How to Set and Achieve Sales Quotas

The comprehensive guide to planning and reaching sales quotas - the fundamental amotic blocks of highly successful sales programs and performances.

A staple of the sales function in most organizations, quotas set goals, define success behavior and track progress for sales employees and channels over a fixed time period. They can be described as a slice of an organization’s total expected market share that is selectively assigned to sales employees, agents, distributors, dealers and other channels as a mandate to be achieved in the coming time.

Sales quotas are a key metric in Sales Performance Management (SPM), and a core ingredient in appraising performance and designing compensation programs. Expertly designed sales quotas inform teams on how much they have to sell, and the boxes they need to tick, to meet business goals and take-home pay.

In sales, quotas broadly serve to:

• Define and drive growth.
• Incentivize and measure performance.
• Regulate costs of customer acquisition.  

Quotas are a key driver of an organization’s competitive edge, and have an enormous impact on revenue, growth and business outcomes. The overarching purpose of sales quota strategy is to set into motion a sustainable template for long term productivity. Often, how you set your quotas will also determine whether your sales rockstars stay or leave.

Sales quotas are usually calculated on a yearly, quarterly or monthly basis, and expressed as a percentage of success achieved against predefined expectations within that period. So, if one has closed $1 million of a $2 million quota, it implies that the quota attainment is 50%. Quota achievement and rewards (OTE, or On Target Earnings) are nearly synonymous in the universe of sales.

The best quotas are well-researched, comprehensible, measurable, exciting and achievable. Sales leaders formulate quotas for their teams based on an entire bunch of considerations. Some of these are:

• Product and service
• Deal size
• Sales cycle times
• Historical performance
• Team strengths
• Potential market
• Compétition
• Revenue projections
• Budget planning
• Overall sales strategy
• Larger business goals
• Their personal ‘hunch’

A great sales strategy is critical to unlocking the true potential of your sales quota program.  

Are these terms confusing?

Let’s get a quick perspective on terms commonly used (and sometimes abused) in sales quota planning and calculations.

Sales goals are long term objectives that lay down a macro vision for the business and the sales department such as, say, increasing revenue by an amount of XX% over the preceding year.

Sales targets quantify sales goals by putting a number to them.  

Sales quotas break targets down into short term milestones. They clarify the volume of work that needs to be done, and the number of deals that need to close, for the organization to hit its sales targets and, onwards, its bigger sales goals. 

What are the various types of sales quotas?

Sales quotas can be designed around any metric or KPI, as long as they directly or indirectly benefit the organization in general - and drive sales outcomes in particular. Here are some of the more common pegs.  

Activity quota

An activity quota monitors specific sales related activities that reps need to carry out along the lead progression and maturity cycle. Some examples of ‘activity’ in this context are sending emails, scheduling demos and cold calling clients. While most of such activities may not directly move the needle, some – like negotiation skills - can measurably accelerate closure.

If a new product or category is being launched in the market, activity quotas will also perform the crucial task of building awareness and ‘conditioning’ users before the actual sales process can begin. In sectors with long closure cycles, activity quotas help in building pipeline and maintaining motivation in teams.

Saas lingo for activity quota: Customer Success-Oriented Activities

Historical quota

40% of organizations follow the historical quota method, a model where cues and signals from past performance, patterns and trends are studied to formulate a baseline quota threshold. While providing a sensible and objective base or starting point, this method doesn’t work quite as well in environments of flux, uncertainty and change - particularly the kind without a precedence (a force majeure type incident like, say, a pandemic).

Using the past as a guardrail is also not the best way to evolve and capitalize on new horizons. The historical quota method may thus come with an opportunity cost.

Volume quota

The parameter here shifts to the volume of sales and transactions. Based on the nature of the product, and the time period under consideration, it can run into high numbers. Its inherent simplicity makes this a universally popular framework.

Leaders wield this as a tool to push cross/up selling and ensure inventories are constantly rotating. The caveat is that to run up their big numbers, sales agents may offer steep discounts to close deals, adversely affecting profitability.

Saas lingo for volume quota: Total Contract Value (TCV) or Annual Contract Value (ACV).

