Chapter 10

Sales Quota and Expenses

Main references :
Sales Force Management 2017 by Gregory A. Rich &
Selling & Sales Management 2019 David Jobber, Geoffrey Lancaster and
Kenneth Le Meunier-FitzHugh
Chapter 10 Outline
1. Purpose Of Sales Quotas
2. Types Of Quotas
• Sales Volume
• Activities
• Gross Margin (Profit)
• Expenses
• Combination
3. Calculating Quota Attainment
4. Characteristics Of A Good
Quota Plan
5. Sales Force Expenses
6. Methods Of Controlling Expenses
• Salespeople Pay Own Expenses
• Unlimited-payment Plans
• Limited-payment Plans
7. Control Of Sales Force Transportation
8. Other Methods Of Expense Control
• Training And Enforcement
• Credit Cards
• Expense Bank Account
• Change In Nature Of Entertainment
• Telemarketing/Email
• Careful Travel Planning
 Indicate
Strong/Weak
Spots

Evaluate Sales
Furnish Goals
FIGURE 10-1 Contest
Results
and Incentives

Purpose of Sales
Sales Quotas Control Selling
quotas are
Control
Expenses used to... Activities

Improve
Effectiveness
Evaluate
of
Productivity
Compensation
Plans
Five Types of Sales Quotas
and an example of each…
1. Sales volume
• $80,000 in dollar sales generated per month
2. Activities
• Calling on 15 new accounts per month
3. Gross margin (profit)
• $10,000 in gross margin generated per month
4. Expense
• $500 in expenses per month
• Works in reverse, so the salesperson attains this quota by keeping expenses under that amount
 Calculating Quota Attainment:
Combination Plan
% of Quota
Quota Actual
Attained

Gross margin, all products $30,000 $25,000 83%

Product demonstrations 120 135 117%
Customer satisfaction score 10 9 90%
This salesperson did not
Average 97% make quota as the average
is less than 100%
Factors Impacting How the Quota is Set
• Human factors
• e.g., May adjust quota downward for rookies
• Psychological factors
• Unrealistically high quotas don’t work
• Past sales
• “Beat last year’s figures” – can hurt morale
• Executive judgment
• But shouldn’t be “guesswork”
• Salespeople setting their own quota
• Can help morale, but is often problematic
Characteristics Of A Good Quota Plan
• Realistic attainability
• Goal must be realistically attainable or salespeople will lose their incentive
• Objective accuracy
• Must be somehow tied to potentials or other quantifiable measures – and not based
entirely on opinion
• Easy to understand and administer
• Both managers and salespeople should be clear on the plan, which should be
economical to administer
• Flexibility
• Adjustments may need to be made due to unexpected changes in market conditions
• Fairness
• Salespeople should all have some workload – though quotas may be adjusted due to
differences in territory potential, competition and reps’ abilities
Sales Force Expenses
• Important to have an expense plan
• Salespeople are among the few company
employees allowed to spend company money

• Must be careful not to violate tax law

• IRS allows deductions of only 50 percent of entertainment, meal
expenses
• And can deduct just one $25 gift per customer per year
FIGURE 10-5
U.S. Automobile
22%
Salesperson
Lodging
per diem 53%
costs
Meals
25%

Source: Sales & Marketing Management, April 2001, p. 11

Characteristics Of A Sound Expense Plan
• No net gain or loss for the salespeople
• Equitable treatment of all salespeople
• No curtailment of beneficial activities
• Minimal detail and administrative expense
• Clarity
• Company control of expenses and elimination of padding
Methods of Controlling Expenses
• Salespeople pay own expenses
• Simple plan to administer
• Some salespeople like getting the tax deduction
• Often results in salespeople not spending enough on customers
• Unlimited-payment plan
• The most common plan used
• Reimburses salespeople for all legitimate business expenses
• Flexible and fair in that it adjusts for territory differences
• Encourages excessive spending
• Limited-payment plan
• Gives specific amounts per time period, and/or per expense category (food, lodging,
automobile, etc)
• Limits spending and makes it more predictable
• Difficult to administer, can get complex
 Control of Sales Force Transportation
IRS STANDARD MILEAGE RATES

• Owning vs. Leasing vs. 60.0

58.5
FOR PAST DECADE

Reimbursing 58.0
56.5
56.0
57.5

55.5

• Fixed-allowance plan 56.0

54.0
55.0
54.0

• Flexible-allowance plan 52.0 51.0

• Runzheimer plan
50.0
50.0
48.5
48.0

46.0
44.5
44.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Methods of Expense Control
• Training and enforcement
• Credit cards
• Expense bank account
• Change in nature of entertainment
• Telemarketing / Email
• Careful travel planning