Good and realistic sales targets are often the key to tremendous results, but getting these wrong can lead to little financial gain, immense pressure on sales teams, and an overall bad operation.
Though it’s different for every business, it's still vital that the correct measures are taken to determine what an appropriate sales target should be.
How do you set appropriate targets?
Kevin Kelly, managing director of Pace Digital Sales, defines a good sales target as:
A good sales target is generally determined by the following:
- The industry the business operates within
- The business' current market share of that industry
- The average profit margins expected for that industry
Creating good sales targets takes time and effort on the part of those responsible for doing so within the business: it requires research into industry sales in order to uncover what kind of revenue has historically been expected within that particular market. Once this average is known, it's possible to determine where individual businesses should be falling in place in comparison.
Taking the digital agency industry as an example, in HubSpot's Agency Pricing and Financials Report of 2016, the average profit margins were between 11% and 20%. This means that to create realistic sales targets for this industry, agencies should look to target a minimum of 11% profit margins at the very least, and ideally closer to 20%.
How can businesses create sustainable sales targets?
A good way to create sales targets is by using an over/under method, which allows each month or quarter to meet its own objective while still pushing the company forward towards a long-term goal.
This means setting an increased target for more successful months and seasons ahead, but also providing achievable goals during slower periods of the year. In doing so, the company is pushed forward, setting stronger goals as time goes on, while not straining staff morale along the way.
In creating good sales targets, it's vital to learn what to avoid and how to define the bad and unrealistic.
What makes a bad sales target?
A bad sales target can be defined as one which requires little effort on the part of the business to achieve it. The result is often poor financial gains, if any at all.
A scenario where businesses deviate from their industry's average margin (11% - 20% in the digital agency industry) would be an example of a bad sales target. This is because it doesn’t require enough effort from the business to reach this target, therefore opening them up for poor results overall.
The key with bad targets is that they often tend to remain unchanged as time goes on. These targets aren't altered during periods of exceptionally poor or exceptionally efficient performance, meaning that goals are irrelevant and ineffective to the business.
When it comes to sales team performance, a bad sales target can have a hugely negative impact. A poor sales target can lead to less motivation from those working towards that target, as well as a lack of confidence and therefore reduced productivity levels.
What makes an unrealistic sales target?
An unrealistic sales target is one where there is no way for even the best member of the sales team to accomplish in the given amount of time.
This would include goals which are significantly higher than what the business should expect to achieve, or any other number deemed simply unobtainable.
In the case of the digital agency industry, an unrealistic sales target would be anything over the 20% profit margin. However, this is of course dependent on individual agencies themselves, and should always be calculated depending on the business' own profit and place in the market.
How does an unrealistic sales target effect employees?
Typically, an unrealistic sales goal will put undue pressure on employees, discouraging them from making reasonable sales, or even attempting to sell at all.
Of course, this pressure will often come from the top down, where unrealistic sales targets are given by those in a position of power such as CEOs and Sales Directors. This is typically done to motivate their employees at lower levels, but it doesn't always work.
As a sales director, it's vital to take full accountability of the negative impact unrealistic sales targets can have on the sales team. Overworked employees not only leads to less sales, but results in poor mental health, an ineffective work-life balance, and tensions within the workplace.
As a business owner or director, confident and realistic support of the sales team will naturally build confidence from within, motivating salespeople to achieve great things. This in turn leads to an increase in sales and productivity for the business as a whole. This is why it's important to always take into account realistic sales targets, and never underestimate their power.
Maintaining successful achievement of sales targets
If sales targets are realistic and help the company succeed, they should be celebrated when met.
It's important to recognize those employees who achieve their goals, and take time to celebrate sales teams and the work that they do. After all, sales targets don't mean anything until someone has actually reached them.
When businesses celebrate the achievement of sales targets, it leads to an increase in productivity and confidence levels. It also breeds an environment where employees enjoy coming in to work every day, as well as rewarding the hard work that they do throughout their time with the company.
The importance of sales targets
While often difficult to maintain good sales targets, without them, a business would fail. If an organization fails to put in the time and effort required to understand the most effective sales targets for their needs, they'll simply never succeed long term.
They also allow a sales team to understand what the company expects from them on a daily basis. It gives salespeople a system in which they can understand what contribution is expected of them, and how their work fits into the bigger picture.
As long as targets are realistic and attainable, they’ll continue to be effective motivators towards reaching success for every business.