How to set sales targets from capacity back to quota

Many owners set a sales target the way they set a birthday: last year plus a third, divided by the number of salespeople. Then the year goes wrong in one of two ways. Either the sellers cut prices to chase volume, or they win orders the workshop cannot finish on time. The better route starts at the thing that runs out first, whether that is crews, machine hours or trainer days, and works back to the enquiries you need.

Find the thing that runs out first

Every business has a bottleneck. For a manufacturer it is hours on the slowest machine. For a firm that installs, it is crews. For a training company it is trainer days. For a firm that buys stock to order, it is cash and credit.

Write down how many jobs that bottleneck can complete in a quarter without overtime or subcontracting, and the average value of a job from your last two quarters of invoices. Multiply. That is your comfortable ceiling. Then work out a stretch ceiling with overtime or one extra crew, and note what reaching it costs you. Do not mix the two. The comfortable one is for the quota and the stretch one is for a named plan, because a target that quietly assumes overtime wears the crews out by the second quarter.

Run the sum backwards

Here is the sum for a borewell and pump installation firm around Karimnagar. All figures are illustrative.

Crews: 3, each completing about 14 jobs a quarter      = 42 jobs
Average job value (last two quarters' invoices)         = ₹85,000
Comfortable ceiling                                      = ₹35.7 lakh a quarter

Quote-to-order rate (from the quotation file)           = 1 in 3
Quotes to send for 42 jobs                               = 126
Enquiry-to-quote rate                                    = 2 in 3
Enquiries needed                                         = 189
Enquiries that arrived last quarter                      = 150

Now the useful question appears. Do 189 enquiries a quarter really arrive? Here 150 did. So the honest target is lower than the ceiling, or one number must change. You can raise enquiries (marketing), the quote-to-order rate (selling) or the average job value (pricing and offer). Each is a separate decision with a different owner.

What the Karimnagar owner got wrong first

Here is an invented case. The owner had billed about ₹30 lakh the previous quarter, set a target of ₹40 lakh, a third higher, and split it among three sellers by headcount. By the second month the sellers were quoting thinner prices to fill the number. By the third, the crews were two weeks behind and customers were ringing about delays. The firm had hit neither a sensible target nor a happy customer list.

The owner repeated the sum above from the firm's own invoices. It showed that ₹40 lakh needed a fourth crew. Or a different mix of jobs. Neither had been planned. The target was cut to about ₹28 lakh, which is what 150 enquiries produce at those rates with three crews. A stretch of ₹4 lakh depended on one change: a bigger share of higher-value deep-set borewells. The stretch had an owner and a review date, and it did not sit inside any seller's quota. It was only half met that quarter, because two deep-set jobs slipped into the next one.

Check the rates before you trust them

The sum is only as good as the conversion rates in it. Pull them from your quotation file or your enquiry list on WhatsApp, not from memory. If you cannot count at least a few dozen quotes, say that the rate is rough and revisit it after another quarter of records. A rough figure written down as rough is worth more than a confident guess.

Cutting the target into quotas

Once the firm's number is credible, divide it in three passes.

First, take out what arrives without selling: the annual maintenance contracts that renew and the contractor who orders every quarter. Do not give a seller a quota for revenue the seller did not create. Treat it as base.

Second, split the rest by territory or customer type, weighted by the enquiries each one produces. A seller in a busy belt should not carry the same number as one opening a new town. Heads are a poor basis.

Third, leave a gap. Quotas that add up exactly to the target turn any miss into a failure. Someone will be on leave, someone will resign and a large order will slip, so let the quotas total somewhat above the target and say so openly.

What a new seller carries

For the first period, give a new seller a lower quota and a fixed list of activities: calls, visits, quotations sent. State that the activities are the measure at first. Write the date when the full quota applies. Without that date the ramp drifts, and the seller is told they are "still on a ramp" long after they stopped needing one.

When the sum is the wrong tool

If delivery is not what limits you, as with a trading business that buys to order, run the same sum with working capital as the ceiling instead. If you have no quotation file, you cannot honestly compute a conversion rate. Spend one quarter recording every quote and its outcome, then plan. Use setting sales targets for your team for a first pass and return here with real records.

Be wary too of using this method to defend a low target. If the sum says 189 enquiries are needed and 150 arrive, the answer might be to find 40 more enquiries, not to lower the ambition. The sum shows you which lever to pull. It does not choose.

Draw the sum for your own firm

Take the worksheet above, replace each line with your own figure, and start from your own bottleneck. If a line will not fill because you keep no record, that line is your first job. If you keep no quotation record, start one this month and run the sum again next quarter. If you would like help building the sum from your own invoices, tell us what you need; how targets fit the rest of running the team is covered under sales.