UNIT - I

What is Sales Management?

Sales management is the coordination of people and resources to effectively produce the
desired goal. These long term goals can be wide ranging, however they are generally increased
sales volume, contribution to profits, and continuous growth. To achieve these objectives, sales
managers have vast responsibilities including, but not limited to: demand/sales forecasting,
establishing quotas/objectives, budgeting, organization, recruitment, training, compensation,
and sales performance evaluation. In the end of the day, however, the most important role of
sales management is not to manage sales, but to manage the people who make the sales.

Sales refers to the exchange of goods/ commodities against money or service. It is the
only revenue generating function in an organization. It has formed an important part in business
throughout history. Even prior to the introduction of money, people used to exchange goods in
order to fulfill the needs, which is known as the barter system.

Example of Barter System

A has 100 kg of rice and B has 50 kg of wheat. Here, A needs wheat and Bneeds rice. They
agree to exchange 50 kg of rice and 25 kg of wheat upon mutual understanding.

Conditions of Sales

 There are two parties involved in the transaction, the seller and the buyer.
 The seller is the provider of goods or services and the buyer is the purchaser in exchange
of money.
The seller of goods has to transfer the title of ownership of the item to the buyer upon an agreed
price. A person who sells goods or services on behalf of the seller is known as the
salesman/woman.

Distribution is the process of making a product or service available for use or consumption to
the end consumer or business.

Distribution could be of the following two types −

Direct Distribution
It can be defined as expanding or moving from one place to another without changing direction
or stopping. For example, Bata has no distribution channel; it sells its products directly to the
end consumers.
Indirect Distribution
It can be defined as means that are not directly caused by or resulting from something. For
example, LG sells its product from the factory to the dealers, and it reaches the consumers
through dealers.

The following image shows the end-products stored at a warehouse, ready for shipment to the
dealers/consumers.
Importance of Sales management

1. It generates revenue for the company

2. A good sales team can get better margins whereas a poor sales team will fight on price and
drop margins.
3. It helps the business plan of the company by reaching the targeted audience and converting
them to customers
4. Good sales practices can also contribute to the brand building of the company
5. Excellent sales people work as both – sales and service consultants to their customers,
giving boost to the companies market presence
6. References are the job of sales and the same need to be managed efficiently through CRM.

Thus, if you look at, the importance of sales management is rising day by the day. And today,
sales can also be the competitive advantage of a company. The customer is the same. However,
the companies are different. If all other factors are kept constant, then the customer will tie up
with the company which has better salesmen.

Objectives of Sales Management

Every organization has an objective before initializing functions. We need to understand the
goal of managing sales. Here we are discussing Sales Management in terms of its objectives.

Sales Volume
It is the capacity or the number of items sold or services sold in the normal operations of a
company in a specified period. The foremost objective of sales management is to increase sales
volume to generate revenue.
Contribution to Profit
The sales of the organization should contribute to profit, as it is the only revenue generating
department. It can be calculated as the percentage or ratio of gain in total turnover.

Continuing Growth
One of the main objectives of Sales Management is to retain consumers to continue growth of
the organization. There should be regular expansion of sales and demand for an item in the
market with new advanced formulation.

These are the major objectives a sales executive has to focus on in sales management.
The important tasks in sales management:
1. Sales planning
This area of sales management involves setting the objectives toward which the sales team will
work. Some of the individual tasks involved are setting overall sales targets, quotas,
demand/sales forecasting and strategy.
2. Recruitment of sales staff
An integral portion of sales management. Sales managers are tasked with managing the
personnel they have under them. This extends from the recruitment and hiring of staff, through
training and one on one coaching. When it comes to the recruitment of staff, sales managers must
analyze the open position, create a job description, and qualify the applicants.
3. Sales reporting
Sales management is also tasked with developing and analyzing KPI’s for their sales team. By
understanding these indicators, managers are better able to track and make adjustments to
improve productivity. Reports passed up the ladder allow senior management to evaluate the
overall heath of sales, as well as the performance of the sales manager individually.

What role does a sales manager play?

