Staggered Quota Quarters Part I: A CFO’s View (Part One)
This month we step away from the Deadly Sins of Incentive Compensation to discuss a truly interesting suggestion about quota structure, from the Sales VP at one of our clients. At his company, regional sales quarters are staggered, so if there are, say, three regions in the company, each region’s quarters end in a different month. Here’s what that company’s quota quarters might look like for fiscal 2016 (with a 12/31 fiscal year):
What do you think? I see the following advantages to this approach:
1. More predictable bookings/revenue flow. Because salespeople often work best when they’re under quota pressure, many enterprises see a high concentration of revenues at quarter-ends, which can often lead to quarterly results significantly more or less than was expected. That lumpiness can be smoothed out by having about one-third of the sales force face an end-of-quarter in each month of the year.
2. Smoother product delivery. For enterprises that deliver a physical product (as opposed to, say, software), the smoother order flow puts less strain on their manufacturing and shipping capabilities.
3. Availability of key sales resources. In high-pressure sales closes, scarce and critical resources include the most articulate pre-sales specialists, senior managers to show the flag and make deal decisions, and legal and financial specialists to negotiate terms & conditions. These resources aren’t stretched as thin when quota quarters are staggered.
But I also see the following risks:
A. Confusion and lack of focus. The approach is complicated, and a quarter-end can no longer serve as a rallying point to get the entire enterprise focused on a single goal.
B. Administrative overload. For administrative functions, three small monthly “fire drills” – for determining revenue recognition and processing sales compensation, for example – may be more time-consuming and inefficient than a single bigger one each calendar quarter.
C. Senior management willpower? Regardless of how the enterprise manages its sales force, it must deliver its financial results according to its fiscal year (and fiscal quarters). The benefits of having staggered quota quarters will be completely lost if the C-suite ends up pressing salespeople to bring in business even when that month isn’t the end of their quota quarter.
My concern is that the last reason above - revenue pressures on senior management - can trump all other reasons. So as interesting an idea as staggered quota quarters is, I would only recommend the approach for enterprises that aren't publicly traded, and that have had little difficulty achieving quarterly corporate sales targets.