Customer-first quota

Here, sales reps are evaluated on the number of patrons they are directly responsible for. Customer acquisition, customer retention, relationship building and customer lifetime value are some of the important KPI’s in this quota model. This quota class is particularly valuable for SaaS based businesses since it is designed to counter customer churn.

By retaining patrons, it also leads to enhanced customer relationships, enables revenue predictability, effectively brings down CAC (customer acquisition costs), boosts CLV (customer lifetime value), engineers sustainable profitability and encourages organizational investments in long term growth initiatives.

Saas lingo for customer quota: Renewal Rate quota or Churn Rate quota.

Forecast quota

Forecast quotas crunch data history to set targets that are aimed at tapping into the team’s potential and improving upon past performance. This works for businesses with consistent seasonal trends and reliable past data spanning multiple years. In the hands of experienced sales leaders, forecast quotas can be a powerful instrument for boosting results.  

Profit quota

Influenced by contract value and product price, profit quotas are designed around profit goals. As fresh profit benchmarks are set, the quotas help sales teams determine the number deals they need to win to achieve the necessary profit point. This quota method discourages discounts and helps boost the company’s overall profitability.

It is designed to spur reps towards upselling premium features, converting high-ticket transactions and closing deals with good profit margins. In this model, leaders may not discriminate on the type of product sold (in cases where the company boasts a wide portfolio) or the strategy employed as long as profit targets are met.  

SAAS LINGO FOR PROFIT QUOTA: Customer Acquisition Cost (CAC) Ratio and Customer Lifetime Value (CLV).

Revenue quota

A fairly simple and easy-to-follow model similar to the above. This time though, we use the (total) quantum of gross revenue generated – irrespective of profit made – to define attainment and assess performance. More the revenue, higher the quota fulfilment.   

Expense (cost) quota

More of a regulatory maneuver, an expense quota basically places a cap on the budget, specifying the maximum amount of sales-related spends permissible within a specific period.

It acts as a control mechanism to rein in costs of travel, entertainment and marketing materials. In the hands of dynamic sales teams, the ingrained restriction can also act a boon – nudging reps to think on their feet and get innovative with their quota strategies. 

Pipeline quota

In this quota system, leaders look at establishing full pipelines and continuously pushing deals along the sales funnel. Reps are required to maintain a certain value’s worth of opportunity in their pipeline at any given point in time and forward a certain minimum number of deals onto the next stage.

By shifting the team’s focus from immediate closures (always more tempting) to prospecting for future business, this system helps create revenue predictability, better forecasting and smarter resource allocation.

Territory based quota

As the name suggests, quotas here are assigned to territories which in turn may be defined by geography, product, customer demographic, size of addressable market or other parameters. Done right, this is a scientific and effective approach to boost sales.

That said, fine turning a territory approach requires ongoing, real-time feedback and exhaustive analysis, making this a complicated and time-consuming exercise not every team may relish. The complex nature of this framework can also result in inaccurate compensation, breeding resentment and rift.

Combination quota

As the name suggests, a combination quota is created by combining several different varieties of quota methods. A company may tactfully link pipeline, volume and profit quota models to ‘innovate’ a high-performance revenue structure.

Combination quota allows for a balanced approach to sales by judging performance across a diverse set of attainments. By addressing multiple aspects of the business, it also lifts efficiency across an entire suite of functions. Sometimes, combining quota models can also get extra tasks done without investing in a separate team.

Why are quotas important in sales and business?

