The problem
Sometimes our sales people lose business due to factors outside their control (e.g., customer bankruptcy, mergers, incompatibility of our offering with their requirements). Do we reduce quotas when this happens?
Why do you have a sales incentive plan?
The first thing to keep in mind is that the sales compensation plan, and the quotas, are in place to do something very important:
Provide motivation and focus for sales people so that they deliver more and better results than they would have without a sales incentive.
Of course this needs to happen at the right cost of compensation for the business, and with fairness among sales people in mind, and in a way that helps attract and retain key talent, and without encumbering the company with excessive risk or administrative burden, and. . . But it’s good at these moments to go back and remember the main objective of our efforts with sales compensation, as this will help us find the right answer in tricky situations.
How much “lost” quota before an adjustment
So, with the goal in mind, it’s usually best to adjust the quota if it appears that failing to do so would undermine the motivational value of the plan. Usually this happens when a meaningful chunk of the sales person’s quota is “lost” due to forces beyond their control.
How much is “meaningful” depends on the degree of accuracy in the quotas.
- If the role is primarily new account development, then you’d expect substantial variability in quota attainments (say, 80% of people end the year between 50% & 150% of quota). In this case, you might adjust the quota if as much as 30% is “lost.”
- However, if the role is primarily account management and quotas are therefore more accurate (say, 80% of people end the year between 80% & 120% of quota), you might have a threshold in the plan of 75% of quota, and so might need to adjust the quota for “lost” business of only 10% of quota.
How much to adjust
The lost business should free up some sales capacity, allowing the sales person to pursue other opportunities. So clearly 100% of the lost business would be too much to adjust out of the quota. Something between 30% and 70% of the lost amount would probably be reasonable as an adjustment, depending on the length of the sales cycle and the degree of penetration of the assigned accounts/territory.
Managing the adjustment process
Businesses that make a regular habit of adjustments will find they receive more and more requests for adjustments unless they have an adjustments policy and process.
An adjustment policy should cover:
- What the criteria are for considering an adjustment (e.g., at least 25% of the annual quota is no longer attainable due to circumstances outside the control of the sales person)
- What the process is for requesting an adjustment (e.g., submit a request to your manager, who will then need to approve it and forward it on to the sales compensation committee for review at the quarterly meeting)
- Likely adjustment outcomes (e.g., the sales compensation committee may approve a quota adjustment of up to 50% of the lost business if they feel it is warranted).
What do other companies do?
WorldatWork, along with Better Sales Comp, completed a Quota Practices Survey in 2012. Click through to find answers to questions about prevalent practices.
Donya Rose, CSCP, is Managing Principal of The Cygnal Group. She is a recognized expert in sales compensation plan design, regularly speaking at conferences and writing published articles. She serves clients from F500 to growth-stage businesses, and advises WorldatWork on sales compensation hot topics and best practices.