4 clever tips to optimize your sales quotas
To steal a line from Mark Twain, the difference between the right quota and the almost right quota is the difference between lightning and a lightning bug.
Sure, you can get by with a mediocre quota. But if you were comfortable with a mediocre sales team, you wouldn’t be reading this blog post, would you? If you’re looking for help building your first sales quota, this might not be the right place for you, but there are lots of resources out there to help you with that.
So how can you take your existing quota and supercharge it?
Well, here are four pieces of advice to optimize your sales quota and take it from lightning bug to lightning.
1. Simplify your sales quotas
It seems like a strange first recommendation, but more often than not, sales quotas are too complex. If you have three different components to your sales quota (eg. new business quota, upsell quota, and renewal quota) then it’s likely too complex. Similarly, if different types of deals count toward a rep’s quota in different ways (eg. they only get 50% credit for an upsell, 1.5x credit if the deal is closed the first month of a quarter, etc.) you should consider simplifying.
Here’s what typically happens if you have multiple sales quotas: reps prioritize one quota over others. This could be fine, but reps may become overwhelmed with different quotas, different commission rates, and different product lines. Worst case scenario, they end up closing deals that don’t align with your company goals.
How can you simplify and optimize these quotas? Well, look at each of the different quotas with a fine tooth comb. Can you combine two different quotas into one? A common way of doing this is by combining new business and expansion quotas into one larger quota. If you have different quotas for different product lines, you might want to have one overall quota with different commission rates for the different products based on their margin.
2. Calculate it 2+ ways
There are a few different ways to calculate a quota, but you don’t have to pick just one! In fact, if you triangulate your reps’ quotas by using more than one of the methods below, you’re more likely to have an attainable, fair quota than relying on just one technique.
- OTE: Quota multiplier
A simple way to calculate quota is to take your reps’ On-Target Earnings (OTE) and multiply it by some factor to come up with an annual quota. As a reminder, OTE is equal to the rep’s annual base salary plus their annual commission if they were to hit quota every period. What multiplier to use is based on your industry, type of buyer, and revenue.
For example, a SaaS company with ~$30 million in revenue might have a 5x multiplier. In that example, if you have a rep with a $100k OTE ($50k base salary, $50k commission) then you would multiply that $100k by 5, making their annual quota $500k. If you aren’t at the $30 million mark yet, you might have a 2-4x multiplier. For companies that don’t have recurring revenue, this multiplier is typically higher, even as high as 10-15x.
- Based on historical data
Depending on who you ask, somewhere between 65% and 90% of your sales reps should hit quota. If you have historical sales data, you can use it to your advantage when building a sales quota. Let’s say you want 80% of your reps to hit quota. Gather each rep’s attainment over the past 2 years and set the quota at the 80th percentile of those attainments.
- Based on financial targets
Most companies have an annual financial target made up of new business, renewals, upsells/expansions, cross-sells, partnerships, etc. First, you’ll need to break out what portion of the overall financial target is dedicated to whichever team you’re building a quota for. Let’s say your overall financial target is $10 million this year and you’re expecting 50% of that to come from new business. So you need to generate $5 million from the new business team. If you have a team of 8 sellers, that means each of them needs to generate $625k this year.
If you do all three of these, do they line up? If not, there is possibly going to be an issue with quota attainment.
3. Don’t be afraid to change sales quotas (infrequently)
Quotas are not set in stone, but they should be set in clay… meaning you should be open to changing quotas. Bare minimum, you should review your quotas on an annual basis, but be open to reviewing them on an ongoing basis. As we all experienced in 2020 with the pandemic, business environments can change quickly. Here are a few situations when it would make sense to review your team’s sales quota:
- Your company launches a new product, drastically increasing sales
- A new competitor enters the market, taking a slice of your revenue
- There’s a drastic shift in buyer behaviors (for evidence, see Zoom’s stock price during 2020!)
- An acquisition, merger, or other corporate event means you have more marketing resources
- A new partner starts sending your sales team an influx of leads
- One of your data partners ceases operations, making your product offering less appealing to customers
Don’t be too quick to change a quota, though. Ask your CFO, they know it’s a lot easier to increase a quota than it is to lower the same quota. You don’t want to give your sales reps whiplash by changing their quota every single month, but if you have the same quota from when everyone was carrying a Motorola Razr, it’s time to review.
Okay so you’ve simplified your quota, made sure it’s calculated properly, and it’s regularly reviewed. Now’s the time to automate it. Sales reps should never question how far they are from their quota or ask “what’s my quota this quarter?” Instead, reps should have one central location where they can look to see where they stand vs. their quota, what their quota is, how their pipeline deals would impact their quota attainment, and even how they’re stacking up against their peers.
With the QuotaPath integration for Close, this couldn’t be easier. Your reps put their deals into Close’s CRM, Close takes that data and feeds it directly to QuotaPath. From there, QuotaPath calculates their quota attainment and commissions. No change to your current process, no bulky uploads, no human error. Plus, because sales reps, sales leaders, finance, and HR are all looking at the same numbers, there is never any second-guessing whether the data is correct or which spreadsheet is accurate.
Learn more about the new Quotapath integration for Close and start optimizing your commissions today.