Sales volume quotas

Question

Sales volume quotas are specific volume targets set for each sales territory or product
line for a specific period. The period can be three, four or six months or a year. A sales
volume quota can be stated in different ways, in monetary terms, unit volume, or as a
points system. Monetary terms can be used when products are similarly priced, when
price reflects management’s selling priorities and when price is relatively stable. Unit
volume quotas, or number of units sold, are used when prices change regularly or for
high-priced items. Stating the quota in unit volume eliminates the effects of inflation
and interest rates. The points system provides a sales manager with more options.
Different products are awarded points values and a quota is set in number of points. If
Sales Management
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sales managers want to concentrate more effort on a specific product or product line,
they simply assign more points to the selected product or line, motivating salespeople
to sell more of the higher-points-value product.
Profit-based quotas
Profit-based quotas are very similar to sales volume quotas, the only difference being
that the focus is not on volume but profit. Profit quotas are done on gross margin
or contribution margin profits and not bottom-line profits. The aim is to change
salespeople’s focus from sales volumes more to profits. Profit-based quotas can be set
per salesperson, district, region, product or customer. An organisation has the option
to use either a gross margin quota or net profit quota. Gross margin quota is established
by subtracting the cost of goods sold from sales volume. Net profit quota, on the other
hand, is established by subtracting the cost of goods sold and salespeople’s direct
selling expenses from sales volume.
Profit-based quotas do, however, have problems in that salespeople do not have
control of production cost and do not set price, and are therefore not responsible
for gross margins. Net profit quotas especially have a problem in that salespeople
may cut back too much on sales expenses, which can negatively influence sales; for
example, cutting back on travelling to cut travelling expenses can mean reduced
service to customers, which may negatively influence relationships with customers
and, consequently, sales.
Activity quotas
The majority of sales departments give their salespeople the freedom to plan their own
daily activities, but sales managers need to make sure that salespeople are carrying
out the required sales activities. Before setting activity quotas, sales managers need
to establish the most important activities for their salespeople. Sales activities can
include making sales calls, prospecting, product promotions, getting markets for new
products, demonstrating products and merchandising. Each of the activities needs to
be assigned a frequency, indicating how often and how much of it needs to take place.
Activity quotas are beneficial to both management and salespeople. Once activity
quotas have been established, salespeople can plan their daily activities, routing plans
and calling schedules, thus making better use of their time. Activity quotas also
assist the sales manager in setting remuneration plans. Many such plans will not only
reward salespeople for selling, but also for performing specific sales activities, such as
prospecting or service calls. The activity quota will indicate which sales activities are
important and, in relation to that, suitable remuneration can be determined
paraphrase to short paragraphs and use simple vocabulary

Answer 1

Sales Volume Quotas
Sales volume quotas are targets set for sales teams, focusing on specific amounts of products sold in a given time frame, such as three months, six months, or a year. These quotas can be expressed in different ways: monetary value, the number of units sold, or a points system. Monetary quotas work well when prices are similar and stable. Unit volume quotas are better for items with changing prices or high costs, as they help avoid inflation issues. A points system gives sales managers flexibility by assigning different point values for products, encouraging sales of higher-value items by allocating more points to them.

Profit-Based Quotas
Profit-based quotas focus on profit rather than sales volume. These quotas consider gross margin or contribution margin profits, rather than net profits. The goal is to shift salespeople's attention from just selling more to also earning more profit. Quotas can be set for individual salespeople, districts, regions, or specific products. However, challenges arise since salespeople don't control production costs or set prices, which affects gross margins. Net profit quotas can lead to issues, like reducing sales expenses too much, which may hurt customer relationships and, eventually, sales.

Activity Quotas
Many sales departments allow salespeople to manage their own daily routines, but managers must ensure that important sales activities are being completed. Before setting activity quotas, managers should identify key tasks, such as making sales calls, prospecting, promoting products, demonstrating items, and merchandising. Each task should have a specific frequency requirement. Activity quotas benefit both managers and salespeople: they help salespeople organize their schedules and manage their time better while assisting managers in designing compensation plans that reward both sales and essential activities like prospecting and service calls.