this can lead to some devastating business results that lack accountability in the proper places.
The Dangers of Unattainable Sales Goals
When a sales team is handed a series of arbitrary, unrealistic, and unattainable goals, it’s easy for the team to become frustrated and turned off, to say the least—especially if the quota setting process isn’t transparent or ignores input from lower-level management.
When this happens, the opposite of the desired effect translates. Salespeople become demotivated and discouraged as they fail to reach their quotas and start to miss out on their feelings of satisfaction, performance, and compensation attainment. Alas, turnover rears its ugly head, and the business (startups are no exception to the rule here) starts to miss its growth targets. That’s only the tip of the iceberg…
Company culture is the fabric of any well-oiled startup machine and that takes a big hit, as does outside perception of your brand (people talk). The customer experience itself suffers as sales professionals become more concerned with reaching an unrealistic number than actually helping their buyer in a lasting, meaningful way. Bad sales “behavior” materializes with “gross” tactics that turn a buyer off versus enticing them to take the desired action. As a result, sales numbers are more likely to decrease, rather than increase.
In extreme cases, employees may even turn to unethical conduct in an effort to keep up with unrealistic sales goals (such as last year’s Wells Fargo scandal when employees opened unauthorized customer accounts).
As already mentioned, unattainable goals are frequently made when businesses fail to take the time to understand the marketplace in which they occupy, market trends, and customer profiles, but this is far from the only way that unrealistic sales goals can be established.
In some cases, startups knowingly set unattainable goals, believing that this will serve as a motivational tool that will push their team to new heights. Goals may take market realities into account, but then put an overly-optimistic spin on things to push a higher quota or to satisfy a board that has lost touch with the reality of the situation.
In other cases, providing every salesperson with a goal to hit 150% of what they sold last year could unfairly punish your top performers, who may have already captured most of the new business potential of their market area.
Determining whether your goals or your sales staff is the problem isn’t as hard as you might think. The Harvard Business Review puts it best: “When 10%-to-20% of salespeople miss their goals, the problem is most likely the salespeople. But when the majority of salespeople miss their goals, the problem is the goals.”
Setting Goals That Work
Sadly, some startups (and businesses in general, let’s be real here) fail to grasp just how dangerous setting unattainable sales quotas can be—not just for the happiness of their sales staff, but for the continued success of their business as a whole. So how can startups avoid this dangerous pitfall?
Let’s start by taking the inverse of some of the goal-setting problems mentioned above. If you want to set realistic goals, do your homework. Understand your buyer and create accurate customer profiles. Consider valuable input from all angles: Marketing, Customer Success, lower-level management, and those important folks on the frontlines interacting with your customers every single day (hint, it’s your salespeople) when establishing goals.
Don’t just get input from a singular source from said laundry list above either—there are several stakeholders within a company that offer valuable strategic insights. After all, it doesn’t do much good to set a “vanity metric” driven lofty sales goals if your engineering team won’t be able to keep up with demand. And your sales team will likely have a hard time exceeding last year’s results if you give them less resources to work with.
While considering the above factors are useful, they still don’t always provide the full picture. So how can you determine if your sales quota is truly achievable? Graham Hawkins recommends using two key metrics: your average order value and your average sales cycle time.
Your average sales cycle time allows you to get a rough estimate of “how many sales are actually possible within a given period, in a given territory”—a key piece of information when trying to understand your team’s sales capacity.
With enough of this information in hand, you can more accurately determine how many deals each team member can close during a given period, which you can then scale to your company as a whole to set a realistic baseline quota for the month, quarter or year.
To continue pushing your team to deliver better results, you can also establish what is known as an upside plan—a slightly higher benchmark or “stretch target” that serves as an employee goal. However, this higher benchmark should still follow the classic SMART formula—with extra emphasis on “attainable” and “realistic.” A little stretching can be good, but too much could land you right back into the “unattainable” category.
While I’m all for paying attention to startup trends and the latest ideas that are ever-changing, I recommend taking those words of wisdom with a grain of salt. For example, if the latest trend is all about MRR (monthly recurring revenue), but your buyer falls into the ARR (annual recurring revenue) category because they are a true enterprise account and not a transactional buyer, why on earth would you push something that makes zero sense for your business? Knowledge is power, but it’s what you do with it for your business that counts in my opinion. The one-size-fits-all school of thought is hazardous to your business “health.”