The general objective that sales management has in mind while using targets is to control the sales effort. Sales control is facilitated through setting targets to use in appraising performances of sales organizational units, such as a sales region or an individual on the sales force. Sales control is tightened through setting of targets on expenses and profitability of sales volume. A skilled management uses these to motivate personnel to achieve desired performance levels. When management sets targets, it firms up its performance expectations; when these expectations are communicated to those who are to perform, motivational forces are put into operation that, it is hoped, will result in the required effort.
1. To Provide Quantitative Performance Standards
Targets provide a means for determining which sales personnel, other units of the sales organization, or distributive outlets are doing an average, below-average, or above-average job. Territorial sales volume targets, for instance, are yardsticks for measuring territorial sales performance. Comparisons of targets with sales performance identify weak and strong points, but management must dig deeper to uncover reasons for variations. A well-designed quota system, combined with sales analysis helps, for example, in assuring that a bad showing in selling one product in a territory is not hidden by good showings in selling other products. Sales performances vary, product by product, territory by territory, and salesperson by salesperson. Targets identify the strong and weak points; additional analysis of performance data uncovers reasons for performance differentials.
2. To Obtain Tighter Sales and Expense Control
Control over expenses and profitability is tightened through targets. Some companies reimburse sales expenses only up to a certain percentage of sales volume, the expense quota being expressed as a percentage of sales. Others set dollar expense targets and appraise sales personnel, in part, by their success in staying within assigned expense limits. Still others establish targets for dollar profit or profit percentage on sales. These “budget” targets shift the emphasis from making sales to increasing profitability. Budget targets are particularly appropriate when additional sales volume is obtainable only at increased expense. Thus, profits increase only with improved selling efficiency (lower selling expenses or more profitable sales).
3. To Motivate Desired Performance
Targets motivate sales personnel, distributive outlets, and others engaged in the sales operation to achieve assigned performance levels. Some managements use targets solely for inspirational purposes, basing them almost entirely upon what they think individuals can be inspired to achieve. Because of the high degree of subjectivity in setting such targets, they frequently turn out to be too far-fetched, thus losing inspirational value. Most sales executives agree that targets should be attainable goals, achievable with justifiable pride. The salesperson should believe so strongly in the target’s attainability that he or she will not give up with the excuse that it cannot be reached. Sales personnel should feel that they must reach assigned targets, and they should be confident that management will recognize their achievements. Motivation of sales personnel declines with easily attainable targets. The decline may, in fact, be so great that sales personnel are less likely to achieve easy targets than difficult targets.
For maximum effectiveness in motivating desired performance, targets cannot be based solely on judgment or on sales potentials. Past sales experience and analysis of the sales potential in a territory, for example, may appear to indicate that the sales volume quota of the salesperson assigned there should be increased by 50 percent over the previous year’s record. Psychological factors may make the much higher target inadvisable. Most sales personnel are hopelessly discouraged to learn that management expects their sales to rise by 50 percent in a single year. Consequently, in instances of this sort, management generally settles for raising the quota a small percentage each year until finally it is brought up to the desired level.
4. To Use in Connection with Sales Contests
Companies frequently use “performance against target” as the main basis for making awards in sales contests. Sales contests are more powerful incentives if all participants feel they have a more or less an equal chance of winning. By basing awards on percent of target achieved, the desired “common denominator” feature is built into a contest. Adjustments are made for differences among territories (as in coverage difficulty and competitive position) and for differences among sales personnel (as in experience with the company and in the territory). Generally, contest targets are designed solely for contest use, “special targets” to stimulate special effort, causing average sales personnel to turn in above-average performances.
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.