What’s a Sales Quota and How Can It Look?
The sales quota is a mystery to many. It determines how happy and successful salespeople are and whether the quota is a win-win situation for both the company and the salesperson. It is not uncommon for the quota to be perceived as unfair, and it is not uncommon for the quota to be raised significantly after a good year. That’s why we want to shed some light on the subject in this article by first explaining what a sales quota is and then looking at specific examples.
Table of contents
What’s a Sales Quota?
A sales quota is the target that a salesperson has to hit within a certain time frame to get their commission. For example, an Account Executive in tech sales might have to sell 1 million dollars worth of software in a year to reach 100% of their quota. The quota does not necessarily have to be revenue. BDRs and SDRs, for example, often have a quota for how many Sales Accepted Leads (SALs) they generate per quarter. Sales quotas are really important for businesses because they help them to plan their revenue and make sure that their sales strategies match up with their overall business goals.
Types of Sales Quotas
Revenue Quota
The most common type of sales quota in tech sales is the revenue quota. Account Executives usually have a target of how much revenue they should generate per quarter. The individual quota per seller is based on the company’s overall annual target.
For example, a company wants to increase its sales by 10 million dollars in one year and has 10 Account Executives. These 10 million dollars are then distributed among the 10 AEs. This usually takes into account whether they are Enterprise AEs or Mid-Market AEs, which often have different targets due to deal size and experience. The economic potential in a territory should also be taken into account. In the industry, a rule of thumb is that if 80% of the AEs achieve 80% or more of their quota, then the quota has been set well.
Fun fact: Companies almost always plan a buffer between their actual revenue target and the targets for the sales team. If the company wants to grow by 10 million dollars in a year, it would be more realistic to set the total sales quota at 12-13 million dollars.
KPI/Activity Quota
Another type of quota is a KPI/activity quota. This type is pretty common for SDRs/BDRs who aren’t selling yet. For example, the quota could be based on the number of sales accepted leads. We’ve also seen in practice that there are KPI/activity quotas for ramping Account Executives, which means Account Executives that are just starting a new job.
Volume Quota
This type of quota is set based on the volume of sales, which could be measured in units sold or the number of new accounts secured. This is perhaps the most straightforward quota type and is commonly used across various industries. However, we haven’t noticed this quota being used in Tech Sales.
Setting Sales Quotas
Criteria for Setting Effective Sales Quotas
To set effective sales quotas, you’ve got to understand market conditions, the company’s business objectives, and the capabilities of sales personnel. Quotas should be challenging but doable to keep the sales team motivated. Even if sales will never be 100% fair, it’s important to make the quota and the opportunity to achieve the target as fair as possible. This means, for example, that every seller in a market segment (e.g., SMB, Mid-Market, or Enterprise) has the same number of accounts. In the case of geographical regions, a potential analysis should be carried out for the region. For example, California naturally has significantly more potential than Nebraska.
Challenges in Setting Sales Quotas
One of the main challenges in setting sales quotas is balancing ambition with realism. Quotas that are too high can demotivate staff, while too low quotas might not push the team enough to achieve optimal performance.
Best Practices in Sales Quota Planning
Effective quota planning involves aligning quotas with business goals, using historical sales data, and adjusting for future market expectations and economic conditions. We are also of the opinion that sales quotas should not be capped. If a company wants to attract and retain top performers, they should definitely reward them for going above and beyond.
Sales Quota Strategies
Individual vs. Team Quotas
Deciding whether to set quotas on an individual or team basis depends on the nature of the sales process and the overall sales strategy. A team quota can make a lot of sense for early-stage start-ups. If product-market fit hasn’t been achieved yet, deals fail due to the maturity of the technology and there’s a lot of uncertainty overall. Then a team quota spreads the risk and ensures sellers don’t go away empty-handed despite hard work. In more mature organizations, where the overall conditions for success are in place, individual quotas may make more sense. They reward the hard-working sellers and prevent free riders.
Use of Historical Data in Quota Setting
Utilizing historical sales data to set future quotas can help make the targets more accurate and achievable. If, for example, an organization develops and gets more brand awareness and inbound leads and this in turn helps the seller to close more deals, then the quota is usually adjusted.
Integrating Market Trends and Economic Factors
It’s essential to consider broader market trends and economic factors when setting sales quotas to ensure they are realistic and relevant.
Accelerators and Deaccelerators
To reward performance, it is common to introduce accelerators and deaccelerators.
An example of an accelerator could be that if more than 100% of the target is achieved, each additional percentage point is rewarded with a factor of 1.25. This ensures that top performers remain motivated even after reaching 100% of the target and do not push deals into the next quarter.
Deaccelerators, on the other hand, mean the opposite. For example, if less than 50% of the target is achieved, only a factor of 0.75 is paid out for each percentage point. The idea behind this is to penalize poor performance.
Example for Accelerators and Deaccelerators:
| Quota Attainment | Payout Faktor |
| <50% | 0.75 |
| 51%-100% | 1 |
| 100%-150% | 1.5 |
| 150%-200% | 2 |
| 200%-250% | 2.5 |
| 250%+ | 1 |
Technology and Sales Quotas
Role of CRM Systems in Managing Sales Quotas
Customer Relationship Management (CRM) systems play a crucial role in tracking sales activities, customer engagements, and ultimately in managing and setting sales quotas. A well-maintained CRM system allows Sales Operations to build meaningful reports that show how many accounts are in a territory/account set that correspond to the ICP/economic potential.
Analytics and Data-Driven Approaches
Using advanced analytics can help in accurately forecasting sales trends and in setting more precise sales quotas. The range of tools can be very broad. For example, there are revenue intelligence solutions that help gain better insight into existing deals. Other tools can be databases that provide more insight into the economic potential of a region/territory.
Conclusion
Sales quotas are a big part of sales management. They’re crucial for keeping sales teams motivated and for driving business success. When set right, they help achieve business objectives and support strategic planning and performance management. As markets continue to evolve, the approaches to setting and managing sales quotas have to change, too, so they stay relevant and motivating. Join the Tech Sales Temple Forum to discuss topics like Sales Quota with other professionals.