How Do You Set Sales Targets? Top 3 Factors to Consider

This article is an excerpt from the Shortform book guide to "Fix This Next" by Mike Michalowicz. Shortform has the world's best summaries and analyses of books you should be reading.

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How do you set sales targets that are realistic? What factors should you take into account when setting a sales quota?

You set sales targets by considering how much money you need for your own comfort, which and how many customers you will attract, and whether you can deliver that quantity of goods or services to your customers. Each of these factors is important to understand before setting a target.

Here are the factors you should consider when setting a target for sales.

Survive Through Sales

The first tier of the Business Hierarchy of Needs is helping your business survive through sales. This defines sales as making and upholding deals with customers. By completing this tier, you ensure your company consistently earns enough revenue to remain in business. But how do you set sales targets that will keep your company afloat?

(Shortform note: While you help your business survive, maintain your own well-being as well by taking breaks, getting enough food and sleep, and exercising regularly. Some business experts say that entrepreneurs are often tempted to neglect their well-being in favor of work, but taking time for self-care makes you more effective and productive. In contrast, not caring for yourself can lead to burnout and your company’s failure. This is arguably important for salespeople in particular: Making sales is a demanding task that puts you at high risk for burnout. If you do burn out, you’re more likely to lose customers, reducing revenue and hurting your company.)

Here, we’ll highlight factors that make up this tier and give your company a solid foundation to grow on. Each factor should be considered when you’re setting sales targets.

Factor #1: Support Your Personal Financial Comfort

Make enough sales to support your personal financial comfort. This means having a large enough salary to maintain your current lifestyle, pay off debt, and put aside savings. However,  this salary doesn’t include luxury or business expenses. Having personal financial comfort as a sales goal can increase your motivation and happiness: You’ll work harder to meet your sales goals because doing so improves your quality of life, and you’ll be happier because you’re focusing on creating a company that best serves you.

(Shortform note: Instead of setting a moderate sales goal that’s simply enough for your personal financial comfort, you may want to set a more ambitious goal. Grant Cardone suggests setting extreme goals in The 10X Rule. Specifically, he says to set goals that are 10 times what you think you want—in this case, 10 times your comfortable salary. The idea of achieving extreme success inspires you and holds your attention better than moderate goals, increasing motivation and happiness. Thus, Cardone would likely argue that maintaining your current lifestyle, paying off debt, and building savings—actions that improve your quality of life on a more moderate scale—aren’t inspiring or attention-grabbing enough. Instead, he’d likely say to set goals that drastically improve your quality of life, like buying a mansion.)

To determine your comfortable salary, first calculate your personal yearly expenses (excluding luxury and business expenses). Then, determine what percentage of your company’s revenue you want to withdraw as your income. Finally, calculate how much you must make in revenue to cover your personal yearly expenses without withdrawing more than that percentage. For example, if your personal expenses total $50,000 and you choose to withdraw 10% of your company’s revenue, your goal for the company’s revenue will be $500,000 or more.

(Shortform note: Why should you base your salary on your company’s revenue goals, instead of simply giving yourself a large salary because of your role as CEO? In Zero to One, Peter Thiel says that tying a CEO’s salary directly to the company’s success increases their motivation to improve the company. While a CEO with a static salary may not bother to improve the company, since they’re compensated the same regardless, a CEO with a revenue-dependent salary needs to make the company more successful to increase their compensation. To help you tie your salary to your company’s revenue, Mike Michalowicz provides a chart in Profit First that outlines what percentage of revenue it’s healthy to withdraw for your salary.)

Factor #2: Which Customers Can You Attract?

Attract and convert enough customers to meet your sales goal. These have to be the right kind of customers—those who are likely to buy from you and are enjoyable to serve. If you try to increase your customer base by selling to everyone, as many entrepreneurs do, you can hurt your company: You’ll waste time pursuing people who are unlikely to convert, who’ll only buy from you once instead of becoming repeat customers, or who are unpleasant to serve.

To fulfill this requirement, identify the most important traits for your customers to have and only sell to people with those traits (which make them likely to buy from you and enjoyable to serve). The traits may include age, salary, passions, or priorities. After identifying them, adjust your company to cater to your ideal customers and advertise in places they gather.

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• Why many entrepreneurs struggle to fulfill their companies' requirements
• How to use the Business Hierarchy of Needs to prioritize company problems
• How to get to root problems rather than applying Band-Aid solutions

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