Is it time to stop relying on quota achievement as a measure of sales productivity?
Annual research findings from CSO Insights have documented a steady year over year erosion in the percentage of B2B sales reps that attain quota. If less than 50% of sales reps are hitting quota, does it still have any value as a measure of productivity?
In 1975 Charles Goodhart, a British economist, stated the following: “Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.”
Of course, you say, that is obvious…
Goodhart’s formulation has been proven out over the years and has become known as Goodhart’s Law.
In plain English, it says that “When a measure becomes a target, it ceases to be a good measure.”*
The negative impact of Goodhart’s Law was concisely summarized by William Koehrsen, a data scientist writing in Towards Data Science: “When we set one specific goal, people will tend to optimize for that objective regardless of the consequences.”
In sales we give sales reps that one specific target: quota. We reinforce the importance of that one specific target with incentive-based pay that is earned on the basis of achieving it. Then we measure them on achieving the target. And we wonder why so few reps are achieving their number.
As Koehrsen observed, people shape their activities to achieve the target, regardless of the consequences. Let’s take one example. Reps are encouraged to have in their pipelines a sufficient quantity of qualified opportunities that total up to a designated multiple of their monthly target.
On the face of it, that makes sense. We rarely close 100% of our prospects so having a pool of opportunities that is greater than your monthly target is prudent.
The problem is that managers are demanding greater pipeline “coverage.” 4X or 5X the monthly target is pretty typical. Some companies are requiring reps have 7X or greater coverage. And, this is when Goodhart’s Law starts kicking in.
When Standards Slip
In order to generate enough “opportunities” to cover their pipeline reps have to do “more” of everything. However, doing more means that they’re pressed for time. So, in order to do more, quality and standards inevitably slip.
Outreach becomes less personalized. Discovery becomes superficial. Qualification no longer winnows the pipeline. Instead inadequate qualification becomes an invitation to expand it.
The result is a greater quantity of poorly qualified prospects in your pipeline which leads to low close rates, high “no decision” rates, longer sales cycles and, inevitably, a smaller fraction of reps hitting quota.
I find it somewhat ironic that at a time we tout the value of the modern sales process, overall sales performance is likely being hampered by its reliance on the anachronism that is quota.
What could be an effective alternative to quota as a measure of sales performance? Personally, I think that a balanced scorecard approach, that looked at and incorporated multiple measures, would be a better approach to aligning sales performance to desired outcomes. I’ll be writing more about this in coming weeks.
In the meantime, I’m interested to hear what you think about this topic. Do you think that there’s a better way to measure sales performance than quota? If you’re a member click below to hop into the The Sales House™ Slack community and let’s discuss! If not, visit TheSalesHouse.com to learn more.
*(Thanks to British anthropologist Marilyn Strathern for the plain English re-stating of Goodhart’s Law.)