N5 Sales Management 3.1.7 Letting sales personnel set their own sales volume quotas


The reason for this method is that sales personnel are closest to the territories, know them best and therefore should set realistic sales volume quotas. Management is also shirking the quota- setting responsibility and turns the whole problem over to the sales personnel, thinking they will complain less and work harder to attain the quotas if they set their own standards. Quotas can be set unrealistically high or low – management should make the final decision, because sales personnel cannot adjust for changes management makes in price, product, promotion and other policies.


3.2 Budget quotas


Budget quotas are set for various units in the sales organisation to control expenses, gross margin or net profit. These quotas make sales personnel more aware that their jobs consist of something more than obtaining sales volume. Budget quotas make personnel more conscious of the fact that the business wants to make a profit. Expense quotas emphasise keeping expense in line with sales volume, thus indirectly controlling gross and net profit.


3.2.1 Expense quotas


Expense quotas are used in appraising performance and are standards to keep expenses in line with sales volume. These quotas are used most often in combination with sales volume quotas. Frequently, management provides sales personnel with financial incentives to control their expenses. They can, for example, receive expense bonuses for lower expenses than the quotas. These quotas are derived from expense estimates in territorial sales budgets, but to reduce the administrative burden and misunderstandings, expense quotas are generally expressed as percentages of sales.


This procedure presents some problems because variations in coverage difficulty and environmental factors,and in sales potentials they make it impractical to set identical expense percentages for all territories. Different sales personnel sell different product mixes, and thereby incur higher expenses than others, also making impractical the setting of identical expense percentages.


Selling expenses do not vary directly with sales volume, as is assumed with the expense percentage quota. If management insists that expenses vary proportionately with changes in sales volume, this may reduce selling incentive.


For instance, selling expenses amount to 3% of sales up to R700 000 in sales, but obtaining an additional R50 000 in sales requires increased expenses of R2 500, which amounts to 5% of the marginal sales increase.


Management should not arbitrarily set percentage expense quotas – analysis of territorial differences, product lines and expense variations at various sales volume levels should precede actual quota setting.


Because of difficulties in making precise adjustments for these factors, and because of possible changes in territorial conditions during the operating period, administering an expense quota system calls for great flexibility. The biggest advantage of the expense quota is that it makes sales personnel more cost conscious and aware of their responsibilities for expense control. Sales personnel also realise that these quotas are standards used in evaluating their performance.


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