Is quota an incentive or a disincentive?
If you’re in sales, you have an annual target you’re expected to hit. Goals are good. They work because they drive focus and inspire people to work harder and longer than they otherwise would. Clearly, we achieve more because of goals.
However, those benefits are ONLY true if a goal is set by the individual and NOT by someone else. Even though there’s ample scientific evidence this is true, it is ignored when quotas are set.
Usually, the CEO sets the annual sales goal. “You delivered a number last year. I made a commitment for a bigger number this year. I expect you to deliver.” It doesn’t matter what the rationale is for the number. That number gets handed to the CSO, who pushes it down through the organization, each region and team bearing their share of the number.
Each leader along the way might add a tiny percentage to their number so that, even if a few of their team members miss quota (which some surely will), the leader still has a chance to collect a bonus for making their number. Some leaders might carefully position it as a stretch goal, but sales people know the basis for it is questionable.
What to do? Sales people know they probably won’t hit an unreasonable number unless a miracle happens. Loyal to the cause, they put their hands over their hearts, pledge to do their best, work like crazy, accomplish phenomenal stuff, and usually fall short. And if they’re lucky, the number might be adjusted down once or twice during the year. Then, even though quite a few miss their numbers, the vicious cycle starts all over again to kick off the next year. Welcome to sales.
Does quota incent behavior we want?
Goals imposed by others, e.g. sales targets, profit margins, client visits per week, product demos, number of phone calls, pipeline metrics, and so on—often have a dangerous and unanticipated side effect. Goals like these are extrinsic, rather than intrinsic, motivators. Like all extrinsic motivators, they provide focus. But this type of forced focus can come with a cost, especially when a complex problem requires creativity to solve it. Likewise, when an extrinsic goal is paramount—particularly a short-term, measurable one that yields a big payoff like a bonus or a green indicator on a scorecard—it blunts awareness of the broader dimensions of our behavior.
This question makes the point: Is it possible that the approach you take today to hit your number will get in the way of your ability to sell more in the future?
I was teaching a workshop to sales leaders of a Fortune 100 company. One of the sales leaders shared a practice that was common among them. They regularly bundled products together, regardless of customer need, and offered discounts to make a three-year agreement attractive. This helped them hit their quotas. But they ignored the fact that customers were unhappy when they realized they didn’t need most of the bundle and the renewal rate was less than 16.4%. The few customers that did renew required an even deeper discount than before.
There is substantial evidence that, along with motivating constructive effort, goal setting can induce unethical or poor behavior. Most of the scandals that show up almost daily in news headlines involve people who, for their own benefit, took shortcuts to hit short-term numbers. Some executives game their quarterly earnings or create fake new-account sign-ups so they can snag a performance bonus while putting long-term success at risk.
But those are just a few executives, right? Wrong. It’s quite normal for some sales leaders—who may have bonuses tied to pipeline size—to strongly encourage (or require) their teams to put all deals into the pipeline. Even some sales people may be induced (pressured) to upsell unneeded products or services, and may even resort to discounts to get a personal boost at the end of the month, quarter, or year. Even though this behavior may not be headline-worthy per se, it is unhealthy and can lead to unintended consequences.
Is there a cure?
There is a cure. I say we invert the quota process and start from the bottom up.
I know. I’ve lost my marbles! It seems like what I’m suggesting is utterly unrealistic because it would require a huge mindset shift. Oh, and a very different planning cycle before the new fiscal year even begins. And who has time to plan? We can’t plan for next year because we’re too busy with our hair on fire figuring out how to hit last year’s still unreachable number.
But seriously, goals we choose elicit more effort than goals that are forced upon us. YOU can change the game by setting your own goals. So, take charge. You know the context of the clients on your account list better than anyone else in the company. Last year’s number may or may not be a relevant starting point. Maybe your biggest account was just acquired by another company and, as a result, you’re going to get zero revenue from them this year. You’re the one who is best-suited to develop a baseline number.
And as you thoughtfully plan how to grow year over year, remember your quota isn’t a faceless, emotionless object you can selfishly grab or conquer. All too often a customer is merely an object with a Q on its forehead. There is always critical context that makes a massive difference in how you can help a customer (or informs why you can’t)! What’s your plan for uncovering or discovering each client’s all-important context?
If you’re a sales leader, you might feel uneasy about starting from the bottom up. You can still challenge the goal if the context of a client doesn’t make sense to you. Also, what’s the salesperson’s story? What’s going on in their life and career? Is their number realistic, given that context? If you’re afraid the number won’t be high enough, what does that say about the trust you have in people? If we learn to draw out what others believe they can contribute, it’s easier and more likely to motivate uncommon effort.
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