Originally posted on January 20 2011
A large part of the job of anyone who's in charge of running a company, is doing a sound budget for the following year. Everybody has the budgeting business process; it may vary from a very informal session to have a rough idea of what to do the year after to a long and careful book compilation.
If your company sells through salesmen who have an almost exclusive relation with customers, a large part of the budget process is defining their sales targets. This article applies to all those business which have many customers with repetitive orders. I spent a few years by a company where setting targets for salesmen had risen to a form of art, and I spent countless hours on the incentive system. Now I try to extract some useful ideas.
1) Give the salesman a target. Trivial? well, no. Some think that giving a target make people stop working after having reached it, thus preventing further sales. From a general point of view, unknown goals can’t be reached. Secondly, targets should be hard enough not to generate any relevant side effect.
2) Do not limit your targets to money values. Your company lives and dies on cash and margins; give the sales force targets aligned with this fact. Force them to sell the right mix, to visit the right customers. Offer incentives for new customers but only if they buy something that makes the customer profitable for you; refuse to pay commissions if they make non-deliverable promises.
In other words, makes sure that sales force targets are aligned to your personal targets and not the other way round.
3) Give special incentives for cultivating long term relations with customers. You know what a customer should buy to keep sell-in and sell-out alignment. Make sure your salesmen do not oversell just to get little more commissions now.
4) Make sure your salesmen do not always milk the same cows but let them work on the largest customer base possible. Give targets in term of active customers.
These are few guidelines to set sales target. The entire job is likely to become terribly complex but the right balancing of sales target let you have a firm grasp of your company top line, which is equally important as the bottom one.