How Sales Quotas Are Set

Sales Targets/Quotas should NOT be based on company need. Just because we "need" to "triple, triple, double, double" doesn't mean we can actually do it or expect sales reps to do it. This ignores reality. We need targets built on real historical numbers. Things like: - Close Rate - Sales Cycle - Average Sales Price - Inbound Pipeline Generation - Outbound Pipeline Generation - Average new Sales Rep Ramp Time - Our overall average Rep Attrition Rate Think about the path for reps to hit quota. 𝟭. 𝗜𝗻𝗯𝗼𝘂𝗻𝗱 𝗣𝗶𝗽𝗲𝗹𝗶𝗻𝗲 𝗚𝗲𝗻𝗲𝗿𝗮𝘁𝗶𝗼𝗻 Tripling the sales team doesn't automatically triple inbound pipeline generation. Unless we're doing something else, each rep will now have 1/3rd the lead volume from inbound to hit their target. 𝟮. 𝗢𝘂𝘁𝗯𝗼𝘂𝗻𝗱 𝗣𝗶𝗽𝗲𝗹𝗶𝗻𝗲 𝗚𝗲𝗻𝗲𝗿𝗮𝘁𝗶𝗼𝗻 I'm a BIG believer that reps should generate their own pipeline, but how much pipeline have reps been able to generate in the past? With 1/3rd the inbound, we can't just assume they will magically make up the difference by prospecting. Also, do we have enough good accounts in our TAM/SAM/SOM for them to prospect? 𝟯. 𝗥𝗮𝗺𝗽 𝗧𝗶𝗺𝗲 Obviously new reps are very unlikely to generate the same amount of outbound pipeline as our average ramped rep, so we need to take that into account in setting targets and quotas. 𝟰. 𝗥𝗲𝗽 𝗔𝘁𝘁𝗿𝗶𝘁𝗶𝗼𝗻 𝗥𝗮𝘁𝗲 Additionally, a certain percentage of reps will leave and pipeline generation will be impacted as a result. 𝟱. 𝗦𝗮𝗹𝗲𝘀 𝗩𝗲𝗹𝗼𝗰𝗶𝘁𝘆 We should now be able to more accurately predict the amount of pipeline we can generate each month/quarter based on our historic performance, the team we have today and those we expect to join us and also leave us. From here, what Close Rate can we expect for existing reps, new reps, inbound, outbound etc? What average sales price can we expect? What sales cycle can we expect? We need to factor all of this in to arrive at realistic targets and quotas. 𝗪𝗵𝘆 𝗱𝗼𝗲𝘀 𝘁𝗵𝗶𝘀 𝗺𝗮𝘁𝘁𝗲𝗿? We'll not only miss our these unrealistic targets but we'll perform even worse than we would otherwise. Our best reps will leave for better territories, quotas and commission elsewhere and the team remaining will feel defeated and unmotivated to tackle an impossible mission. 𝗛𝗼𝘄 𝗰𝗮𝗻 𝘄𝗲 𝗮𝗱𝗷𝘂𝘀𝘁? That all said, if we look at realistic numbers we can adjust our targets and quotas and/or adjust hiring, try to improve ramp time, close rates, etc. to get there. What am I missing here? What would you add to this? 🤔

Here’s an example of a simple formula I use to reverse engineer my quota. Step 1: Start with your annual target → Break it down by quarter and month. Step 2: Apply pipeline coverage → Based on your average win rate (let’s say it's about 30%), you’ll need 3-4x pipeline coverage. → Example: If your target is $1M, you’ll need about $3M in active pipeline. Step 3: Know your average deal size & sales cycle → Let’s say your average deal size is $50K and your sales cycle is about 65 days. That gives you a sense of how many deals you need and when you need to start working them. Step 4: Do the math → $1M ÷ $50K = 20 deals needed → 20 ÷ 30% win rate = about 67 qualified opps → Divide that by months and quarters to set activity targets → Example: about 6 closed-won deals per month = about 20 opps in pipeline per month at a 30% close rate. Step 5: Adjust early → Run this every quarter (or month). Don’t wait until Q4 to do the math. This takes the guesswork out of quota. If you’re a rep and haven’t done this math yet, I highly suggest doing it today. It will change how you plan, how you prospect, and how confident you feel going into every quarter. If you’re a leader, please teach this! It’s one of the best ways to set your team up to win before the scoreboard even starts.

