Types Of Quotas

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Types Of Quotas

  1. 1. TYPES OF QUOTAS<br />sales volume quota<br /><ul><li>oldest & most common type
  2. 2. communicates – “ how much for what period”
  3. 3. set for geographical areas, product lines or marketing channels or combination
  4. 4. the smaller the unit, the more effective the quota for controlling sales operation</li></ul>budget<br />
  5. 5. sales volume quota<br />DOLLAR SALES VOLUME QUOTA<br /><ul><li>COMPANIES SELLING BROAD PRODUCT LINES SET SALES VOLUME QUOTAS IN DOLLARS RATHER THAN IN UNITS OF PRODUCT
  6. 6. ADVANTAGE: RELATE EASILY TO OTHER PERFORMANCE DATA</li></ul>UNIT SALES VOLUME QUOTA<br />USED IN TWO SITUATIONS – <br /><ul><li>PRICES FLUCTUATE CONSIDERABLY
  7. 7. NARROW PRODUCT LINES SOLD AT STABLE PRICES</li></ul>POINT SALES VOLUME QUOTA<br /><ul><li>COMPANIES USE POINT SALES VOLUME QUOTA BECAUSE OF PROBLEM IN USING $ OR UNIT VOLUME QUOTA</li></li></ul><li>PROCEDURE FOR SETTING SALES VOLUME QUOTA<br />Sales volume quotas derived from territorial sales potentials – this approach is appropriate when<br />Territorial sales potential are determined in conjunction with territorial design<br />Bottom up planning and forecasting procedures are used in obtaining the sales estimate in the sales forecast<br /> However, in both the cases further adjustment is needed<br />Sales volume quota derived from total market estimate – here, management has neither statistics nor sales force estimates of territorial sales potential. Management may either<br />Breakdown 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 quotas<br />Convert 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<br />
  8. 8. CONTD…<br />Sales volume quota based on past sales experience alone<br /><ul><li>Companies assume not only that past and future sales are related but that past sales have been satisfactory
  9. 9. Companies perpetuate past errors
  10. 10. Average sales lag behind actual sales during long periods of rising or falling sales</li></ul>Sales volume quotas based on executive judgement alone<br /><ul><li>Justified when there is little information to use in setting quotas
  11. 11. Qutas can be of no higher quality than the judgement of those setting them</li></ul>Sales volume quotas related only to compensation plan<br /><ul><li>Based solely upon the projected amounts of compensation that management believes sales personnel should receive
  12. 12. Poor standards for appraising sales performance</li></li></ul><li>BUDGET QUOTAS<br />Set for various units in sales organization to control expenses, gross margins, or net profit<br />Expense quotas<br /><ul><li>Expense quotas are used most often in combination with sales volume quota
  13. 13. Management provide sales personnel with financial incentives to control their own expenses
  14. 14. To reduce administrative burden and misunderstandings, expense quotas are generally expressed as % of sales
  15. 15. Problems –
  16. 16. Variations in coverage difficulty & other environmental factors, make it impractical to set identical expense % for all the territories
  17. 17. Different sales person sells different product mixes, so some incur higher expenses than others
  18. 18. Advantages –
  19. 19. Makes sales personnel more cost conscious
  20. 20. Awareness towards expense control</li></li></ul><li>CONTD…<br />Gross margin or net profit quotas<br /><ul><li>Appropriate when the product line contains both high & low margin items
  21. 21. Problems –
  22. 22. Sales persons do not set the price and have no role on the manufacturing cost. Thus, not responsible for gross margin
  23. 23. Certain selling expenses are beyond the salesperson’s influence
  24. 24. Increased clerical & administrative costs</li></ul>Activity quotas<br /><ul><li>Define the important activities sales person perform; then set target performance frequency
  25. 25. Appropriate when sales personnel perform important non-selling activities
  26. 26. Control & recognition of sales person performing non selling activities
  27. 27. Reward sales person on quantity of work; irrespective of quality
  28. 28. Problem in inspiring the sales force</li></li></ul><li>COMBINATION & OTHER POINT SYSTEM QUOTA<br />Combination quota<br />Combination quotas control performance of both selling & non-selling activities<br />Overcome the difficulty of using different measurement units to appraise different aspects of performance<br />Because performances are computed as %, known as poni systems, the points being % points.<br />Summarize overall performance in a single measure<br />Problems<br /><ul><li>Sales persons may have difficulty in understanding & appraising their own achievements
  29. 29. Design imperfection may cause sales personnel to place too much emphasis on one component activity</li></ul>Full line quota<br /> Designed to secure some desired balance of sales among various products<br />
  30. 30. ADMINISTERING THE QUOTA SYSTEM<br />Accurate, fair & attainable quotas<br /><ul><li>Depends not only on the quality of managements judgment but on the capabilities & motivational of the sales force</li></ul>Securing & maintaining sales personnel&apos;s acceptance of quotas<br /><ul><li>Participation by sales personnel in quota setting
  31. 31. Keeping sales personnel informed
  32. 32. Need for continuous managerial control</li></ul>Reasons for not using sales quotas<br /><ul><li>In certain industrial goods, its difficult to obtain accurate sales estimate
  33. 33. Since quota requires statistical technique, fear is that sales personnel will not accept quota prepared by hard to explain techniques
  34. 34. Place too much emphasis upon making sales – legitimate criticism of sales volume quota
  35. 35. If product is in short supply, quotas are not appropriate</li>
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