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.
For example, a country club’s ideal customers may be middle-aged, enjoy playing golf, prioritize luxury over affordability, and be polite to staff members (making them more enjoyable to serve). The club adds amenities like valet service to attract people with these traits, as well as putting ads in golf and business magazines.
(Shortform note: Some experts say we’re drawn to people who are like us—a phenomenon called affinity bias. This bias may harm your attempts to identify your ideal customers, as you may automatically cater to people with whom you share traits, even if they’re unlikely to convert. To counter this tendency, reexamine your opinions and assumptions, experiment with diversity in your customer pool, and try to find commonalities with everyone. This can help you discover a new demographic of ideal customers.)
| The Pitfalls of Mass Marketing In Purple Cow, Seth Godin discusses why many businesses make the mistake of marketing to the majority (which is called mass marketing), rather than focusing on finding the right kind of customer. Godin explains that mass marketing is common because it used to be effective: During the “Age of Advertising” (which some experts say lasted from the 1960s through the 1980s), many companies became successful through mass-marketing television ads. Why isn’t this tactic effective anymore? Godin says it comes down to two things: money and options. In the Age of Advertising, customers had more available money and fewer options for products, which meant they were more likely to buy mass-advertised products. Today, though, people have less available money and more options, which means they’re much pickier about where they spend their money. In addition, modern customers are so inundated with advertisements that they’re more likely to ignore mass advertisements, relying more on word-of-mouth recommendations. |
Factor #3: Can You Fulfill Your Responsibility to the Customer?
Deliver goods or services to customers. Michalowicz says fulfilling your side of the sales agreement is essential, but many entrepreneurs struggle to do so. They focus on making deals without confirming they can actually uphold them. Thus, they promise more than they can deliver, damaging their companies’ reputations and repelling customers.
When making a sales agreement, set expectations you can usually beat, Michalowicz says. When you beat these lower expectations, your customers will be happy. Further, the lower expectations give you flexibility to handle emergencies. For example, as an artist, you’d tell customers that it’ll take a week to finish their commission, instead of the three days you expect it to take. If you run out of paint and it takes a few days to get more, you can still deliver the product on time. Otherwise, you can please your customers by delivering the commission early.
(Shortform note: Preparing for emergencies by setting low expectations is arguably a version of a strategy some experts call risk mitigation: planning ways to avoid or solve potential future issues. These experts additionally explore common strategies for mitigating risk, such as reduction, where you lessen either the odds of an issue occurring or its negative impact.)
| How to Avoid Overpromising Some sales experts agree that overpromising is a common business mistake. Besides damaging your company’s reputation, overpromising can lead you to over-diversify, or offer services outside of your expertise because customers request it. This distracts you from your goals and expertise. How do you solve this problem? While Michalowicz suggests setting low expectations, another option is setting accurate expectations—ones you’re able to meet. While setting low expectations makes customers happy when you beat them, setting accurate expectations makes customers happy because you meet them and prove you’re trustworthy. To make sure you’re setting accurate expectations, the experts suggest asking the following questions before making a deal: 1. Do I fully understand what the customer’s request entails? 2. Is the request reasonable and doable right now? 3. Do I have the resources and time needed to grant the request? In our example, you’d set accurate expectations by checking whether you have enough paint before telling customers how long the commission will take to complete. If so, you’d tell them it’ll take three days. If not, you’d add three days to buy the paint and tell customers it’ll take six days. |
———End of Preview———
Like what you just read? Read the rest of the world's best book summary and analysis of Mike Michalowicz's "Fix This Next" at Shortform.
Here's what you'll find in our full Fix This Next summary:
- 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
Great article on how to set sales targets! Using historical data and market analysis to set realistic goals is spot on. I love the idea of involving the sales team in the process to boost motivation and insights. Continuous monitoring and flexibility are key. Thanks for the practical tips!