No one hit quota for 8 months straight. The VP blamed the economy. I blamed the VP This conversation happened in a conference room VP: "The market's impossible right now. Nobody's buying" Me: "Show me your quota calculations" VP: "What do you mean?" Me: "How did you determine each rep needs to close $200K monthly?" Silence I saw that quotas were set by taking revenue goals and dividing by number of reps, zero consideration for market capacity, no analysis of historical performance, no adjustment for ramp time or seasonality and mathematical quota setting without reality checks I ran the actual numbers: → Average deal size is $15K → Average close rate is 8% → Average monthly qualified opportunities per rep is 12 The math: 12 × 8% × $15K = $14.4K monthly Their quota: $200K monthly They were asking each rep to perform 14x above statistical possibility We changed everything realistic quotas based on market data, achievable stretch goals with bonuses, monthly coaching focused on process improvement Three months later 5 out of 8 reps hit quota, team morale went from toxic to motivated and pipeline quality improved Your quota should stretch your team, not break them If nobody's hitting numbers for months, the problem isn't your people It's your math Set quotas based on reality, not wishes P.S. Do you have problems with sales? Check out my newsletter

Most AEs think the fastest path to $500K/yr is mastering closing. It’s not. The #1 factor that determines if you’ll ever see that kind of money? Your comp plan. Here’s a breakdown of what a “good” comp plan looks like: I’ve coached thousands of sellers. I’ve seen every comp plan under the sun. And here’s the truth: making $500K–$1M in tech sales isn’t just about hustle, mindset, or skill. It’s about driving the right vehicle. If you’re trying to win a Formula 1 race in a Prius, it doesn’t matter how great of a driver you are. Same with sales. You need the right plan, the right OTE, the right accelerators. Here’s the breakdown of what “good” looks like: 1. OTE (On Target Earnings). SMB → $100K–$150K Mid-Market → $150K–$200K Commercial → $200K–$250K Enterprise → $250K–$350K Strategic → $350K+ (yes, I’ve seen $400K OTEs) A healthy split is 50/50 base and variable. If you’re $200K OTE, $100K should be salary, $100K commission. 2. Quota to OTE ratio. This is EVERYTHING. Good comp plans follow the “6x rule.” Your quota should be ~6x your OTE. $150K OTE? Quota ~ $900K. $300K OTE? Quota ~ $1.8M. If you’re staring at a $200K OTE with a $2M quota… you’re underpaid. Period. 3. Commission percentage. Here’s how you know if your plan is good: Variable ÷ Quota = Commission %. 10%+? Solid. 5%? You’re basically working twice as hard for the same money. 4. Accelerators. This is where reps get rich. Great plans pay more the further you blow past quota: 100–150% = 1.5x 150–200% = 2x 200%+ = 2.5x Do the math: An Enterprise AE with a $300K OTE, $1.5M quota, and strong accelerators can hit $900K+ by getting to 300% of plan. That’s not a pipe dream. That’s how you turn a $300K “job” into a $1M “career.” TAKEAWAY Stop blaming yourself when you’re stuck at $150K. Sometimes it’s not you—it’s the plan. Top earners don’t just sell better. They pick the right vehicle, with the right comp plan, and then step on the gas. Choose wisely. Because the wrong comp plan = capped potential. The right comp plan = $500K+ career. Your plan matters. A lot.

Your SDRs need 40 meetings per month. Territory can generate 12. Quota is impossible by design. But nobody checks the math before setting the number. Here's how SDR quotas actually get set: Sales needs 10 meetings per AE to hit pipeline goals. You have 4 AEs. That's 40 meetings needed. You have 1 SDR. Give them a quota of 40 meetings. Problem solved. Except nobody asked if the territory can actually produce 40 qualified meetings. The math that matters: Total addressable accounts: 200 Accounts in active deals: 50 Accounts that went cold: 60 Accounts worth calling: 90 At 15% meeting conversion, that's 13 meetings per month maximum. SDR needs 40. Territory delivers 13. The gap is 300%. So what happens? SDR books unqualified meetings to hit quota. AEs waste time on bad demos. Everyone blames the SDR. The best companies work backwards from territory capacity, not sales team needs. Stop setting SDR quotas based on what you need. Start setting them based on what's mathematically possible. How many of your SDR quotas are based on territory analysis versus wishful thinking?

In the episode of #TheScienceOfScaling, I interview Loren Padelford, Founding CRO at Shopify.  Here are a few take-aways. (1) A key tactic Loren used in the first few months of developing the sales team was a daily film review. Every day, set aside an hour with the team. Assign one person to prepare a recording of a recent first sales meeting with a prospect. Listen to the call together for the first 30 minutes. Then, as a team, reflect on the buyer’s context and the execution of the call. Within days, patterns emerge. Use this routine to iterate on the core aspects of the sales playbook (i.e., Ideal Customer Profile (ICP), Buyer Journey, Discovery Call Guide, Customer Value Proposition (CVP), etc.). The film review frequency correlates to the team's pace of learning. This is an effective way to leverage the collective wisdom in the room and empower the founding sales team to contribute to creating the sales playbook. (2) Loren outlines in detail how he developed a bottom-up analysis of the sales funnel, illustrating how sales activities lead to meetings, which lead to the pipeline, and then to customers and revenue. Each week, the team theorized about where they could improve the funnel conversion, designed and executed experiments to facilitate those improvements, and institutionalized the experiments that worked. The unique aspect of Loren’s approach, which I rarely see, is that he used the historical performance of the Shopify sales activity and conversion funnel mapped against a 40-hour workweek to set the AE quota. Most sales leaders use the quota from their last company or market benchmarks to dictate the quota. The latter approach pigeonholes you into mediocrity.  Loren’s approach leaves space to break new ground.   (3) At the end of the call, Loren opened up personally regarding the holistic demands of life, both personally and professionally, as an executive. It is so easy to get caught up in the energy, excitement, pressure, and stress that comes with leading a company to a $100B market cap. Maintaining holistic balance is challenging. Proactively manage this through “timeboxing”. Three weeks before each month lay out your calendar. First, block out personal priorities, like family and health, then block out your work time. This approach helps you pre-establish your desired balance each week and loosely control how it unfolds as scheduling pressures arise each week  Check out the full episode here: https://lnkd.in/e-wH5h5G

