Module 5 • Quotas/targets


Sales personnel however should not become too cost-conscious that they end up staying at third- class hotels, visiting third-class restaurants and avoid entertaining customers. Sales personnel should understand that, although expense money is not to be wasted, they are expected to make all reasonable expenditures.


3.2.2 Gross margin or net profit quotas


Businesses that do not set sales volume quotas, often use gross margin or net profit quotas. The reason is that sales personnel operate more efficiently if they recognise that sales increase, expense reductions or both are important only if increased profits result. These quotas are appropriate when the product line contains both high- and low-margin items. Low-margin items usually are the easiest to sell; thus sales personnel will concentrate on selling them and give inadequate attention to more profitable products. This problem is solved by using gross margin or net profit quotas.


Problems are met both in setting and administering these quotas. If gross margin quotas are used, management must realise that sales personnel do no set prices and have no control over manufacturing costs, therefore they are not responsible for gross margins. If net profit quotas are used, management must recognise that certain selling expenses, such as those of operating a branch, are beyond a salesperson’s influence.


Sales personnel may also have difficulties in grasping technical features of quota-setting procedures, and special records must be maintained to gather the needed performance information. Arguments and disputes are inevitable because some expense factors are beyond the control of sales personnel.


3.3 Activity quotas


These quotas are used to control how sales personnel allocate their time and efforts among different activities. The important activities sales personnel perform are defined, and then targets for performance frequencies are set. Activity quotas are set for total sales calls, calls on particular classes of customers, calls on prospects, number of new accounts, missionary calls, demonstrations etc.


These quotas are appropriate when sales personnel perform important non-selling activities, for example in insurance selling where sales personnel must continually develop new contacts. These quotas are also used where sales personnel call on doctors to explain new products.


Activity quotas permit management not only to control but to give recognition to sales personnel for performing non-selling activities and for maintaining contacts with customers who may buy infrequently, but in substantial amounts. The main problem in administering these quotas is that of inspiring the sales force. The danger is that sales personnel will merely perform these activities without performing activities effectively.


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