A sales quota agreement is important to understand as a sales professional. Sales quotes and sales positions go hand-in-hand. Almost every sales professional gets assigned a quota, but may not understand why they're essential, how they're formulated, or how understanding them can improve their sales career.

Quotas From the Management Side

Management love sales quotas because they are tools for forecasting and help hold their employees accountable. If there are no assigned quotas, there won't be formalized activity or revenue targets to aim for. Management will also be weaker if it can't reference an expectation that both the reps and managers agree to. The reps might not agree with the assigned quotas, but employers can make it clear that it's required for sales reps to meet their quotas in order to retain their employment.

Quotas are not just a way for management to make sure employees are accountable, however. They are also used as a way to estimate and predict the amount of revenue that should and can be expected from each account base or rep. Management tends to inflate the quotes that are assigned compared to what their estimates are, but quotas tend to be realistic and based on expectations that are reasonable.

How Most Quotas are Formulated

When a company has different product lines or sales territories, the assigned quota is based on past market share, market data, and past performances. This can be confusing, but there are independent reports in almost any region that define the total opportunity for every market. They're often bought by sales companies who want to better understand how to best position, market, and sell their services or products. Assigning quotas is a more positive approach for businesses that have just formed, as they don't have key indicators such as past performance.

The Importance of Quotas

There are several reasons that quotas are important, which include the following:

  • Give a measuring vehicle for management which they can compare to the performance of the sale representatives.
  • Provide feedback that's valuable for management to help with forecasting requirements.
  • Used as part of the compensation plan for sales professionals.

Quotas From a Sales Professional's Viewpoint

When asking sales professionals how they feel about their assigned sales quota, the ones who say that their quotas are unrealistic and too high are often the ones who are far away from meeting their quotas. Those who say the quotas are tough but achievable are often close or over their assigned quota. Professionals who say the quota is a good motivating tool and accurate are often producing results that far exceed their quota. Almost every sales job has a quota and is usually a large source of stress for those employees.

Provisions the Sales Quota Agreement Should Have

Every company needs to dedicate time to business development, as they use a sales force to help them get leads. Before a business uses a sales representative's services, it should have a contract in place to dictate the relationship. The first item that should be clarified in the contract is the parties' relationship and if the person is a contractor or employee. If hiring an employee, income tax must be withheld, Social Security and Medicare taxes must be paid and withheld, and unemployment tax must also be paid. This is not required when working with independent contractors.

When an employer is in charge of the specific work and how it's performed, that person considered an employee. If the employer allows employees to have freedom of action but are still in charge of the details of how the services get performed, the person also is an employee. In an employee contract, the responsibilities and duties of the employee should be stated. Items can be included such as requiring the employees to be properly trained, to use their best efforts to market and sell products, to conduct themselves in a manner that represents the company in a good light, and to follow orders promptly.

It should also be stated which actions the employee is not allowed to do. This can include changing sale prices or selling competing products while working for the company.

If you need help with a sales quota agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.