Make Quota Setting a Strategic Sales Management Process
During a drive from Atlanta to Chapel Hill, Mark Donnolo was interviewed about his forthcoming book: Quotas! Design Thinking to Solve Your Biggest Sales Challenge (due October 15, 2019). The following is a summary of that conversation.
What motivated you to write a book on quotas?
The topic of quotas has become something of a next frontier for many companies. Quota setting comes up in so many conversations these days, whether in connection to compensation or other topics like sales strategy or customer coverage models.
When we did our initial research for the book, we found that over 60 percent of companies said quota setting was one of their top three sales effectiveness issues. Let me highlight this: Their responses covered overall sales effectiveness, not just sales compensation. So, this told us quotas are a very important issue for sales organizations.
What makes sales quotas so important now?
Quotas are like the canary in the coal mine. While quota setting is often presented as an independent problem, it often is the leading indicator of a bigger problem. As it turns out, when you have a quota setting issue, often you are best served by considering the impact of upstream disciplines like strategy and coverage, which are further up the Revenue RoadmapSM.
Quotas are connected to many other drivers of sales effectiveness. A big motivator for me in writing the book was to show how quotas are part of an interconnected system. The real opportunity is to solve big sales effectiveness and business problems. Quotas are often a symptom. But when you dig in and start understanding the problem, you might find out the quota issue is closely tied to a sales strategy issue. Or, it might relate to the company’s history, where maybe the company grew through acquisition and the acquisitions weren’t well integrated. Or it could be that a quota issue is related to the coverage model or a sales talent and skills issue.
Quota setting is connected to so many things. This is similar to its cousin—sales compensation. It too is highly interconnected and can also be an indicator of other bigger issues. In the book we provide benchmarks, case examples, and models. But we go further. We really want to help people solve real problems. As a result, we not only improve quotas and the quota setting process, we improve overall sales performance.
Do you take a different approach to quota setting?
While we do share numerous best practices in quota setting, we approach quota setting from a problem-solving perspective. We acknowledge there are many important best practices and tools, and we cover them in the book. But we know from experience that it is not enough to provide a toolbox. We emphasize HOW to solve quota problems.
We have a problem-solving process called Sales Design ThinkingSM. This is what makes the book unique and it is what I am very passionate about. While the book is about quotas, it’s really a book about how to apply a highly effective problem-solving approach to complex quota setting issues.
Would you describe some key features of Sales Design Thinking?
In an earlier phase of my career, I was a designer in New York. I combined my art school undergrad with a business school graduate degree and entered the business world. A lot of the work we did in the creative fields had to do with problem-solving and applying design principles and design processes to solve problems involving corporate identity or messages companies wanted to convey to their audiences.
The idea of design thinking itself is broadly known and used in a general sense. People talk about design thinking a lot, for example with innovation and new product design. But few people really know how to how to apply design thinking to business issues. So, we created a design process for business people and salespeople. It is a process they can learn, apply and obtain better results.
Sales Design Thinking involves a few major steps. One is starting with a problem statement. It involves defining what we think we need to solve for.
The next step is very important. It involves breaking down that problem statement to understand it better with what we call the “challenge question.” It disaggregates the problem statement and helps us understand what is behind it. It includes the story behind the problem as well as what your solution vision looks like.
Can you give an example?
In practical terms, we might start with a problem statement like: We need to fix the quota system because a large percentage of our reps are not attaining goal and the company is lagging in performance. So that could be a problem statement.
When you dig into the problem statement and you start investigating it, the process helps you create a multifaceted challenge question. Usually, it is like a run-on sentence with a question mark at the end. The challenge question gives us a lot more hooks to grab onto when we solve the problem. And the reason we call it a question is because questions themselves are more provocative than just statements. The problem statement is more static and tends to stifle thinking, which of course isn’t what you want happening at the start of the problem-solving process.
Sales Design Thinking starts with problem redefinition and then moves into divergent, or horizontal, thinking. This involves creating a range of ideas rather than coming up with one idea for a solution or continuing to do what you did before. In this process, we don’t want a repeat of the same old solutions because that just perpetuates the problem.
After creating a range of solutions, we send them into what we call vertical development, more fully exploring and refining the solutions we’ve decided to pursue, and then on to managing change.
So, if there’s one especially important component to Sales Design Thinking, it is looking for solutions from a different starting point—that multifaceted challenge question.
Can sales executives do design thinking on their own?
Design thinking is almost always better done in a small group rather than with just one person. For example, one of the hardest things to do is operate on yourself. And when you have a problem that you have been dealing with for a while and you have a preconceived set of assumptions, it is hard to get outside and think beyond those assumptions.
We use a concept called the “outsider.” This is a person who is not totally immersed in the problem; they bring a fresh perspective. They could be somebody who comes in at the beginning of the process to help you with redefining the problem. Or, the outsider could come in somewhere along the process to review what you’ve done with problem redefinition and help create additional divergent ideas.
The outsider is fresh and while they have an understanding of the subject, they may not fully understand the specific problem. This frees them up to prompt or provoke your thinking about why you made certain decisions or why you’re considering certain options or why you didn’t consider certain options.
Ideally, the outsider does not have a vested interest in the outcome. Otherwise, there is a chance for bias to color their comments about your work.
Do sales managers resist the outsider?
The outsider, ironically, is usually the person we don’t want to be involved. We are working hard at trying to figure something out and we invest a lot of time in it. We may be doing it with our team and have spent nights and weekends. You’re in a conference room cranking away and then your boss or your boss’s boss comes in and says: “Hey, how’s that quota thing going? Can I see what you guys are doing?”
The last thing you want to do is show the outsider what you are doing because they might undo it even though you are close to an answer. The last thing you want to do is go backwards and start opening the box back up again.