“If we don’t reduce sales quota next year, I’m leaving!” The words that nearly got me fired. But allowed me to keep my job a year later Here’s what happened I worked at a company where the entire plan was built off sales quota Hire more heads, close more revenue Bonkers. I know. But many people did it After a year of sales reps leaving because they weren’t earning money and they felt frustrated we weren’t hitting our team goals Enough was enough Instead of just saying “we need to reduce quota” I decided to learn about the economics of a seller I learnt about multiples of OTE eg if a seller does $1m in sales and earns $200k you’re at 5x Then what this meant for the company. Turns out 4-5x is good We were at 7x with a reduced target 🎯 Then I positioned the LTV as we had good retention. Even with a lower target, payback over time is $x. So this further justified the reduction 🤟 Then I calculated the cost of losing reps because we didn’t have enough pipeline to support that number. It was millions 😱 I presented this to the board and said “If we don’t reduce sales quota next year, I’m leaving” They went with it instantly The following year nobody left We improved performance with zero additional spend We beat our annual target when we’d missed by a mile the previous year Quota matters If it’s calculated correctly, it can motivate an entire team as they all of a sudden believe Don’t fuck with quota. Understand it and make it realistic for people to hit. Everyone wins

A too common blunder when crafting a commission plan: Starting with the payout % you want to pay—and building backwards from there. Your payout % is an output—not a starting point. It’s determined by the variable portion of the OTE and the quota. Not the other way around. Here’s how to get in the right ballpark: -Benchmark OTE using market comps that reflect the role’s scope and sales motion -Define the base/variable split (50/50, 60/40) -Set quotas. A "finger in the air" starting point is a 2x OTE annual quota, ramping up to 5x+ as you scale. (Adjust based on ACV, average sales cycle, inbound demand etc.) (Variable Comp ÷ Annual Quota) x 100 = Payout % Don’t reverse-engineer your plan from the payout % you think “feels right.” Let the math and market lead you there.

If you're in sales, you need to hear this. Because most reps think their quota was set through deep analysis, AI models, market intelligence, and months of strategy work. Nope. Let me tell you how it actually happens in the majority of cases (especially with early-stage companies) because I’ve been in those rooms for 20+ years. It usually sounds something like this: CEO: “We did $3M last year… so let’s aim for $9–10M next year.” CFO: “Love it. Looks great on the board deck.” Board: “Perfect. Growth story locked.” CRO: “ummmm… ok this is cool, but how are we doing this?” And then the fun begins. Nobody’s talking about: → CAC → Win rates → Sales cycles → Pipeline quality → Territory coverage → Product readiness Nope, they’re reverse-engineering a number and hoping the math magically works. Then someone says: “Can we just… increase quotas and add a few reps?” “Wait  let’s just get them to work harder!” And boom - YOUR number is born. Not from data but from hope. Here’s the part nobody tells you: A delicious cake starts with the ingredients.  A great year of hitting quota starts with the ingredients.  They start with truth. ✔ What does our current engine actually produce? ✔ What levers do we realistically control? ✔ What talent do we have, and what talent do we need? ✔ What risks exist in the system today? That’s where real revenue planning comes from. After decades in GTM, here’s my rule: If the target isn’t tied to data, capacity, and repeatable motion, it’s just a wish. And wishes don’t pay bonuses.

Zimmer Biomet absorbed four leadership restructurings and three territory realignments in three years. In 2024, an ERP implementation disrupted shipping levels and forced a guidance revision mid-year. The quota did not move. One in three Zimmer reps missed their annual number last year. The industry average is not much better — 45% of MedTech reps miss their annual quota. Finance builds the target backward from a revenue goal. The field knows the number is wrong on January 1. Nobody in a position to change it is listening to the field. This is not a Zimmer problem. It is a structural problem across MedTech commercial organizations. Finance builds quotas top-down. Revenue target divided by territory count, adjusted for market growth assumptions. Those assumptions do not include ERP disruptions, territory coverage gaps during restructuring, or the quarter a senior surgeon retired and took $400,000 in annual revenue with her. The reps who hit their number are not performing better. They have protected territories. The reps who miss tell Finance the quota was the problem. Finance looks at the revenue model and sees nothing wrong with it. The commercial leader who fixes this does not negotiate with Finance over the quota number. They bring Finance the field data — territory by territory, account by account — and build the quota from the ground up. Finance cannot argue with market reality when you show them the market. What does your revenue model know about your accounts that your reps do not? Now reverse the question. #MedTech #CommercialExcellence #SalesLeadership #QuotaSetting