• The overriding idea behind devising and deploying sales quotas is to motivate channels and teams to sell more. Few other gambits in sales accomplish this better than good old-fashioned quotas.
• Quotas take the randomness out of an organization’s sales activity: Acting as a North Star for revenue and sales teams, they set the direction, structure and momentum for meaningful success.
• Quotas are a key determiner of the company’s compensation structure, giving shape to various pay-for-performance programs like commissions, bonuses, raises and others.  
• In an age of never-before complexity, uncertainty and competition, creating effective quotas can help companies ‘lean mode’ their operations, shave costs and achieve revenue goals efficiently.
• As a key variable in the equation, sales quotas profoundly influence success or failure across a wide range of business functions. Goal setting, capacity modelling, territory management, forecasting and customer experience, to name some.
• Case in point: Quota and territory planning are closely intertwined in sales. The right territory plan aligns business ambitions with organizational readiness, laying the foundation for superlative performance. Monitoring quota progress can highlight issues in territory planning, thereby helping refine the latter.
• Quota driven performance analysis can shed valuable light on the aptitude and appetite of individual players in the system. This can pave the way for productive reflection, personalized coaching, constructive feedback, strategic support and focused skill building activities - levelling up organizational ecosystem holistically. Here’s some proof: 65% of sales organizations possess a dedicated sales coaching program, and ongoing training can lead to a 50% hike in sales per employee.
• The right quota planning can also guard against opportunity cost. 

 How to set sales quotas?

Setting sales quotas isn’t about plucking a number out of thin air and keeping one’s fingers crossed. Like sales territory planning, there are many nuances and variables to consider, and calls for a juggling act that balances quantitative insights (data) and subjective judgment (instinct of experience). Along the way, one must not lose sight of the crosshairs: Quotas must charge up teams and propel company goals. 

Perch your quotas too high, and you will risk either dispiriting teams or forcing them to resort to unethical approaches. It may also de-spirit talent, causing your best workers to quit ship.

Peg your quotas too low, and you will only end up building a lazy and complacent army, short-selling and sabotaging your own potential to meet financial targets.

Way out 1: go top-down

You can take a Top-Down approach to planning sales quotas, letting organizational leaders set the benchmark. This is a fairly prevalent and popular approach, and with experienced heads at the helm, can deliver results.

On the flip side, arbitrary pie-in-the-sky numbers bandied about by executives and board members (who carry little ground level exposure and may merely be looking to impress investors) can be unfair and intimidating for sales reps.

This defeats the very purpose of a quota, which is to build a team bubbling with zeal that reports for duty with a whistle on the lip every morning - not a weary one burning the midnight oil trying to figure out how to make quota numbers.

Detached from reality, top-down quota mandates can end up adversely affecting everything that matters: Team spirit, customer experience, brand repute.

Way out 2: rise bottom-up

You can also take the Bottom-Up approach to planning sales quotas, where current performance status and territory level data form the basis of subsequent goals. This approach affords frontline sales folks' greater autonomy over their quota schedules as they collaborate, review and custom-create practical targets based on firsthand familiarity of markets.

Members feel ‘listened-to’ and genuinely part of the process in a bottom-up model, fostering deeper involvement and synergy. The downside here is that teams may set quotas too low to ‘cover’ their case.

The collaborative nature of target-setting may also be complicated and time-intensive to manage. Finally, a bottom-up model may fall short of the growth vision of ambitious boards and stakeholders and deny the business a legit shot at scaling.  

Find the middle path

When it comes to quotas, setting high benchmarks isn’t always the way to generate high output. Combining top down and bottom up provides a balanced and realistic approach to sales quota planning, and your best chances of success. Realistic doesn’t mean it cannot be ambitious. The trick is to find the magic middle ground. In other words:

The perception of the bar needs to be high enough to challenge your sales teams and get the best out of them, while being low enough to look ‘achievable’ and make them feel comfortable and confident of success. With some luck, you will end up creating a winning team ethos that will attract top talent, setting up a nice flywheel loop of more triumphs.  

