A sales quota is a target amount of sales that a salesperson or sales team is expected to achieve in a given period of time. Quotas are typically set by sales managers and are based on factors such as the company’s overall sales goals, the salesperson’s experience and track record, and the market conditions.
How to set a quota: Follow 3 rules
Rule 1: Sales reps have to pay for themselves
Your reps should generate revenue that is equal to some multiplier of their on-target earnings (OTE).
For instance, our recommendation is that your quota multiplier should fall between 3 to 8x that of your team’s OTE, although this will depend according to industry, experience, location, and size of the company.
Here’s an example:
- Rep has an OTE of $120K.
- Add a 5x multiplier to stay within industry standards
- Quota = $600K
Now you’re ready to determine if your quota cycle is monthly, quarterly, or annually.
Rule 2: Factor in sales cycle length and average sales price to set quota frequency.
In our Sales Compensation Trends Report, we found that companies most often rely on your average sales price and sales cycle length to set quota periods. Larger deal sizes and longer sales cycles were more likely to yield annual quota periods.
What’s more, most companies followed quarterly cycles than monthly or annual quotas.
You can also factor in the stage of your company. If you’re an older and established company, you can likely account for longer quota periods. Reversely, startups that want to create a sense of urgency with their reps will typically have shorter quota cycles, such as a monthly cadence.
Rule 3: Quotas have to be realistic
Don’t set too high of quotas. Just don’t. If sales reps don’t see a path ahead to achieve quota, they’re going to leave.
Now, that’s not to say that 100% of your team should hit their quotas. Because if everyone is, that likely means your quotas are too easily obtained (although we’d want to see how far over target they are before making that assumption). We think a good standard to follow is that 80% of reps should hit quota every month or quarter.
Recommended reading: What is considered a good quota attainment rate?