TYPES OF QUOTAS• sales volume quota

oldest & most common type

communicates – “ how much for what period”

set for geographical areas, product lines or marketing channels or combination

the smaller the unit, the more effective the quota for controlling sales operation

• budget

sales volume quota

1. DOLLAR SALES VOLUME QUOTA COMPANIES SELLING BROAD PRODUCT LINES SET SALES VOLUME

QUOTAS IN DOLLARS RATHER THAN IN UNITS OF PRODUCT ADVANTAGE: RELATE EASILY TO OTHER PERFORMANCE DATA

2. UNIT SALES VOLUME QUOTA

3. USED IN TWO SITUATIONS – PRICES FLUCTUATE CONSIDERABLY NARROW PRODUCT LINES SOLD AT STABLE PRICES

4. POINT SALES VOLUME QUOTA COMPANIES USE POINT SALES VOLUME QUOTA BECAUSE OF

PROBLEM IN USING $ OR UNIT VOLUME QUOTA

PROCEDURE FOR SETTING SALES VOLUME QUOTA• Sales volume quotas derived from territorial sales potentials – this approach is

appropriate when

1. Territorial sales potential are determined in conjunction with territorial design

2. Bottom up planning and forecasting procedures are used in obtaining the sales estimate in the sales forecast

However, in both the cases further adjustment is needed

• Sales volume quota derived from total market estimate – here, management has neither statistics nor sales force estimates of territorial sales potential. Management may either

1. Breakdown the total company sales estimate, using various indexes of relative sales opportunities in each territory, and then make adjustments to arrive at territorial sales volume quotas

2. Convert the company sales estimate into a company wide sales quota and then break down the company volume quota, by using an index of relative sales opportunities in each territory

CONTD…• Sales volume quota based on past sales experience alone

Companies assume not only that past and future sales are related but that past sales have been satisfactory

Companies perpetuate past errors

Average sales lag behind actual sales during long periods of rising or falling sales

• Sales volume quotas based on executive judgement alone

Justified when there is little information to use in setting quotas

Qutas can be of no higher quality than the judgement of those setting them

• Sales volume quotas related only to compensation plan

Based solely upon the projected amounts of compensation that management believes sales personnel should receive

Poor standards for appraising sales performance

BUDGET QUOTAS• Set for various units in sales organization to control expenses, gross margins, or net

profit

• Expense quotas

Expense quotas are used most often in combination with sales volume quota

Management provide sales personnel with financial incentives to control their own expenses

To reduce administrative burden and misunderstandings, expense quotas are generally expressed as % of sales

Problems – Variations in coverage difficulty & other environmental factors, make it

impractical to set identical expense % for all the territories Different sales person sells different product mixes, so some incur higher

expenses than others

Advantages – Makes sales personnel more cost conscious Awareness towards expense control

CONTD…

• Gross margin or net profit quotas

Appropriate when the product line contains both high & low margin items

Problems – Sales persons do not set the price and have no role on the

manufacturing cost. Thus, not responsible for gross margin Certain selling expenses are beyond the salesperson’s influence Increased clerical & administrative costs

• Activity quotas

Define the important activities sales person perform; then set target performance frequency

Appropriate when sales personnel perform important non-selling activities

Control & recognition of sales person performing non selling activities Reward sales person on quantity of work; irrespective of quality Problem in inspiring the sales force

COMBINATION & OTHER POINT SYSTEM QUOTA

1. Combination quota

• Combination quotas control performance of both selling & non-selling activities

• Overcome the difficulty of using different measurement units to appraise different aspects of performance

• Because performances are computed as %, known as poni systems, the points being % points.

• Summarize overall performance in a single measure

• Problems Sales persons may have difficulty in understanding & appraising their own

achievements Design imperfection may cause sales personnel to place too much emphasis on one

component activity

2. Full line quota Designed to secure some desired balance of sales among various products

ADMINISTERING THE QUOTA SYSTEM

• Accurate, fair & attainable quotas Depends not only on the quality of managements judgment but on the

capabilities & motivational of the sales force• Securing & maintaining sales personnel's acceptance of quotas Participation by sales personnel in quota setting Keeping sales personnel informed Need for continuous managerial control

Reasons for not using sales quotas

In certain industrial goods, its difficult to obtain accurate sales estimate Since quota requires statistical technique, fear is that sales personnel will

not accept quota prepared by hard to explain techniques Place too much emphasis upon making sales – legitimate criticism of sales

volume quota If product is in short supply, quotas are not appropriate