Administering the Sales Target System

Skill in administering the target system is important not only for realizing the full benefit for control purposes, but to securing staff cooperation in making the system work. Most critical is securing and maintaining accep­tance of the targets by those to whom they are assigned. Few people take kindly to having yardsticks applied to their performance. Constitutionally, most sales personnel oppose targets, and anything that makes them doubt the accuracy, fairness, or attainability of those targets makes them less will­ing to accept them, thus reducing the system’s effectiveness.

1. Accurate, Fair, and Attainable Targets

Good targets are accurate, fair and attainable. Obtaining accurate targets is a function of the target-setting procedure: the more closely targets are related to territorial potentials, the greater the chances for accuracy. But, in addition, regardless of the type of target—sales volume, budget, activity, or combination—sound judgment is important in analyzing market data, adjusting for contemplated policy changes (and for conditions unique to each territory), and appraising changes in personnel capabilities, as well as in setting the final targets. Accurate targets result from skillful blending of planning and operating information with sound judgment. Setting a fair target involves determining the proper blend of sales potential and previous experience.

Admittedly, whether targets are fair and attainable depends not only upon the quality of management’s judgment but upon the capabilities and motivations of sales force. Sometimes, perhaps even usually, the extent to which a salesperson’s target is fair and attainable can only be ascer­tained after performance has been recorded. Even then, management must exercise care in appraising variations from the target—to what extent are they attributable to quota inaccuracies and to what extent to salesperson inadequacies? After all, targets are not absolute performance standards, and errors are made in setting them.

If management believes that its target-setting procedure produces accurate targets and is confident that fair targets are being assigned, then they should be attainable. Most target-setting errors are those of judgment, most traceable to setting targets above each salesperson’s expected perfor­mance to provide an incentive for improvement. Targets that some sales personnel fail to attain are not necessarily unfair—whether they are or not depends on who fails to attain them. One executive offers this general rule. “You have set equitable targets if your weaker people fail to attain them, and if your better people either reach or slightly exceed them.” Thus, in ascertaining fairness, management faces a possible dilemma because the targets themselves are the performance standards most used for appraising the quality of sales personnel. Clearly, subjective evaluations of sales per­sonnel according to qualitative performance criteria are required to ascer­tain whether targets are fair.

2. Securing and Maintaining Sales Personnel’s Acceptance of Targets

Management must make certain that sales personnel understand targets and the target-setting procedure. Conveying this understanding is a critical step in securing staff acceptance of targets. If sales personnel do not understand the procedure used in establishing targets, they may suspect, for example, that the targets are a technique to obtain extra effort from them at no cost to the company. This attitude destroys the target’s effectiveness as an incentive. It is important that sales personnel understand the significance of targets as communicators of “how much for what period,” but, if they also understand the quota-setting procedure, they are more likely to consider their targets accurate, fair, and attainable. The target-setting method should be simple enough for sales personnel to understand, yet sufficiently sophisticated to permit acceptable accuracy. Sometimes, this means that management, faced with choosing between two target-setting procedures, may choose the less sophisticated because it can be more easily explained to, and understood by, the sales staff. More sophisticated procedures should not be ruled out, but managements using them must explain them to the sales force.

Participation by sales personnel in target setting. If sales personnel participate in target setting, the task of explaining targets and how they are determined is simplified. With sales personnel helping to set their own targets, management has more assurance that the procedure will be understood. How much staff participation is solicited depends upon man­agement philosophy, types of targets, information available, sophistication of the target-setting procedure, and the caliber of the sales force. It is not advisable to turn the whole target-setting job over to the sales staff, but some sales force participation can obtain more accurate and realistic targets. Sales personnel have some information about their territories that manage­ment does not have, and it can contribute to quota accuracy. Furthermore, when sales personnel participate in quota setting, they are more easily con­vinced of the fairness of targets.

Keeping sales personnel informed. Effective sales management keeps sales personnel informed of their progress relative to targets. Sales person­nel receive frequent reports detailing their performance to date. This per­mits them to analyze their own strong and weak points and take corrective action. Of course, sales personnel need encouragement, advice, and occa­sionally, warnings, in deciding to take measures to improve their perfor­mance. To reap full benefits from keeping sales personnel informed requires frequent personal contacts by supervisors, as well as regular reports.

Need for continuous managerial control. In administering any target system, there is a need for continuous monitoring of performance. Arrangements must be made to gather and analyze performance statis­tics with minimum delay. Charts recording each salesperson’s performance against target on a monthly, or even weekly, basis facilitates this analysis. Figure 18.3 is a typical chart for comparing sales targets with actual performances. Not all sales executives agree that charts should be posted for all to see, but most provide each person with information on his or her performance. Keeping sales personnel informed at frequent intervals, at least monthly, requires subdividing the year. Generally, the annual target is divided by the number of reporting periods, but, of course, this can be misleading, when random fluctuations in sales occur. For products with seasonal sales patterns it is more logical to apportion annual targets rela­tive to either the proportion of sales made in each reporting period during the previous year, or the proportions made in “normal” years.

Functioning target systems can almost always be improved. An alert management continually appraises operation of the system and makes needed changes. Continuous managerial review and appraisal are required, since, for example, a target that was accurate, fair, and attainable at the beginning of an operating period can prove totally unrealistic in view of changing selling conditions. Flexibility in administering the sys­tem is important—if a target is proving unrealistic, it should be adjusted. Administrative flexibility is desirable, but not too much. Small changes can be ignored; important changes call for adjustments. One company, for instance, adjusts dollar targets in the event of a significant price change, or any change of 5 percent or more in their industry forecasts. Balance is needed between flexibility to every slight change and inflexi­bility regardless of changes.

Source: Richard R. Still, Edward W. Cundliff, Normal A. P Govoni, Sandeep Puri (2017), Sales and Distribution Management: Decisions, Strategies, and Cases, Pearson; Sixth edition.