Setting Sales Quotas: What History Got Right

Feb 8, 2023 | Blog

Setting Sales Quotas: What History Got Right

Over the past few weeks, I’ve been studying the history of quotas and quota setting during the dawn of the modern sales profession. Namely, from 1900-1930. In the process, something hit me right between the eyes! Something they seemed to do correctly back then that we get woefully wrong today. 

“It is far better that the quota be right than that it be simple.” – 1926

In March of 1926 at a joint meeting of The American Management Association and The American Statistical Association in New York, a significant topic was the setting of sales quotas.

The prevailing idea? They need to be correct.

Donald R. G. Cowan of Swift & Company, during his talk, proclaimed,

“Sales quotas are more likely to be accepted wholeheartedly by the sales force when there is definite proof that a given factor does influence the sales of a commodity and when the weight to be assigned to it is not determined by individual opinion or guesswork.”

How was this done? Organizations hired “market analysts”, or what was sometimes called “sales quota specialists”. These individuals used all available data to calculate territory-specific quotas. Yes, instead of a top-down, everyone in a similar role gets the same quota, these analysts looked at the circumstances of each territory and calculated quotas accordingly.

Selling a commodity like butter? The analysis would determine territories by the percentage of population in an area, with quotas using data around nationality and butter consumption.

Clothing? Climate trends by region.

Advertising? Studies on territories where a greater percentage of that population reads ads. It could also include, remembering that this is 1926, data around the percentage of a regional population who are literate!

Using available banking data or IRS data, studies were done on net purchasing power from available net deposits, or even the total number of corporate tax returns in a region. Quotas used data regarding cost of living indices in a region. Another important metric was population density, which had an impact on an in-market salesperson’s efficiency.

H.G. Weaver of General Motors spoke, saying,

“I have little patience with the ready-made, hand-me-down quota. There is no panacea. If it is wrong, I do not care how simple it is, it will not stay sold even if you are able to sell it (to the salesperson) in the first place.”

It’s 2023. Much is being shared about the low percentage of salespeople who achieved their quota in 2022, and even worse, the number of organizations raising quotas for 2023.

Here’s the head-slapping question for me:

With the proliferation of information and data types available today, combined with the tools available to make sense of it versus 1926, do you find it confusing that we do LESS today?

  • 100 years ago, more effort was made to ensure quotas were as accurate as possible. Realistic and attainable.
  • There was less data available, and less access to such data to make those types of estimates.
  • Making sense of data was a massive manual effort, as less technology was available to make sense of it. No Excel. No Google Sheets. No Tableau. No Python. Just a crude calculator, a data expert and a lot of manual sense-making.
  • At the beginning of each quota period, each salesperson had a 1-on-1 with their manager (and likely the specialist), focused on educating them specific to their territory on the “portion of the market that we can reasonably expect to get.”

Compensation was structured a bit differently. but fundamentally the point was the same. This is the expectation as to what is reasonable to expect from you during this quota period from your territory. Do you agree? Yes? Then let’s go. Specific. Shared. Why did we stop doing this? As a CRO myself, we did top-down, everyone-gets-the-same-quota (by role). So, in hindsight, I was even getting it wrong.

Books, like Tosdals “Salesman’s Compensation” in 1953, were entirely dedicated to the craft of ensuring compensation was fair and accurate.

While some leaders took last year’s quota, and simply tacked on 5% – 20% onto next year’s, this practice was severely frowned upon. Again…I’m guilt!  Again, in 1926, here was Weaver from General Motors’ comment on this practice, stating that it “amounts to using the thing to be measured as the measuring stick of itself.”

Data scientists are “in”, they are available, and the ROI is likely very high. Weaver’s thought during his speech on hiring a “sales quota specialist” is that this individual provides the value of “setting quotas which could be accepted as a standard of accomplishment for the sales(person) and as a basis for the redistribution of sales energy on a more economical basis.”

Today, we are doing less with more. Quota attainment is down…and that’s not just due to the economy. I would argue that, in most cases, organizations are doing the minimum to calculate and assign those quotas. When a target is set that isn’t “sold” to the salesperson at the beginning of the year, and that salesperson feels as though it is unattainable, there is no faster path to disengagement. The salesperson sleeps less, has their eyes open for their next opportunity, and may or may not leave. Lower engagement. Lower attainment. Higher turnover. Add to it the idea that the blowhorn by which sellers can now share their disdain for an organization on everything from Glassdoor to RepVue, it also means a slower time to hire, and a lower caliber of inbound applications.

In 1947, the US Department of Commerce actually wrote a book on sales. It was published as a public service to help small businesses following World War II, but also help returning vets “who inevitably will find their peacetime vocation in some phase of selling and distribution.” The book included a “Creed of Standards” that all sales leaders should follow. Number 11 on the list read as follows:

“11. If quotas are used (a) salesmen should know how their figures have been determined, and (b) the quotas shall be based on reliable seasoned personal evaluation of accurate and adequate criteria.”

It’s clear that the process of setting quotas today isn’t right. Between 1920-1950, they were doing so much more with so much less. Is it time to rethink the new tradition of top-down, one-size fits all quota setting, in favor of the original from 75-100 years ago?

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I speak and teach revenue organizations on how to leverage transparency and decision science to maximize their revenue capacity. It’s what I do…teach sellers, their leaders, and really entire revenue organizations the how we as human beings make decisions, then how to use that knowledge for good (not evil) in their messaging (informal and formal), negotiations and revenue leadership. I wrote a 3x award-winning book (𝘛𝘩𝘦 𝘛𝘳𝘢𝘯𝘴𝘱𝘢𝘳𝘦𝘯𝘤𝘺 𝘚𝘢𝘭𝘦), and have a newish book out (𝘛𝘩𝘦 𝘛𝘳𝘢𝘯𝘴𝘱𝘢𝘳𝘦𝘯𝘵 𝘚𝘢𝘭𝘦𝘴 𝘓𝘦𝘢𝘥𝘦𝘳) now that just won its first award!

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