We all know that goal-setting is important in both our professional and personal life, but how do you define those goals so they have a meaningful outcome? In the world of B2B SaaS, effective goal-setting is a great habit to develop and is essential for any SaaS sales team. Having a defined sales target ensures you’re generating the amount of revenue needed to meet your sales budget and providing direction to your sales team. Having a sales target allows you to create an action plan for your team and individuals so there is a greater chance your team will succeed. By being focused, your team has a greater chance at being a high-performance team and hitting those sales targets. Here we take a deeper dive into sales targets and why your business cannot succeed without them.
A sales target is simply defined as the number of products or services you need to sell to make the desired profit in a specific amount of time.
Reliable sales targets help you track your sales progress within each period, and adjust your sales tactics to meet the revenue goals that have been set for your team. But there are a number of other reasons to set sales targets for your people.
Motivation - Having a clear sales target gives your sales team something to aim for. Setting an achievable but ambitious target becomes a motivator as it is something to strive for and celebrate when they achieve it. Not having a clear direction or goal can leave your team just going through the motions everyday with no sense of achievement or motivation.
Contribute to company goals - Sales targets should ladder up to a revenue goal and the revenue goal should ladder up to a broader company goal. Knowing that what you do on a daily basis contributes to the broader company strategy will ensure employees feel more connected to a business. When everyone is pulling in the same direction, they can directly see their impact and know that they contributed to the company's overall growth.
Defined plan/clarity on how to achieve the goals - A target helps your team decide where to focus their efforts and what is the best and most efficient route to get there. Without a clear path, you risk wasting time and missing valuable opportunities along the way.
Sense of achievement and accomplishment - Salespeople love competition so out-selling their peers can give them a great sense of achievement and push them to work harder. By tracking goals and seeing the progress, getting to that finish line before anyone else becomes a goal in itself.
According to Positive Psychology, there are five goal-setting principles that can help improve your chances of success:
According to Winning by Design, there are three models of target-setting that can help you determine appropriate compensation plans, each with its own pros and cons:
Top-Down Target Setting: This method starts with the amount of revenue you wish to generate and then dividing this by the number of salespeople in your team so you can determine how much revenue that equals per salesperson. The problem with this older B2B approach is its lack of predictability. If something goes wrong, it will be difficult to measure where and when it occurred.
Bottom-Up Target Setting: this method of target setting recommends using 80% of your best month-to-date revenue as the guideline. For example, if you have a salesperson that brought in $100k then the target would be $80k. You could also use the average sales over a period of time and divide that per person. The problem with this model is that it does not take into account support or dependencies. The figures can also be skewed if there was an unusually large deal or you had an unusually bad year due to some unforeseen market downturn (hello COVID).
Business-Case Target Setting: This model sets targets based on the theory that a team of people will be involved in any one sale. People are the biggest cost in a sales department, therefore you would look at the overall cost of the team's OTE and at a minimum we should look to sell at least 2x the fully loaded cost of our sales staff (or 2x their OTE which includes Base Salary + Variable compensation) in order to make a profit. This model ensures your people costs are covered so your sales department is profitable. For an ideal SaaS OTE multiple when your sales process starts working well, David Skok suggests targets should be at least 5x the OTE, and 6-8x OTE is considered high performing - although these are just a guideline, the complexity and difficulty will determine the ratio your business can support.
Setting realistic sales targets from the start is important. If done incorrectly it can have some very negative effects on your team and overall revenue goals.
Demotivating for staff: Being set a target that is unachievable sets your team up for failure. And once they know they will not be able to achieve their goals, they will stop trying altogether. Lack of motivation in your sales team will see your results drop faster than anything else.
Staff turnover: Salespeople are competitive by nature and like to win, so if you set up an environment where the odds are stacked against them and it is unlikely they will be able to win, they will not stay for long. Salespeople will seek out other companies that offer much better compensation with a much better opportunity to achieve it.
Now that we have looked at why we set targets and how to set them, you can start creating your own sales targets. If you need any guidance or advice on compensation planning, the experts at motiveOS are here to help.