But the outsider can be the healthiest thing to inject into the process to give you perspective and help you consider a range of options.
How do you include non-sales functions?
A practical way to include other functional areas such as finance or human resources in the design process is to have “brain trust” sessions. We borrowed this term from FDR (Franklin Delano Roosevelt) who, at the time, was trying to shake the country loose from the depression. The brain trust sessions are held after you have reached a level of confidence. Then you ask a person or a couple of people to come in. You pose the problem to them and show them what you are thinking and have them challenge it.
During brain trust sessions, other functions can view your work from their perspectives and can bring multiple ideas as outsiders.
Do you have a particular quota setting model?
Three big dimensions impact quotas: people, market opportunity and sales capacity. Most quota setting processes focus on people and market opportunity and ignore or minimize their examination of capacity. We think this is a mistake.
As part of our research for the book, we looked at the different quota setting methods companies use. A large percentage use historical quota setting methods such as “last year plus x percent”. They apply this uniform growth rate to the regions and territories to set quotas. A benefit of this approach is that it appears to be equitable. But salespeople often see beyond this and realize that if they did well last year, they essentially are penalized by the last-year-plus method.
In other words, the historical approach trivializes market opportunity. Some companies enrich the process by adding data about market potential. This way they cover two of the three dimensions of quota setting. In the end, all of this activity is largely about trying to allocate “quota pain” out through the sales organization in an equitable fashion.
What about the third dimension of capacity?
The capacity dimension is often ignored by most companies during quota setting.
It is one thing to say we’ve got the big corporate goal, and we have a certain amount of market opportunity to help us identify the hotspots and better allocate that goal. Yes, this is a step forward from just using historical data. But what if we have market opportunity in certain places and insufficient sales capacity to penetrate that opportunity?
We dedicate a whole chapter to sales capacity in the book. The examination of capacity goes far beyond simple headcount; you can’t just add more headcount and get more productivity. You have to allocate resources according to where you have untapped market opportunity.
One lever for driving an increase in capacity is adding headcount in the right places. Another is increasing the amount of time people have to sell. On average, salespeople spend about 50 percent of their time selling. By leveraging selling time or reducing time spent on administrative tasks, you can increase sales capacity. A third lever is to improve pipeline management. This involves helping salespeople allocate their time toward their best opportunities.
There are many different levers that impact sales capacity and sales effectiveness. If we ignore them in the quota setting process, we in effect set this big opportunity area off to the side.
Why is quota setting so hard to do well?
There are a few dynamics behind the rising concern about quota setting. For one, sales organizations are traditionally preoccupied with sales compensation during the planning cycle. But after years of working on it, they are now pretty proficient at developing sales compensation programs. Now managers are realizing their comp plans are only as good as their quotas and a great compensation program can be neutralized by bad quotas.
Today’s typical scenario is the organization spends months on sales compensation plan design and then at some point late in the game you hear some somebody say: “Okay now we are going to set quotas and that has to be finished in the next couple of weeks.” And then it veers off into a kind of smoky backroom scenario where the goals get set. The problem is usually approached late and it’s too complex to fix quickly. So, it continues in the same cycle year after year.
Also, the team dynamic changes with quota setting. With sales compensation, the typical players are sales, sales operations, HR, and marketing, with finance in the back seat keeping an eye on the costs. But with quota setting, finance usually takes a bigger role, often climbing into the driver’s seat and taking over. Where quotas should be driven by market opportunity and sales capacity, finance usually doesn’t have the best view on those factors and the focus shifts to getting commitments for the number and getting it done quickly. You can’t solve a complex problem if you don’t have enough time or the right team dynamic.
Do you have a parting message about quota setting?
It is important for sales executives to maintain a simple vision about quota setting. Yes, there are many facets and complexities to quotas. We review them in the book—things like quota interlock, quota overallocation, and so on. While these technicalities are important, you need to simplify your method of thinking when solving a complex problem. If you get caught up in the minutiae, you can’t solve the problem. You need a simple frame of reference to facilitate your thinking, like the three dimensions of people, market opportunity, and sales capacity. They help you understand how the process should work as we move from the corporate goal all the way down to front line quotas.
I encourage sales managers to keep those three dimensions in mind. They are like three big tools in your toolbox. Then, when they follow the Sales Design Thinking process, the problem becomes manageable, and the solutions they find are practical and actionable.
Design thinking is not mystical. One of the stories in the book is about a mechanic I worked with a few years ago when my daughter’s car broke down. Jimmy, a mechanic in Raleigh North Carolina, used design thinking to understand the story surrounding the breakdown, and then he disaggregated the problem. He did it in a very natural, fluid and pragmatic way.
I use the story to illustrate that design thinking is not mysterious. It is very practical. When you follow the story of Jimmy and how he diagnosed the engine problem, it helps you see how design thinking applies to quota setting. Just like it helped Jimmy fix my daughter’s car, it will help you fix your quotas. It really does work.
Interview by Mark Blessington
Mark Donnolo focuses on helping companies grow profitably by developing and implementing strategies that improve the effectiveness of their customer-facing sales, marketing, and service organizations. Mark’s work spans several industries including technology, telecommunications, business services, manufacturing, and financial services.
Mark is founder and Managing Partner of SalesGlobe, a management consulting firm focused on sales strategy, sales process innovation, sales team development, and sales compensation. He also directs the SalesGlobe Forum, a membership organization of senior sales executives that operates in partnership with leading business schools.
Mark is the author of the books The Innovative Sale, What Your CEO Needs to Know About Sales Compensation, and Essential Account Planning available in stores and online.
Mark holds an MBA from the University of North Carolina at Chapel Hill and a BFA from The University of the Arts in Philadelphia.