Being a good sales rep doesn’t directly translate into becoming a good sales manager. Its is not
up to them to create sales themselves; successful sales managers must create sales through
developing, motivating, and managing competent teams. Managers must create an atmosphere
based around comradery and common goals.
1. Share organizations vision
Sales managers must instill a shared, organization-wide vision into a sales team. This vision will
give reps an idea of what the company is trying to achieve, and help direct everybody towards
that goal. Having a shared vision will light a fire under the sales teams as they move forward.
2. Communicate the mission statement
The mission statement is key to any company attempting to on-board new hires. It creates a path
that employees can latch onto coming into an organization. Without clearly stating what a
company is trying to achieve, employees will not have clear direction.
3. Bring guide principles to sales team
Managers are tasked with providing guiding principles that are understood and supported
throughout the entire organization. These principles shape how decisions and overall policy will
be made and altered.
4. Instill the company values
A good sales manager must instill the core company values into his or her sales team. These
values will guide how they handle situations and make decisions down the line. It is important to
hire people who hold personal values that are in line with the values of the company as a whole.

Skills of a Sales Executive

Sales management is an art where the sales executive or the salesperson helps the organization
or individual to achieve its objective or buy a product with their skills.

The following are some skills that a sales executive needs to possess −

Conceptual Skills
Conceptual skill includes the formulation of ideas. Managers understand abstract relationships,
improve ideas, and solve issues creatively. The sales executive should be well versed with the
concept of the product he/she is selling.

People Skills
People skills involve the ability to interact effectively with people in a friendly way, especially
in business. The term ‘people skills’ involves both psychological skills and social skills, but
they are less inclusive than life skills.

Every person has a different mindset, so a sales executive should know how to present the
product depending on the customer’s mindset.

Technical Skills
Technical skills are the abilities captured through learning and practice. They are often job or
task specific. In simple words, a specific skill set or proficiency is required to perform a specific
job or task. As a part of conceptual skills, a sales executive should also have a good grasp on the
technical skills of the product.
Decision Skills
Decision skills are the most important because to tackle the questions from consumers, sales
executive should always have the knowledge of competitors’ products and take a wise decision.

Monitoring Performance
Sales executives should monitor the performance of the employees and report to higher
management to improve the performance and fill the loop holes.

Thus, conceptual skills deal with ideas, technical skills deal with things, people skills concern
individuals, technical skills are concerned with product-specific skills, and decision skills relate
to decision-making.

Sales Methods
Sales method can be explained as one of several techniques used to recognize revenue
specifically when revenue and expense are recognized at the time of cash collection rather than
at the time of sale.

Thus, we can say that Sales Methods are the different ways to sell the product or service. The
Sales Personnel help to sell the end products to the consumer. Some sales methods are given
below.

Direct Sales
Direct sale is the sale of good/services involving person contact. It can be defined as the most
important method that is used, as most of the consumers prefer to purchase goods through a
direct contact with the seller, during which they understand the features and get to know about
the needs and benefits.

The above illustration depicts the seller in the middle as A. Buyers are seen reaching out to the
seller. It is an example of direct sales where the buyers (in green) are approaching the seller in
orange.

Example − Boeing airlines sells it air buses directly to the consumer with no intermediary
involved.

Pro forma Sales

The term pro forma is a Latin word, which means, "as a matter of form" or "for the sake of
form". It is commonly used to describe a practice or document that is provided as a courtesy
and that satisfies limited requirements, conforms to a norm or doctrine, tends to be performed
perfunctorily and/or is considered a formality.
Pro forma financial statements are fashioned to reflect a proposed change, like a merger or
acquisition or to emphasize certain figures when a company issues an earnings announcement to
the public.

It can be termed as the practice or document that is provided as a courtesy or satisfies the
minimum requirements which contain the details of the buyer and the receiver. It can also be
termed as an invoice of the product.

Agency-based Sales
In agency-based sales, the organization hires an agent on contract basis. That sales agent
acquires the right to negotiate the sale of the organization’s goods or services in exchange of a
fixed commission or fee. The commission is calculated on the basis of the percentage of the
sales generated. Example: Insurance Policy, opening of bank accounts etc.

Door to Door
In door to door sales, the sales executive walks from the door of one house to another to sell the
product or service. For this type of sale, the sales agent should be versatile and capable of
quickly creating a relationship with the customers.

The following are some major duties of sales personnel for door to door sales −

 Striking a conversation with a stranger.

 Getting the form filled and completing the administrative tasks.
 Getting the payments processed from customers.
 Building rapport with customers.
 Providing training to new team members.
These are some of the major responsibilities that a door to door sales executive needs to manage
in order to maintain or increase productivity.

