There are many simple ways to set sales targets for a company. Normally companies get the total number of sales to be achieved and divide this equally across the sales teams or sales divisions.
If a new bank distributes targets evenly, that is a forgivable mistake. A new company has zero market share and has a ‘greenfield’ to cover. Therefore, to challenge all sales teams equally can be a cheaper and faster way to go to the market. However, a minimum market potential analysis would have provided guidance on where to concentrate its forces, which will generate a more rational and meaningful target allocation exercise. If there are areas with a larger group of the bank’s target market in a particular geographic region, it makes sense to allocate more resources to gain more customers. This exercise will create a weighted target allocation that will deliver more sales. The practical result is that areas with more opportunities will have larger targets and more resources than the areas that don’t.
For an established bank, to distribute targets evenly is a mistake that can prove very costly. It may even cause the bank to lose their best sales teams.
A series of factors must be taken in consideration in order to maximise returns and keep the best teams performing.
These factors include:
With the above analysis, a Sales Planning and Administration Team can set targets that are challenging but fair, and achievable without burning out the best sales teams.
Normally, in established banks, targets are set equally across the organisation, or by linear growth rates across the various areas of sales. It may appear that a ‘magic number comes from heaven’ and every sales area is supposed to grow by 20 per cent that year. Banks that do this are killing the best sales areas and potentially giving a very easy life to non-performers.
For example, imagine that a bank has divided its sales regions into 30 sales regions or territories (which can be any sales division such as branches, offices, or portfolios).
A bank has 30 sales regions, of which 10 are large, 15 medium-sized and 5 are small regions. To start the target setting exercise, the bank needs to compare similar regions’ performance before setting any target. A large region must be compared to another large region and not a small or medium one, as it is assumed that large regions will have similar market size and have similar resources available.
When the bank is defining how many credit cards it will sell to its customer base, amongst the large units there will be regions with a portfolio penetration of, say, 30 percent and others with, say, 3 percent. If they set the same growth rate across all of them, it will penalise the region that has grown in the past and achieved a 30 per cent penetration. For such a region to grow, another 20 percent is much harder to achieve than a region that has only a 3 percent penetration. The team that has delivered in the past will be severely penalised, as it will have to work much harder to grow 20 percent. A smart sales manager will provide challenging targets but will always respect and take into consideration previous performance. The manager will set fairer goals by giving a 35 percent growth to the region with 3 percent and 10 percent growth target for the one with 30 percent.
The analysis does not stop here. It is important to know the average penetration among the large sales regions. Assume that the average penetration among the large sales regions is 20 percent, so again the 30 per cent penetration region is above the company’s large sales regions. Giving the region with 30 percent penetration a 10 percent growth target may still be very difficult to achieve, so you must adjust it.
Regions with lower achievement must have more aggressive targets, aiming at the average penetration, which in this case is 20 percent as they all have similar areas in size, resources, and potential. At another extreme, regions that have above average performance, or penetration, need a more balanced approach. If the bank keeps over-stretching a successful sales force, it may ‘kill’ it, as badly set targets will cause the team frustration. Targets must be challenging, but not impossible.
Also, in all target setting exercises the bank must understand:
This information will help them set achievable challenges in each sales region. It is very important to always use a relative view of similar sales regions, and consider the points listed above to have a sense of potential growth.