The start of a new fiscal year brings excitement about the possibility of achieving the next scale of your organization, a fresh new operating model…and quotas. Behind compensation plans, sales targets are routinely the most difficult communications to the sales team – both impact reps pay, but targets are much more tangible. Reps understand how hard they worked last year to hit their quotas, and adding a growth target on top of that (however justified) is completely demoralizing to the sales team. They feel exhausted after achieving quota from last year, so their immediate reaction to increases is negative. To combat this reaction, companies spend an inordinate amount of time double-checking their quota figures against historical account sales, pipeline figures, and whatever other metrics they can get their hands on in the interest of making quota more “accurate.” I’m telling you right now – 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?” Hear me out – the reality is that there is no such thing as an “accurate” quota – at the end of the day, quota is an arbitrary production assignment to a rep; good reps will overachieve and the poor ones will underachieve. This is the way sales has always gone – so why is sales ops still focusing on this concept of quota accuracy? Instead of putting their effort into calculating an “accurate” quota number, sales ops should focus on delivering fairquotas – and communicating the quota determination process to reps so they understand where quotas were derived. This is done in two critical components:
1. Quota Setting: Quota setting is the process through which the total quota budget is calculated – the starting point for any company’s strategic plan. Generally, the formula starts with the company’s revenue target, which is then uplifted to account for profit margin, customer retention rates, partner margin, etc. This (often secretive) process is really the root of reps’ complaints – 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. By showing reps why the overall quota number is what it is – and that the number being allocated is the best possible option – they will have the context to understand general increases in targets.
2. Quota Allocation: Allocation is the process through which companies take the number calculated during the quota setting process and distribute it to reps (more on that in a later blog post). Often overlooked, this is another critical piece of communication to reps – when they 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 to motivation. The end goal is that quotas are fair and logically derived – if your reps can’t follow the process then it raises the risk of unfair quotas. Note that nowhere in this post do I advocate that companies should arbitrarily assign reps a number – and that “inaccurate” quotas are ok; instead, I argue that companies should stop searching for the elusive “accurate” quota because that accurate measure is meaningless. Try to define what an “accurate quota” is and how you can apply it to your quota process. You’ll quickly find that it’s nearly impossible to define and adds little to no value in the quota process. If anything, using the term “accurate quotas” gives reps ammunition to reject quotas, resulting in multiple review cycles that add to sales ops workload. The point here is that the accuracy of the individual quota is an elusive exercise – only transparency across the quota setting and allocation process really matters to your reps.
Matt Haller is the founder of The Startup Seller, a consulting firm specializing in go-to-market planning for early and mid-stage startups. Matt is a thought leader in sales communications and messaging, compensation and quota design, and designing sales teams to drive growth. To learn more about his company, visit his website or connect with him on LinkedIn.
