• Matthew Haller

Stop Setting "Accurate" Quota. Set Fair Targets Instead

How to reduce quota communication challenges - and motivate your sales team to succeed

The start of a new fiscal year, quarter, or month brings excitement about the possibility of achieving the next scale of your organization - you’re looking forward to seeing how far you can take your rocketship company to the next level!

...and you’re also going to need to set quota.

Behind compensation plans, sales targets are routinely the most difficult messages to communicate to the sales team. While both the comp plan and quota impact reps pay, targets are much more tangible - as they go on dashboards and show how reps “stack up” against each other - and therefore elicit a stronger response from the sales team.

Reps understand how hard they worked last year to hit their quotas, and any time the company adds a growth target (however justified) feels like another mountain to climb. After working so hard to achieve last year’s quota, looking forward to next year seems like an impossible task.

So what does the company do? Often we decide that if we set “accurate” quotas, then the reps will understand how the company derived the target and magically fall in line and get ready to crush it.

I’m telling you right now - that rep reaction is a pipe dream, and making “accurate” quotas is a waste of your time.

As I write this, I can hear the metaphorical crowds gathering: “if our quotas aren’t accurate, then reps won’t trust us! Who would possibly recommend such a thing?”

The root of the issue here is how companies define accurate. Accuracy is defined as “correct in all details; exact.” When speaking about commissions, the key question here is accurate as compared to what? Are accurate quotas ones where reps are able to overachieve? If that throws off finance’s commission expense metrics, does that mean that the quotas are inherently “wrong”?

If we set quota such that it results in a perfect bell curve distribution, does that mean we did our job correctly? We in sales ops often get pulled in multiple directions, and nowhere is that more evident than in the quota setting process. Add in a mandate to make quotas “accurate” and you have to navigate the competing pressures from different business functions.

Instead of putting their effort into calculating an “accurate” quota number, sales ops should focus on delivering fair quotas - which implies a metrics-driven quota assignment approach that applies specific business logic to equitably distribute the company goal across different sales segments, teams, and reps.

This is an extremely important point - that we shift our mindsets from the pursuit of this nebulous “quota accuracy” target to something about which we can have a tangible, process-related discussion.

We typically recommend clients breaking out their quota setting processes into two buckets that answer the following questions:

What does the business need to achieve this year (and how much do I need to overassign)?: Called Quota Setting, this is the process through which the total quota budget is calculated - the starting point for any company’s strategic plan. Generally, this formula starts with the company’s revenue/bookings/sales targets, which are then uplifted to account for profit margin, customer retention rates, partner margin, etc.

This (often secretive) process is really the root of reps’ complaints because if the overall quota number is increased, then reps across the board will have to absorb that increase, which is where most number shock comes from. We often recommend companies explain how the total figures are derived to reps throughout any quota communication process because by showing what the company’s revenue goal is (something that is out of the control of most startup finance team), reps are brought along the quota setting journey.

It’s much harder to push back on a significant quota increase, for example, when the overall company growth target is large and needs to be accounted for across the same headcount plan for last year - and who can argue with that basic math?

How is the overall target allocated to reps?: Quota Allocation is the process through which companies take the number calculated during the quota setting process (above) and distribute it to reps (more on HOW to do that in a later blog post). Often overlooked, this is another critical piece of communication to reps because it is the step in the quota process that affects each person individually (and where many of our “is my quota accurate” comments originate).

When allocating quota targets to reps - like in the quota setting process detailed above - it’s important to follow a data-driven model that applies quota dollars to reps following the same logic. This doesn’t mean that all reps should have the same quota, but it does mean that there should be demonstrably, quantitative differences in each rep’s territory that justifies a higher or lower quota figure. That way, when the quota is communicated, reps have clear line of sight into the overall company objective, how that objective is uplifted to be distributed to sales, and how their specific number was determined.

If/when reps see their quota increase, they will naturally react, but by understanding how the company arrived at their quota - including all the key data points, process, and decisions required to determine final quota numbers - reps will quickly shift their mindset from mistrust and skepticism to understanding and motivation. The end goal is that quotas are fair and logically derived so as to promote rep trust in the organization.

Note that nowhere in this post do I advocate that companies should arbitrarily assign reps a number - because while there is no such thing as an “accurate” quota, it is very possible to set blatantly inaccurate ones! Instead, I argue that by definition, using “quota accuracy” as a metric is meaningless due to varying definitions of “accurate” across the organization.

By allowing finance, sales, or any other sales planning partner to incorporate this language into their vernacular, sales operations inherently sets itself up for failure because we will need to rationalize what “accurate” means to each function in the business. Instead sales operations can streamline the quota setting process by focusing on creating a transparent and equitable quota process that shows reps exactly how each number - from the overall corporate number to their specific target - is derived. Logic that, if done right, also gives the rep a direct roadmap to overachieving their quota.

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