Sales targets or quotas are established sales goals and are used to measure performance. They can be expressed in absolute dollar terms, percent or number of units sold. Target quotas represent the expected sales outcome and market level commissions are paid when expectations are met. Around the target quotas, it is usual for companies to consider a range of results both above and below the expected results. If no minimum or threshold is established, then commissions are paid starting with the first dollars of results. However, it is more common for the company to express a minimum standard of performance below which no additional compensation is derived. Likewise, for results above expectation, additional above market level commissions are earned.
Because of this strong tie of quota realization and compensation levels, it is important to both the organization and the sales personnel to accurately establish performance goals. Most quotas are based on historical information with modifications based on marketing projections, strategic plans, advertising and promotion campaigns, product improvement and development, and merchandising programs. Typically, the starting point is last year’s results (or quarter-to-quarter results for cyclical businesses) with economic adjustments reflected (CPI, PPI, inflation, etc.). Another historical approach would be to use two or three year running averages to eliminate any unanticipated and experienced aberrations such as windfalls or downturns in any one cycle.