Important steps in sales quota planning

• Sales quota programs should be SMART: specific, measurable, attainable, relevant, and time bound.
• Quota goals must be grounded in evidence and data. They should take into account the company’s past performance, growth rate, competitor activity, territory traits and market conditions.
• Quota goals must also be aligned with the company’s future priorities across GTM, strategy, product line, new launches, diversification, revenue targets, market share growth and other factors.
• One size doesn’t fit all. Quota goals must, in addition, be mapped to the ability of the team to deliver them. Strengths, passions and domain exposure will provide a good indication of what they can achieve, and quotas should be tweaked accordingly for closer personalization. Wise leaders blend both extrinsic and intrinsic motivational triggers to create quotas that hit the spot.
• Sales quota planning benefits greatly from diverse points of view, so make sure all concerned stakeholders have a say in the decision-making process. In particular, the folks from SalesOps and RevOps.
• Set the wheels in motion by determining the type of sales quota and the approach and methodology (top down, bottom up, etc.) that makes best sense for your specific organizational context and journey.
• Define the baseline next. This is the minimum threshold folks must hit to keep the business wheels humming and the quota model viable.
• It’s now time to determine the optimal quota – and corresponding incentive levels - for reps and teams.
• Set clear, reliable and consistent KPI’s to judge and gauge results squarely.
• Make sure everyone is on the same page by communicating expectations instantly and without ambiguity.
• Create a process roadmap that lists out key activities - such as capturing webinar registrations, sending LinkedIn invites or making calls – to guide and expedite efforts of sales employees and channels.
• Employ techniques like what-if analysis (scenario analysis, goal seeking, and sensitivity analysis), time series forecasting, regression analytics, demand forecasting, clustering models, outlier models, classification models and predictive planning to test your estimates against various contexts and contingencies. This enriches your quota roadmap with objectivity, resilience and balance.
• Be transparent about the rationale behind your quota decisions – and you will win the trust of sales teams and reps.
• Be it seasonal, territory specific or caused by customer trends, keep room for responsive alterations to ensure your sales quotas stay agile, realistic and motivating.
• Keep tracking and optimizing your quotas and incentives. Some techniques to try here are segmenting users or sales teams, balancing short term and long-term goals, testing various scenarios and smart gamification.
• Avoid common sales quota pitfalls such as confusing and vague targets, inconsistent KPI’s and expectations, mismatch between sales target and team ability, unfair quotas that breed disillusionment, inadequate incentives, incentives that spur undesirable behaviors and mismatch between success and reward.
• Incorporate quotas into other vital aspects of the sales landscape such as territory management and compensation programs for smooth interoperability between functions that are intimately connected.
• Try using a modern SPM (Sales Planning Management) mechanism that ensures data integrity, quality and recency with audited and up-to-date records.
• Businesses using CRM are nearly 9X more likely to crush sales goals. Effectively leverage sales reporting and analytics tools such as CRM systems, scorecards and dashboards. Democratize visibility and control by using technology that’s easy to use by anyone irrespective of background – allowing for smarter decision making across sales and revenue roles.
• Quotas aren’t a set-once-and-forget kind of activity, so choose a platform that makes iterative refinement easy.
• Provide tool training and build a digital-first culture that complements your teams’ native selling prowess. Mind blowing fact: The ROI for sales training is a staggering 353%!
• Leverage performance data to shuffle roles and resources, rethink territories and level-up laggards.
• Automate and simplify processes to cut down on time and manual error, and channelize efforts towards high value activities like strategy and refinement.
• It’s easy to forget, and so worth repeating: Keep the focus on solving user problems, not meeting quota numbers. Crushing targets must be an ‘after effect’, never the main focus. According to Hubspot, 82% of sales pros feel connecting with customers is important for sales. It is also the part of their job they enjoy the most. 

