Podcast episode
The Art & Science of Quota Setting: Get It Right or Lose Your Team | 30MPC Playbook (Lead)
30 Minutes to President's Club27 Feb 202538 min
Description
PLAYBOOK TAKEAWAYS: Aim for 70% attainment and 70% participation to create a winning culture. Avoid feast-or-famine environments where only a few reps succeed. Use historical data to set quotas based on pipeline, win rates, and deal size. Every quota increase must be backed by an investment in pipeline, win rates, or deal size. Revisit quotas once per year, unless there’s a massive skew in attainment. Communicate quota changes with transparency and clear justification. Avoid high attainment with low participation, which creates resentment and turnover. Quota planning should be a business decision, not just a sales decision. Keep top reps busy before adding more headcount to avoid diluting pipeline. Simple, fair comp plans drive engagement and motivation. RESOURCES DISCUSSED: Join our weekly newsletter Things you can steal 30MPC Training: 30mpc.com/training
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Maybe your commission plan is paying out too much at those different levels. And so that's where you start to have to do the calculation of, all right, what do we want our margin to be? And we look at the costs associated with that. If you're planning out a sales org, you can't control many of those costs, but what the costs that you can control are your commission costs. “And so you start to look at, okay, if we have this many reps that hit quota regularly and” these are our accelerators, this is what our cost structure needs to look like to fit inside the constraints, the stuff that we're given and don't have control over. As an executive of the company, my job is to take care of the company first. And people are always like, Mark, you got to take care of your employee's worth. You know what happens if you don't take care of your company? You know what happens to your employees? They lose their jobs.
And so that's where you start to have to do the calculation of, all right, what do we want our margin to be? And we look at the costs associated with that. If you're planning out a sales org, you can't control many of those costs, but what the costs that you can control are your commission costs. And so you start to look at, okay, if we have this many reps that hit quota regularly and “these are our accelerators, this is what our cost structure needs to look like to fit inside” the constraints, the stuff that we're given and don't have control over. As an executive of the company, my job is to take care of the company first. And people are always like, Mark, you got to take care of your employee's worth. You know what happens if you don't take care of your company? You know what happens to your employees? They lose their jobs. So you got to take care of the company first. People, Mark, what about your customers? You got to take care of your customers first.
in now, you want a rep to cry for mercy. You want them to be like, I cannot take any more deals. I can't spend all the money I'm making. Nobody would say that. But you have to get them to that point where it's just they're so busy that they can't take on any more. That means you need to open up “If you try to open up more revenue by just creating more capacity, you are in for a” problem because you probably don't have the pipe gen you need to support that. But you know what? If you have 90% of reps hitting 90% of their number, you can create capacity. If you have a hundred percent attainment, but 20% participation, guess what that means? Means you need to get rid of a bunch of underperforming reps and give more to your best reps until you're ready to hire more
So let's talk about setting the actual quotas. So we know that directionally, 70 to 80% attainment, seven to eight out of 10 reps. So 70 to 80% attainment, 70 to 80% participation. We want to be reasonably close. When we're actually setting quotas, it's pretty straightforward folks. If you want to know how much revenue someone can bring in, “the calculation is as follows. How much pipeline can that person generate? What are your win rates” on that pipeline? And then what's your average deal size? So if the average person gets five inbounds, four SDR meetings, and three self-sourced meetings, you add that stuff up, you apply a deal size to it, you multiply it by a win rate, and you have directionally
buckets, pipeline, win rates, and deal size, how does your calculation change for quotas? If you look back, you have 10 reps and you calculate how much they did each and divide that by 10, that would tell you what your quotas should have been if you wanted to plan on 100% “quota. That doesn't work. So like we talked about earlier, we got to plan for 70 to 80% in order to” take into account all these things. But ultimately, I think what you have to understand is any increase over the status quo must have a justifiable, reasonable investment somewhere else
to have 33% win rates like every other product. And then your average deal size will also change based on what that product's ACV is. So these are the types of variables that you can start to consider whenever someone is saying, Hey, I think we should increase quotas due to X or Y. “You can start to break it down into what actually happens to pipeline,” win rates, and deal size. And what is the investment that I'm going to ask from my organization to justify this quota increase? Pipeline, win rates, deal size, every action that your company takes, every investment that they make affects those three things. So when
I once received 15 different compensation letters and I was furious and I wish they just made one bigger increase once per year as opposed to 15 mini increases where I never knew where the target was going to be. Yeah. So my experience, I typically like these to be revisited “annually when we do the cutting of the territories, when we do all the headcount planning, all the capacity planning,” and unless there is a massive attainment skew up or down, you don't change them. But Mark, I'm curious what you've seen. The way that this works is finance and rev ops should be suggesting what quotas should be,
The moment you start opening up this negotiation every single quarter, it's going to get people distracted and focusing on lobbying for quota changes instead of just focusing on how they actually get the number up. You have to explain the mind of a salesperson to non-salespeople. So what does a salesperson do when they get their comp plan with their quota? “They immediately start dissecting it and looking for how do I get here?” And how do I maximize the amount of money I make? That's exactly what the comp plan is supposed to encourage, right? So now a rep spends two, three weeks looking at their accounts, figuring out how to make this work. This is how I plan it out. And then you change it in the middle of Q2, guess what just happened? You just lost two or three weeks worth of planning and work and now a rep is going to go do
Now we're not. And you know what? Look, we did a little bit on the acceleration side because we need you guys to carry a bigger burden. Once you get there, we want to reward you more. Now you start to give that give and get. And that's what all reps are looking for is they don't want to feel taken advantage of They don't want to feel like they're just a number. They want to feel like it's been thoughtfully considered what they're being asked to do. “We've talked about a lot of times comp plans have to be super simple, but you do need to” make sure that there's a balance there with components if you're going to raise a quota. Alrighty, folks. So let's recap. We talked about what is fair quota attainment, no losing locker rooms, 70% attainment, 70% participation. All right. No feast or famine item. Number two, we talked about how to forecast quota attainment.