Setting Effective Sales Targets

Setting Effective Sales Targets

Sales targets are extensively used by sales organisations to help achieve a ‘desired’, ‘promised’, ‘minimum’, or ‘aspirational’ level of performance. Setting sales targets are mainly used for motivating specific behaviour, establishing expectation, evaluation and rewarding performance. At present, the use of performance targets seems to be ubiquitous; however, a high proposition of organisations have reported to be dissatisfied with their targets arguing that this management practice is often not generating the expected results and even inducing potentially dysfunctional behaviour.

Decades of research in achievement motivation and goal attainment allows to conclude that people perform better when they are assigned specific and difficult targets than they do when they are assigned easy targets or ‘do your best’ type of targets. However, targets are not free from issues and challenges when implemented. A key problem with the link between sales effort and sales response is that it is neither simple nor direct.

 

Issues Associated with Sales Targets

The use of sales targets may come with several shortcomings. In areas other than sales (e.g. production and operations) performance goals can negatively affect continuous improvement; they may diminish the level of trust in management and compromise firm performance in the long run. Using goals may distort risk preferences with negative impact on corporate culture, inhibited learning, and reduced intrinsic motivation.

However, there is increasing evidence that new sales compensation plans without quotas can result in significant revenue growth.  Once a quota-based incentive system is implemented, the risk exists that employees will want to fulfill the quotas – for example offering additional discounts to persuade a customer to buy products they do not need.

A study led by Cranfield’s Monica Franco looking at the underlying causes of the potential negative impact of performance targets on salespeople behaviour, identified ten common issues that undermine the effectiveness of sales targets:

  1. Targets are often based on past performance
  2. Targets are allocated inappropriately across the sales force
  3. Targets are frequently perceived to be either too high or too low
  4. Some targets are based on the wrong performance measures
  5. Targets are entirely based on financial indicators
  6. The data analysis process on which targets are based, is frequently poor or lacking rigour
  7. Targets are not periodically reviewed
  8. Targets are ‘given’ to the sales people
  9. The interrelation between targets is not considered
  10. Agreed action plans are the exception and not the norm

 

Guidelines for Setting Better Sales Targets

Overall, effective target setting requires the selection of the most appropriate quantitative and qualitative goals relevant to the job and its key tasks. The best targets are not only the ones that direct the sales force’s effort in appropriate tasks, but also that are aligned with the objectives of the organisation. The characteristics of effective targets include:

  • clear and concise;
  • measurable and attainable;
  • fit organisational goals;
  • cover short, medium and long-term objectives;
  • combine both qualitative and quantitative elements;
  • contribute to job satisfaction and improved performance;
  • do not encourage the salesperson engage in dysfunctional behaviours.

 

A Ten-Step Framework for Setting Effective Targets in Sales

Most organisations already have some of the elements of this framework, but it is rare to find a sales target system that features the entire framework in a holistic fashion. In essence, this framework comprises key practices that are required for ensuring that the performance measures used in the target setting process and the targets agreed are effective.

Target Setting Process

In summary, there are some potential shortcomings that should be considered when setting sales targets. However, appropriate targets can also create a fruitful context for high performance and fulfillment in sales. Thus, best practice for sales leaders is to 'use' not 'abuse' targets in their sales organisations. Not just their sales forces, but also their customers will most likely ‘reward’ the organisation with their effort and loyalty respectively.

Dr Monica Franco-Santos, Reader in Governance and Organisational Performance, faculty on Sales Directors' Programme, Cranfield School of Management.

Dr Javier Marcos, Programme Director of the Sales Directors’ Programme, Cranfield School of Management.

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