Hawking
Hawking is associated with a hawker (seller) who sells the goods that can be easily transported.
A hawker sells not-so-expensive goods on the streets by shouting in loud voice and chitchatting
with the passers-by to develop rapport and convince them to buy his goods.

In India, there are 10 million street vendors, Mumbai and Delhi contributing the most to the
number. Many consumers also prefer street shopping because of the low price of the products.
B2B
B2B selling is known as Business to Business selling. It refers to a situation where one
business makes a transaction with another.

B2B occurs where −

 Factory produces goods and sells them to wholesalers.

Example – Food products manufacturers, shoes, bags, etc.

 Organization outsources its process to other companies to reduce the labor cost.

Example – BPO (Business Process Outsourcing)

 Company purchases raw materials from another company to make the final product.

Example – Tata Steel purchases goods from its ancillary companies

Electronic Sales
Electronic sales or e-Commerce is known as trading of goods or services through the internet.
The figure given below depicts how e-Commerce works. We can conclude that the e-commerce
business has been increasing day by day due to easy access and simplicity.

E-commerce businesses may employ some or all of the following −

 Online shopping web sites for retail sales direct to consumers.

 Providing or participating in online marketplaces, which process third-party business-to-
consumer or consumer-to-consumer sales.
 Business-to-business buying and selling.
 Gathering and utilizing demographic data through web contacts or social media.
 Marketing to prospective and established customers by e-mail or fax (for example, with
newsletters).
 Engaging in prevailing market for launching new products and services.

Thus, e-commerce can be defined as the business conducted through the application of
computers, telephones, fax machines, barcode readers, credit cards, automated teller machines
(ATM) or other electronic appliances (whether or not using the internet) without the exchange
of paper-based documents.
Request for Proposal
Request for proposal is a type of bidding procedure by a company who is interested in
procurement of goods or services from potential suppliers to submit business proposals. Given
below are the salient features of a Request for Proposal.

 It informs the suppliers that a company is looking to solicit and inspire them to make
their best effort.
 The company has to provide specifications regarding the proposal to purchase and if the
analysis regarding the requirement is prepared, accordingly it can be easily integrated
into a Request document.
 It also signals suppliers that the selection process is competitive.
 It ensures that suppliers respond factually to the identified requirements.
 The selection process is structural so that there is no partiality in the process.

Organization of Sales Department:

Sales organization is a department in company within logistics that designs the company as per
the sales requirements. Sales organization is held responsible for the sales and distribution of
goods and services.

The selling unit is represented as a legal unit. The salesperson plays a crucial role in the sales
company because he/she is answerable for many activities in the company. Some of those
activities can be listed below.

 Setting selling and profit objectives − The salesperson is involved in setting the
objectives of selling the product and generating the profit.
 Marketing policies − The salesperson has to set the marketing policies and plan
accordingly.
 Designing personal selling strategies − They also have to set up their own strategy to
generate sales and to target and retain the customers.

They co-ordinate with other departments as well, for example, advertising, sales promotion and
distribution, to chalk out a sales programme, which helps in generating sales. It also helps to
find any loop holes and fix the issues.

Characteristics of a Sales Organization

Let us now understand the characteristics of a sales organization −

 A sales organization subsists of a group of people who handle different activities like
distribution, advertising selling etc.
  It works to achieve the sales objectives, like increasing sales volume and maximizing
profit and market share of the company.
 It specifies the responsibilities and duties of the salesperson and also co-ordinates their
activities with other departments.
 It helps to develop a relationship with the other personnel in the organization by setting
up a sales programme.
 General Sales Manager is the head of the sales organization.

Thus, sales organizations help the company in achieving targets and building coordination with
sales personnel. Now we shall see the importance of sales organization.

Significance of Sales Organization

Let us now understand the significance of sales organization.

To plan purchase
The sales of the company depend on the sales anticipation. The sales will increase only when
the consumer purchases the goods or services. Therefore, the company has to plan the sales
according to the consumer need and want, meaning where they want the product, what they
want etc. The planning and development is done accordingly to satisfy the need of consumer.

To create pattern of demands for products

The demand of the product is created to lead to sell in the market. When a product is
manufactured in the factory, it is not sold automatically. Salespersons push the product to
consumers. But even they cannot force the consumer to buy the product. The sale depends on
the consumer’s need and perception. This need is created by the selling skills, promotions
through advertisements, etc., which in turn help in creating demand in market.

