October 2009 – New research indicates that, “Eliminating sales quotas boosts company profits says Professor Harikesh Nair. In one case, the new sales compensation plan without quotas resulted in a 9% improvement in overall revenues, which translates to about $1 million of incremental revenues per month.”
Interesting idea, and we do have a client that is violently opposed to quotas as providing a “stopping place.” I suspect it may be a case of bad comp design + a flawed quota setting process. If there’s a big payout AT quota, then yes – it’s a stopping place. But if the reward for getting to quota is the opportunity to earn at an accelerated rate, then no rational sales person would hold back at that point, unless…
…unless the goal setting system will result in a much larger (and harder to attain) quota the next year as the “reward” for over-achievement. And that, in my experience, is the real reason for the quota becoming a “stopping place.”
So I’d say that attainable and fair quotas set using a process that does not punish success with added risk the next year, combined with correct comp design, will yield the best return on the cost of comp for the company in most cases.
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.