5 Different Types of Sales Target and Their Importance
Simply, a sales target is a goal that must be met by a firm, a team, or an individual, depending on the situation. The difference between a target and a sales target is that a target is a goal that must be met within a certain time frame.
The Sales Budget, which is set by the company, determines the Sales Target. The Sales Target can be set by management or by specific teams, and it is then distributed. It is accomplished in order for the company to create revenue and enhance product sales.
The importance of a sales target is that it provides a clear numerical and quantitative image for teams to hit their targets.
It also aids management in formulating strategies for achieving sales targets.
It serves as a roadmap for the Sales Team, pointing them in the right direction.
The goal serves as a benchmark against which the achievement can be measured and evaluated.
Types of Sales Goals:
Depending on the needs of the sector or the organization, different companies may use different target approaches. The majority of organizations follow a common pattern of following Yearly or Annual Sales Targets.
Daily Sales Target:
The entire target is divided by the number of working days and that will determine the everyday Sales Target. Large consumer and departmental stores work on daily targets. Ex: McDonald’s, Burger King, WalMart
Weekly Sales Target:
The target is divided into a weekly basis to be achieved by the Sales team. Transport and Cargo companies, Courier companies like BlueDart and FedEx work on Weekly targets. Many pharmaceutical companies also allocate weekly targets like Novo Nordisk.
The allocation of targets may differ from region to region. A company would have weekly targets in one region while yearly targets in another region.
Monthly Sales Target:
The yearly target when divided with 12 gives the monthly target. The monthly target is followed by most of the pharmaceutical companies like GlaxoSmithKline, Novartis etc.
Quarterly Sales Target:
Quarterly targets are more of a functional target than actual. The three consecutive monthly targets are put together to make a quarterly target. Most FMCG companies allocate Sales Incentives for the Sales team on achieving Quarterly Targets. Also, This provides an aggregate picture of the direction of Sales for the management to review.
Annual Sales Target:
Based on the past year’s achievement, market growth, industry growth the yearly targets are allocated. Large equipment companies, heavy goods, and industrial machinery work on Annual Targets.
Calculation of Sales Target
Sales Target is calculated based on the influencing factors. There are two ways a company decides on Sales Targets:
Bottom-up Approach:
Here the individual contributors collectively send their Sales Forecast which is compiled and sent to management. The forecast is based on Last year’s achievement, industry trend, customer feedback, and the geographic area. The senior management, after review, makes changes, if necessary, and sends the targets back to the frontline.
Top-Bottom approach:
Here the analysis of the industry is done by the management and the targets are decided and percolated downwards to the individual contributors. Very few companies rely on this model.
The calculation of Sales Target is done by considering previous years achievement and adding a target growth that the company is aiming to achieve. This number is based on industry growth and market stability as well as the geography.
Forex:
Philips achieved a number of 200K unit sales of Light Bulbs in 2017 out of which 120K from the United States and 80K from the Asia Pacific. In 2018, the sale of Light Bulbs was 125k in the United States and 98K in the Asia Pacific.
This clearly states that although the base is huge in the United States, the growth rate is large in the Asia Pacific and thus it is a big market.
Thus the Sales Target for 2019 would be 132K light bulbs for the United States with a marginal growth in the target of about 1-2% while in the Asia Pacific it would be 125K with a high growth of about 20%. Thus the geography, previous years’ trends, and markets play a crucial role in determining the Sales Target.
Sales Target Clear Path Benefits:
Sales Target aids the sales team in charting a clear path and strategy for achieving their sales goals. Once the team has determined their annual goals, they may break them down into quarterly, monthly, and daily goals, as well as look at their consumers and plan for the entire year.
This is also true for higher management, which can coordinate and improve sales by planning marketing initiatives. The finance team can reduce or enhance payment collection efforts, as well as allocate enough resources for the teams to meet their targets.
Increase in market share:
A well-planned Sales Target, together with the efforts of the Salesperson, aids the company in increasing sales and, as a result, market share. Because sales is a company's major and possibly only source of revenue, it is critical that they focus on boosting sales targets and motivating their people to reach them in order for the firm to survive and develop.
Long-term objectives:
A collective Sales Target would set the company's product's long-term growth in order to stay competitive. It would also be used to determine the product's flow or trend. For example, if a product's projection is consistently declining, it means the objective is decreasing and, as a result, sales are decreasing.
The following are some of the disadvantages of using a sales target:
Unrealistic Objectives:
Most of the time, management with a bigger picture in mind sets unrealistic goals that trickle down to the front lines. These Sales Targets may not be suitable with that particular location or with that specific individual, but they must be acknowledged and worked on because they have come from the top down.
Toss an ethical coin:
Large incentives are always given to the sales team for meeting and exceeding the sales target. If the organization sets an unrealistic target without first conducting market research, the salesperson may resort to unethical tactics in order to meet the targets and win bonuses. In the long run, this may not be beneficial to the company.
Unforeseen Circumstances: In most cases, political or legal choices in a specific country may have an impact on sales targets. For example, if the government decides to cover a specific sickness under health insurance, the sale of products connected to that disease may skyrocket, potentially causing an inventory imbalance in the company.
Although the corporation would exceed its goals, this was not anticipated when the Sales Target was created. Similarly, if a rule requiring the use of environmentally friendly bikes in the country is implemented, the sale of electric cars will increase, but the sales target for gasoline-powered vehicles will never be met.
As a manager, you should keep sales targets for your employees so they have a specific goal in mind to act on.
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