To handle the orders received

This is an important step where the salesperson has to answer the calls and queries of the
customers, receive orders and make the product ready as per the demand of consumers.

Finally, the products are packed and dispatched as per the expectation of consumer; all these are
imperative and effective tasks.

To collect the dues

Sales cannot always be done for cash. Bulk sales are made on credit. It’s very difficult for an
organization to perform only on the basis of cash sales; in this competitive market, credit sales
play a crucial role.
After the credit sales have been done, the organization has to collect dues. It is a very
challenging task as the salesperson has to retain the business and still get the task done.

To handle the task of personnel management

Every organization wants best sales personnel to enhance the sales. This depends on training.
The organization has to select, train, motivate, monitor and control its sales personnel. Here the
company has to make an investment in sales personal.

In summary, we can conclude that there is an immense impact of sales organization on a

company.

Types of Sales Organization

An organization is designed in a manner where we can identify the work or activity performed
by an individual or group. The roles and responsibilities are defined, which helps in building
relationships to enable people to work effectively and efficiently. This helps in achieving the
goals of the organization. The following are the four types of sales organizations −

Functional Type
Functional type of organization is divided and classified on the basis of the functions
performed. The following illustration shows a functional type organization.

This depicts the functional type organization. We will now discuss the advantages and
disadvantages of this type.

Advantages of functional type

The following are the advantages of a functional type of organization −

  Specialization − In the figure, we can see the division has been made according to the
functions. By this, we can expect each function is specialized in its activity.
 Flexibility − The number of departments can be added or removed as per the
requirements.
 Decision making − Decisions can be made quickly as the person would be an expert in
his department and will be aware of the impact of his decision.
 Co-ordination − The co-ordination between functions can be done easily

Disadvantages of functional type

Let us now understand the disadvantages associated with functional type of organization −

 Due Attention − Each department is only specialized in their own activity; hence there
is no attention focused on the product.
 Delay − There is delay in making decisions because of co-ordination between all the
departments.
 Co-ordination − From the figure, we can see that all departments report to the General
Manager. Therefore, .in peak times, it may become difficult for the General Manager to
maintain co-ordination between the departments.
 Conflicts − There is always conflict between departments due to being specialized only
in one core area and lack of cross training.

In general, functional type of organization is suitable where the organization structure is

small having limited products.

Product Type
This type of division is made according to the products. The organization divides the
departments based on the products.

The following illustration shows the layout of the product type.

Advantages of Product Type

 Due Attention − Due to the division according to the product, each product gets
required attention.
 Specialization − The salesperson is specialized in specific products; hence he/she has an
advantage in handling the department.
 Responsibility − The responsibility can be easily assigned to a salesperson because all
the salespersons are specialized in their product/ department and are well acquainted
with the product, which helps them to handle customers smoothly.

Disadvantages of Product Type

 Co-ordination − There would be problem of co-ordination between two product

departments.
 Selling Cost − The selling cost of product may increase due to the division according to
the products.
 Operational Cost − Operational cost may also increase due to each product being
treated differently.
 Freedom − There is no cap on the freedom enjoyed by employees because the
salesperson is specialized only on his/her product/department and will not be able to
handle other product/department.

Suitability of Product Type

Product type is suitable in the following cases −

  Where the organization has many products and it can divide the departments according
to the products.
 For organizations selling highly priced products.
 When the products of an organization are more technical oriented, the organization can
divide the departments according to the products as the salesperson will be efficient and
effective to discuss the product with the customer in an effective way.

Consumer Specialization Type

According to consumer specialization, the departments are divided on the basis of the costumers
to whom the products are offered. Most of the time, market appearance plays an important role
in knowing the consumer needs and to divide the departments accordingly.

The following illustration shows the layout of the consumer specialization type.

Advantages of Consumer Specialization Type

 Consumer − Here the division is according to consumers, so each consumer gets due
attention.
 Consumer satisfaction − Consumer satisfaction is the first priority; as maximum
services are provided to the consumer.
 Planning and policies − The sales planning is done in a proper way and policies are
designed keeping each category in focus to achieve the goal.
 Brand − The organization is able to fulfil consumer needs and wants and create its own
brand to gain market share.

