Published in The Tennessean May 18, 2015
By Ed Rappuhn – SCORE Nashville
“How do I set goals and sales quotas to maximize profits?”
Previously I’ve addressed SMART goals – goals that are Specific, Measurable, Achievable, Relevant and Timely. The specific and measurable parts are relatively easy; sales quotas are almost always specific and measurable.
Are your goals achievable? If you set the bar too low, the goal is attainable but doesn’t motivate. If set too high, the goal can lead to frustration and potential disengagement. Look at the psychology of the person for whom the goal is set. Some people love a challenge and others need a more reasonable goal.
Consider monthly targets that lead towards meeting your overall goal. Smaller targets create opportunities for periodic feedback and review. If someone continually misses his target, is there a problem with the number of sales calls he’s making, the quality of his presentations, his closing technique, or is it possible his goal is too high? What if another sales person consistently exceeds her monthly target? Does she have a better territory, more experience, better resources, or is she simply a better sales person? Does she need a higher goal?
If commissions or bonuses depend on achieving a goal, people have a tendency to take it easy once they reach it. If you meet your sales quota, what’s the benefit of selling more? It likely means next year’s quota will be even higher. If bonuses are paid based on reaching a certain level of profit; some might be tempted to “hold back” on closing the next sale to jump start the following period. Consider implementing ramped compensation that pays higher percentages as goals or quotas are exceeded.
Make sure the goal is relevant to maximizing profits. If you are paying commissions or bonuses based strictly on sales figures are you boosting profits? You can sell a lot of $15,000 cars for $10,000 but you’d be losing money on each sale. Make sure your goals are profit-related or that there are enough checks in place to ensure that each sale contributes to overall profitability.
It’s important that there is a time element to your goals. But if discounting the sale to close the deal today results in a $500 profit, it might be better to sell at full price next week for a $900 profit. One of the benefits of owning a small business is that you can make the decision based on your best long-term interests, not on corporate cravings for current period sales.
The way you set goals to maximize profits varies from business to business and person to person. Talk with a mentor or someone in your industry to think through how to set goals for your business.
Ed Rappuhn is a mentor, workshop facilitator, and the past-chair of SCORE Nashville. SCORE mentors guide entrepreneurs in starting and growing their businesses. Sign up for a free SCORE mentor, find out about our reasonably priced workshops and other services, or volunteer to become a SCORE member at www.scorenashville.org .