 Thumb rules for setting quotas

• The ability to create balanced sales quotas is an asset in business; It adds an undeniable competitive edge. Quota setting is a skill all sales managers, supervisors and leaders are expected to possess. And while it’s a part-art that only comes with experience, there are thumb rules that any sales leader, at any stage of experience or growth, can adopt. Let’s take a look at some.
• Complete your quota planning early so that teams know the score from Day One and have all the info they need to plan forward moves.
• The world of sales is fluid, dynamic and unpredictable. Your quota plans must be, too. Keep experimenting (A/B testing, in marketing parlance) with different strategies to see what sticks best.
• Ensure reps and channels have the necessary ammunition - resources like tools, content or knowledge - to achieve their milestones. Give new hires time to adjust. Provide the strong leadership and mentorship even seasoned teams will need at some point. Finally, establish a positive and supportive environment where the team can thrive and excel.
• Skip the peanut butter approach: Don’t spread sales teams too thin across customer segments, product lines and territories to avoid diluting the intensity of initiatives.  
• Conduct research, network with experts and join forums and groups. Staying updated on economic conditions, sectoral demand and industry trends will make a big difference to the quality of your quota forecasting and planning.
• Be open to a flexible approach. This means designing different quotas for different product lines, customer segments or rep hierarchies for more targeted initiatives.
• Digital tools can help you keep pace with change by crunching data in real time and allowing reps to adjust sails on-the-go: It’ll make sense to go for an intuitive technology.  
• Is everyone on the team hitting their quotas? Don’t call for pizza just yet. It may only mean that rockstars aren’t being challenged enough, and that underperformers don’t have sufficient opportunities to improve and grow. The common wisdom is that if 80% of the team is hitting 80% of their quota targets, the company is doing satisfactorily. Consider the remaining 20% a space for reimagining roadmaps, reinvigorating capacity and reorienting employees.
• In the world of sales quotas, the line separating enthusiasm and burnout is often thin. The best managers hedge their folks from anxiety and exhaustion. So how high exactly does one dangle the carrot? Well, if you’re going by deal closure, doubling the number is a fair goal to set, generally speaking. If, on the other hand, you are taking the growth route, 5 to 10% of annual growth is usually standard.
• Think you have created the world’s best quota formula ever? Hold that thought. No matter how formidable a quota plan looks on paper, never forget to stop and ask your folks directly, “How much can you actually sell?” Remember, nobody knows their capacity to deliver more than them.
• Rewards lie at the heart of grand performances. This is especially true in sales. Make sure to tie your sales quota strategy with a great incentive program. Keep commissions flexible and avoid setting caps to take advantage of momentum. Publicly recognize deserving performers to clarify behavior standards.

Report card A

Assessing efficacy of sales quota programs via validation approach.

What does your quota report card look like? How do you know your chosen approach to quota setting is really delivering the goods? The following validation models can help assess the potency of your sales quota program. 

Validation approach 1: Quota Accuracy

This approach to testing quota accuracy, also called performance distribution, compares results vis-à-vis teams, roles and KPI’s. A bell distribution curve that is smooth, with SDR’s crowded around the 100% mark, indicates a harmoniously designed quota framework.

On the other hand, a jagged curve - with scattered ups & downs and no critical mass around the 100% mark - indicates mismatched quotas. Not surprisingly, the latter is common in organizations that don’t have robust quota setting traditions. 

Validation approach 2: Quota fairness

The second approach examines the quota setting process by interpreting biases and loopholes that are beyond the control of sales channels and Reps. Size of territory, total number of accounts, nature of product, and role and experience of rep, are put under the scanner to understand whether quota goals have been fairly set. Tweaks and adjustments are subsequently made to ensure equitability. 

Report card B

Assessing efficacy of sales quota programs via KPI approach

There are several KPI’s that can help calculate quota fulfilment success in sales. Some of them are:

Quota attainment rate

(Actual total sales made) / (Sales quota assigned for that period) X 100.

Deal closure

The number of deals sealed during a specified span of time.

Deal slippage

Deals that fell through despite being labelled ‘Likely to close’.

Win rate

(Total number of closed and won deals) / (Total number of closed deals - won or lost) X 100.

Average sales cycle length

The longer a deal takes to close, the higher the probability of a ‘ghost’ in the machine – i.e., a ‘defect’ in the system.

Number of active deals

The number of deals currently active in the pipeline is also a valid metric for judging quota program success.  

Some other approaches to assess quota success are:

Sales qualified leads analysis

This calculates closure rate based on SQLs, capturing how efficiently your sales process is functioning.

Individual vs Team analysis

This shows which is delivering better for you: Solo efforts or choreographed teamwork.

Deal amount analysis

This looks at the monetary value of deals being converted - versus the total value of closed opportunities (converted or lost).

You can crush the quota game, too!

Setting and achieving sales quotas is fundamental to business survival and success. The right approach and team can help you take giant steps towards the promised land and establish your organization as a frontrunner in your field. In the age of AI however, even the best intentions and resources may fall flat if you don’t have the right tech platform in place.

Ensure data accuracy and consistency in your incentive compensation plans by connecting and centralizing your sales and incentive data across databases, including CRM, ERP, data lakes and more. To see how Compass can revolutionize your quota programs.