Disadvantages of the Consumer Specialization Type

  Expenses − The expenses for the company to build and plan according to consumer and
develop the market are huge.
 Sales activities − It becomes difficult for the sales manager to co-ordinate the sales
activities of salesperson.
 Investments − In this case of specialization, the investments are high and sometimes
repeated, which in turn, is loss to the company.

Suitability of the Consumer Specialization Type

Consumer type is suitable in the following cases −

 When there is a large number of consumers who are looking out for special services.
 The costumer is ready to pay for the services offered. Here, the target is mostly premier
customers.
Area Type
In this type of organization, departments are divided accord ing to the attributes of areas. They
can also be divided geographically. The following illustration shows the layout of the area type
organization.

Advantages of Area Type

 Products − Customers can be served with the latest products and customized products.
 Transport cost − Transport cost can be reduced because the division has been made
according to areas.
 Customer service − Company can provide better customer services as the division is
made according to area. Thus, the company can understand the customer psychology
and perception better.
  Sales performance − The sales performance can be compared according to zones and
steps can be taken to improve.

Disadvantages of Area Type

 Costly − It is costly as compared to other types and increases expenses of the company.
 Markets − It becomes difficult for co-ordination for the General Manager for different
markets.
 Conflicts − There may be conflicts regarding resource allocation between zones.

Suitability of Area Type

The area type of organization is suitable in the following cases −

 When the area or the territory for market is very large.

 Where the market is different based on zone.
 Where the product is differentiated depending on zone.
 Where the sales volumes are high and generate more revenues.

Recruitment of Sales force

The recruitment and selection of a sales force often is the key to success for an organization. A
successful sales team leads to profitability and future growth. Most organizations that hire sales
professionals use a very detailed, well-orchestrated process to ensure that the candidates selected
will meet or exceed targeted sales goals.
Job Description

A detailed job description is created that represents a top-notch sales person. The job description
includes the overall function of the job, detailed responsibilities, sales expectations, as well as
education and personal attributes required to be successful. A sales job description also
represents the challenges of the job. When the job description is posted to find candidates, the
goal is to attract highly skilled sales professionals willing to take on the challenge.
Cover Letter and Resume

Applications received from candidates interested in the opportunity are reviewed carefully.
Candidates' cover letters and resumes often are scrutinized, and recruiting professionals look for
enthusiastic candidates who exhibit potential to provide successful accomplishments in sales.
Screening

After resumes are screened, selected candidates are contacted. In many cases, the candidates are
screened during a phone interview to verify that they qualify for the job opening. During the
screening process, hiring professionals evaluate sales skills, as well as the candidates'
personalities to ensure they match the overall requirements for the position. One or several
candidates are then selected to proceed to the next phase of the recruitment and selection process.
Assessments

When candidates are selected after an initial phone interview, many organizations administer an
assessment to evaluate the candidate's personality and how it reflects on his/her sales abilities. In
many cases, the assessment is administered online. After the assessment is completed, hiring
professionals evaluate the results and determine if the candidate's personality and skills are a fit
for the sales position.
Training of Sales Force: Individual and Group Training

Each sales organisation has the option over the variety of methods and the tools of training the

sales-force depending on the individual needs and the resource constraints of the organisation.

These training methods may be individual or group.

A. Individual training methods:

Individual sales methods are micro-level training methods designed from the angle of each

salesman. These represent individualistic and highly personalized approach involving direct

interaction between the trainer and the trainee.

Precisely, it is a rifle training approach. These methods are a must where sales-force to be trained

is limited and needs individual intensive attention.

There are two such methods namely, on the job training and programmed instruction:
1. On the job training:

It is that method under which salesman is given the opportunity of observing and performing the

selling job of a typical salesman. Keen observation and active participation are the tenets of

learning on the job.

The trainee is observed while he is performing the job. The trainer corrects the trainee in case he

has any pitfalls. This method being on the job is also known as field training.

2. Programmed instruction:
Programmed instruction or learning is a linear programme of instruction in which the total

subject matter of training is broken down into certain chunks called ‘frames’ the numbered

instructional units.

Each frame explains specific points, questions, problems and solutions. The trainee is expected

to learn through these frames by solving the problems and then verifying them with the model

answers or solutions. He repeats the frame till he gets correct solution or the answer.

B. Group training methods:

Group training methods are those that are employed in training the salesmen in group. Here, the

trainees may be passive observers or listeners or can be active participants.

