Types Of Quotas

Types Of Quotas

• 1.
  TYPES OF QUOTASsalesvolume quotaoldest & most common type
• 2.
  communicates – “how much for what period”
• 3.
  set for geographicalareas, product lines or marketing channels or combination
• 4.
  the smaller theunit, the more effective the quota for controlling sales operationbudget
• 5.
  sales volume quotaDOLLARSALES VOLUME QUOTACOMPANIES SELLING BROAD PRODUCT LINES SET SALES VOLUME QUOTAS IN DOLLARS RATHER THAN IN UNITS OF PRODUCT
• 6.
  ADVANTAGE: RELATE EASILYTO OTHER PERFORMANCE DATAUNIT SALES VOLUME QUOTAUSED IN TWO SITUATIONS – PRICES FLUCTUATE CONSIDERABLY
• 7.
  NARROW PRODUCT LINESSOLD AT STABLE PRICESPOINT SALES VOLUME QUOTACOMPANIES USE POINT SALES VOLUME QUOTA BECAUSE OF PROBLEM IN USING $ OR UNIT VOLUME QUOTAPROCEDURE FOR SETTING SALES VOLUME QUOTASales volume quotas derived from territorial sales potentials – this approach is appropriate whenTerritorial sales potential are determined in conjunction with territorial designBottom up planning and forecasting procedures are used in obtaining the sales estimate in the sales forecast However, in both the cases further adjustment is neededSales volume quota derived from total market estimate – here, management has neither statistics nor sales force estimates of territorial sales potential. Management may eitherBreakdown the total company sales estimate, using various indexes of relative sales opportunities in each territory, and then make adjustments to arrive at territorial sales volume quotasConvert the company sales estimate into a company wide salesquota and then break down the company volume quota, by using an index of relative sales opportunities in each territory
• 8.
  CONTD…Sales volume quotabased on past sales experience aloneCompanies assume not only that past and future sales are related but that past sales have been satisfactory
• 9.
  Companies perpetuate pasterrors
• 10.
  Average sales lagbehind actual sales during long periods of rising or falling salesSales volume quotas based on executive judgement aloneJustified when there is little information to use in setting quotas
• 11.
  Qutas can beof no higher quality than the judgement of those setting themSales volume quotas related only to compensation planBased solely upon the projected amounts of compensation that management believes sales personnel should receive
• 12.
  Poor standards forappraising sales performanceBUDGET QUOTASSet for various units in sales organization to control expenses, gross margins, or net profitExpense quotasExpense quotas are used most often in combination with sales volume quota
• 13.
  Management provide salespersonnel with financial incentives to control their own expenses
• 14.
  To reduce administrativeburden and misunderstandings, expense quotas are generally expressed as % of sales
• 15.
  Problems –
• 16.
  Variations in coveragedifficulty & other environmental factors, make it impractical to set identical expense % for all the territories
• 17.
  Different sales personsells different product mixes, so some incur higher expenses than others
• 18.
  Advantages –
• 19.
  Makes sales personnelmore cost conscious
• 20.
  Awareness towards expensecontrolCONTD…Gross margin or net profit quotasAppropriate when the product line contains both high & low margin items
• 21.
  Problems –
• 22.
  Sales persons donot set the price and have no role on the manufacturing cost. Thus, not responsible for gross margin
• 23.
  Certain selling expensesare beyond the salesperson’s influence
• 24.
  Increased clerical &administrative costsActivity quotasDefine the important activities sales person perform; then set target performance frequency
• 25.
  Appropriate when salespersonnel perform important non-selling activities
• 26.
  Control & recognitionof sales person performing non selling activities
• 27.
  Reward sales personon quantity of work; irrespective of quality
• 28.
  Problem in inspiringthe sales forceCOMBINATION & OTHER POINT SYSTEM QUOTACombination quotaCombination quotas control performance of both selling & non-selling activitiesOvercome the difficulty of using different measurement units to appraise different aspects of performanceBecause performances are computed as %, known as poni systems, the points being % points.Summarize overall performance in a single measureProblemsSales persons may have difficulty in understanding & appraising their own achievements
• 29.
  Design imperfection maycause sales personnel to place too much emphasis on one component activityFull line quota Designed to secure some desired balance of sales among various products
• 30.
  ADMINISTERING THE QUOTASYSTEMAccurate, fair & attainable quotasDepends not only on the quality of managements judgment but on the capabilities & motivational of the sales forceSecuring & maintaining sales personnel's acceptance of quotasParticipation by sales personnel in quota setting
• 31.
  Keeping sales personnelinformed
• 32.
  Need for continuousmanagerial controlReasons for not using sales quotasIn certain industrial goods, its difficult to obtain accurate sales estimate
• 33.
  Since quota requiresstatistical technique, fear is that sales personnel will not accept quota prepared by hard to explain techniques
• 34.
  Place too muchemphasis upon making sales – legitimate criticism of sales volume quota
• 35.
  If product isin short supply, quotas are not appropriate