by Doug J. Chung and Das Narayandas
EXECUTIVE SUMMARY — This study of different sales quotas and their effect on sales performance at a major retail chain in Sweden finds that changing from a monthly to a daily quota plan increases performance mainly for low-performing salespeople.
We collaborate with a Swedish retail chain to conduct a field experiment in which we change the sales force compensation scheme from a monthly to a daily quota plan. This intervention, along with a control group that did not encounter a change in compensation structure, allows us to analyze the effect of quota frequency on sales force performance. Over a given time frame (i.e., a month), we find that shifting to a temporally more frequent quota plan—the daily quota plan as compared to the monthly quota plan—leads to an increase in sales performance, mainly for low-performing salespeople, by preventing them from giving up in the latter days of a month. However, we find high-performing salespeople to give up more frequently in earlier days of a month under the daily quota plan. With more frequent quotas, salespeople sell more quantities of low-ticket items, which benefit the firm through a decrease in returned merchandise. However, with quotas set over shorter time horizons, even the highest-performing salespeople focus mainly on incremental sales, resulting in a decrease in sales of higher-value-added and higher-margin products, thereby hurting firm profits.