The most commonly used group training methods are:

1. Lectures.

2. Discussions.

3. Role playing.

4. Sensitive training.
5. Sales demonstrations.

1. Lectures:

Lectures by the trainers or the branch managers to a group of say 15 to 25 salesmen is the most

common method of group training. Lecturing method is more suited to teach actual information;

to be effective, lectures are to be properly planned, diligently delivered and valiantly validated.

Current examples, visual aids, authentic information make lecturing interesting and inspiring.

The special merits of a lecture as a method of sales training are saving in time, economy, ability
to reach large group and comprehensive and organized penetration of the training material to the

trainees. However, it is one way approach where trainees are passive listeners or observers.

2. Discussions:

Discussions are possible in sales training conferences. These work best in training the

experienced salesmen. These can be group discussions and panel discussions. In case of group

discussions 15 to 25 persons come together who are to exchange their ideas, pool experiences

and work out solutions to the common problems.

The discussion matters include current selling problems such meeting price competition, meeting

objections, closing sales handling claims, and adjustments and the like.

Group training discussions should be thoroughly planned to ensure due success. As far as

possible allow only experienced salesmen and keep attendance voluntary.

On the other hand, in case of panel discussion, there will be a leader and four to six salesmen on

the panel who follow planned discussion of a sales problem in response to questions set by the

leader.
The leader presents and explains the sales problem, calls upon each member of the panel by

rotation to comment. He closes the discussion and summarizes the views of the panel.

3. Role playing:

Role playing or sales dramatization is another excellent method of training a group of salesmen.

Under the method, the trainer and another salesman or salesmen working together assume and

play the roles of say salesman and different types of buyers, showing the most effective method

of demonstrating, clearing doubts or making complete sales presentations.

The criticisms and comments by the trainer and the members are dramatized to look like real-life

situation. Usually, the situations are unrehearsed and the skilful resistance on the part of

opposing roles adds to realism and effectiveness of role playing.

Role playing can be assigned to trainee salesmen. It helps to develop skill and confidence

through participation where he learns by doing.

4. Sensitivity training:

Sensitivity training method is perhaps the youngest of all methods. It belongs to ‘T’ Groups a

highly participative learning method whose purpose is to improve trainee’s skills in working

with other people by increasing the ability to appreciate how others are reacting to one’s own

behaviour, to gauge the state of relationships between others and carry out skilfully the

behaviour required by the situation.

In precise terms, it aims at making the trainees more sensitive to their environment and the

customer’s behaviour. It involves role playing and interacting with other member trainees so as

to increase the self ability to listen and understand the customer.

There will be post-role playing analysis in case of each role with reference to motives instincts,

actions, proactions, reactions and other remarks with a view to find out the rationale behind

other’s behaviour and suggest the ways to adjust to the same.

5. Sales-demonstrations:

Under this method, the trainer shows a salesman or group of salesmen how to present facts, meet

competition, open interviews, answer objections and conduct demonstrations. Each salesman is

expected to present information effectively about his company, products, policies and knowledge

as to how to close the sales.

After the demonstration, the trainee salesmen may be asked questions to verify whether they

have really understood the implications of the demonstration. This method of sales training

cannot be effective as in case of role playing because, latter gives chance of fuller participation.

Sales Quota

What is a Sales Quota?

A sales quota refers to a time-bound sales target set by management for a particular region, sales
team, or individual rep. Sales quotas are often attached to a daily, monthly, or quarterly period.

Sales quotas can be measured in a number of different ways, including by profits, sales, or rep
activity.

Sales quota can be defined as the sales target, which is assigned to any sales unit for a
particular duration of time; here sales unit can be a person, region, distributor etc. Sales
quota provides a target to be achieved in particular duration, which increases the
productivity.

Commercial firms set up sales quotas in order to improve sales volume and increase the net
profit of the organization. It can also be viewed as a standard to determine the effectiveness of
sales unit. Sales quota is determined using various factors such as market potential, marketing
method, past sales record etc., with effective projection of market sentiments. For planning sales
quota, control of sales operations can be an effective method.

Objectives
Sales quota is imposed in an organization to fulfil various objectives required to increase the
sales of product and maximize profit.

Sales objectives help an organization in the following ways −

 They provide a standard to measure the performance.

 They help to control sales expenses for customer acquisition.
 They help define a target; this further facilitates motivation and enhanced performance.
 These help to identify and monitor the performance of salespersons.
These are some of the primary objectives of sales quota for an organization. Further, sales quota
can be divided in different types according to the requirement.

The Importance of Setting Sales Quotas

Not only do sales quotas play an important role in sales forecasting and monitoring rep activity,
they also set expectations and motivate sales reps to hit a given level of activity.

Managers can also use sales quotas to learn more about their team’s productivity, success rate,
and optimal sales processes.

Setting sales quotas allows you to:

 Ensure compensation plans (including commissions) are fair and effective

 Reveal weaknesses or bottlenecks in the sales pipeline
 Highlight successful reps and replicate their sales techniques
 Monitor and regulate selling expenses
 Create achievable goals and benchmarks

Types of Sales Quota

Sales quota is divided into four different categories according to the difference in forecasting
and cost allocation procedure, management goals, selling issues and executive decision.
The following are the different types of sales quota.

Sales and Volume Quota

Sales and volume quota is allocation of sales quantity for salesperson, geographical regions,
distribution outlets etc. This quota can be implemented according to sales performed or revenue
earned by respective units.

The combination of both the criteria can also be used for the implementation of this quota. The
quantity of sales and revenue earned can be allocated to the respective unit (salesperson, region)
and it has to fulfil at least one of them.

Financial and Budget Quota

Financial and budget quota is used to determine and restrict expenses on sales to attain desired
net profit planned.

It is implemented on various segment of sales organization to control the expenses accordingly.

The aim of these quota is restriction of expenses for making sales so that profit can be
increased.

Activity Quota
In competitive market, the effective performance of sales group is required. It can act as a long
term benefit for the organization. Organizations set up activity quota for sales force for efficient
results. These can be performed by allocating sales target to salespersons.

The following are the activities listed under sales quota −

 Number of accounts opened through the salesperson

 Number of sales calls made to potential customer
 Number of demonstrations made to show the product
 Number of maintenance activities performed
Activity quota is planned on the basis of these activities performed by the salesperson. By
setting quota for the activities, efficient performance and controlling can be managed.

Combination Quota
It depends on product type and market condition, issues related to sales of product and the
challenges faced during the sales of a product. Organizations set up quota with combination of
sales volume and activity quota in order to increase sales.
Methods for Setting Sales Quota
Sales quota for any unit like salesperson, region, etc., should be a reasonable and an
achievable goal, for it to be fulfilled at the provided time span. At the same time, quota should
not be such that it doesn’t take much effort to achieve.

The following are some of the methods for setting the sales quota −

Total Market Estimate Method

Total market estimate method is used to determine sales quota in places where the
management doesn’t have any data about the market potential. It can be determined by
dividing the company’s sales quota with respect to regions or dividing sales quota according to
relative sales opportunity as per region.

Territory Potential Method

Territory potential method directly relates territorial sales potential to sales quota. The
potential here is total industry’s sales for that segment. Sales potential represents the maximum
market size of the product; size of the market reflects the sales potential. This method gives
precise results if territorial sales potentials are used with a combination of territorial design.

Past Sales Experience Method

Past sales experience method determines the sales quantity based on the previous year sales.
Managements of organizations set this up by increasing some percentage from the previous
sales record.

For more precision in the approach, managements most commonly use an average of several
years as a base line for the measurement. This method is simple and doesn’t take much effort to
implement.

Executive Judgement Method

In this method, sales quota volume is determined by the management, but it is more likely to be
a guess. The management decides the sales quantity and no fixed procedures are involved.

This method is not precise and it’s mostly not used by organizations to determining the sales
quota. This method doesn’t provide any estimate for territorial based sales volume.

Sales People Estimate Method

In this method, the sales quota is determined by the salesperson of the organization. Through
this approach, a more relevant sales estimate can be maintained, which can be achieved by the
salesperson.
Salesperson have better knowledge of the market conditions, so they can set the target as per
their standards, and if the standards are set by the salesperson themselves rather than imposed
by the management, their fulfillment is more likely possible.

Compensation Plan Method

Compensation method is based on management’s view of what a particular salesperson should
receive as revenue; this method does not take into account the sales projection or territorial
volume.

For example, if a salesperson has to receive 20,000 as salary, which can be received as 10
percent commission of the sales amount, then the salesperson has to sell products worth
200,000.