There is a lot of buzz in the sales world around rep performance. One study done by SalesInsights Lab found that only 24.3% of salespeople exceeded their quota last year. The challenges in the selling environment are evolving every year.
Does the process of setting quotas and goals need to evolve, too?
Your sales team is likely motivated by three things: personal accomplishment, recognition, and of course, compensation. Quota attainment, in part, starts with the right compensation plan (Comp Plan).
The goal of your comp plan is to incentivize behaviors for your sales team to perform at a high level.
And close Deals.
So how do you ensure your quotas are attainable and your team gets paid?
The Correct Compensation Plan
There are many ways that your company can design a comp plan. Keep in mind that there are typically quotas within all levels of the sales organization, from sales development reps up to CROs.
With your sales reps, it's essential to think deeply about the ramp rate for new reps.
An unrealistic goal means you will miss your goal, or your new reps won't believe the goal is achievable, thus failing to meet the quota.
It's also essential to include a buffer for your quota. Use historical data to understand your team's current and previous quota attainment if you have access to it.
What is a Quota?
A quota is a numerical target set for your individual or team to reach within a specific timeframe. Sales teams, from reps to managers, all have quotas. They help set benchmarks, goals, and expectations. Knowing how to forecast how much revenue will come into the business is the key, and quotas are a part of that.
For example, if your team has a quota attainment rate of 40%, assuming your team will hit even 90% will set the entire organization up for failure. So don't forget your buffer between the plan and the quota! The percentage can be anywhere from 15-30%, but use any historical information to help guide you.
Sales Development Representative (SDR) or Business Development Representative (BDR)
The reps on the frontline are responsible for following up with inbound leads and generating opportunities. The quotas for these reps can be set with a combination of targets.
SDR and BDR Quota Examples
The following example can incentivize reps to generate a quality pipeline and not just set meetings with prospects who aren't a good fit for the company.
- Meetings Booked Target
- Number of Qualified Opportunities Created
- Total Amount of Opportunities Closed-won
SDR or BDR Manager
SDR and BDR Manager Bonus Structures
The SDR or BDR manager's quota can simply be a rollup of the team's quotas or include bonus components such as:
- Direct Commission Plans: Pay a higher commission rate for valuable deals
- Team Bonus Structures: Set a group sales goal and pay a certain percentage or fixed bonus
- Flat-rate Bonuses: Pay a fixed bonus for each milestone, such as $500 for every $2,000 in each new account
Typically, AEs have quotas set from the capacity planning exercise in the form of revenue they must generate for the company to meet annual targets.
If these are set at the annual level, monitoring Salesforce or Hubspot for closed-won opportunities and their amounts will be necessary.
Sales Leader (Directors, VPs, and above)
As for each of the quotas for reps, leadership's quotas should be goal-based and clear. Of course, overall company revenue is the goal.
But some other goals could include:
- Improving top-line new business growth
- Increasing revenue per customer
- Increasing the number of long term contracts
- Reducing churn / increasing lifetime value (LTV)
- Improving net revenue retention
- Increased renewal rates
Revenue recognition will also be necessary when designing the comp plans and setting quotas. What is the unit of measurement for revenue in your company (ARR, MRR, Total Sales, etc.)?
What is Revenue Recognition?
Revenue Recognition is a Generally Accepted Accounting Principle (GAAP) according to which revenue can only be recognized once a "critical event" has occurred. In the world of SaaS, this usually refers to when products or services outlined in an agreement have actually been delivered.
Spoiler alert, your data accuracy will be critical to the revenue recognition process!
2. Accurate Data
Once you have your plan, you will need to ensure that all your sales data is captured and accurate. There are many entry points, and data can be automatically or manually captured.
Most importantly, that data needs to correctly be passed across your entire revenue engine; the integrity of contract data is absolutely essential.
Data Integrity, from Quote to Close... and Beyond.
Dates are another critical data point that needs to be accurate.
For example, deals created or won in a previous fiscal year might not apply to current quotas or payouts.
This means deal information must be accurate and contract information that lives in the CRM, such as the date the contract was signed, or the products and services included.
Some companies build CRM hygiene into their comp plans to ensure reps enter the information correctly.
We all know that accurate data affects the reps' commissions and payouts and impacts forecasting and other critical analysis across the organization.
All your revenue numbers that live in your CRM need to be correct for finance and accounting teams to payout leaders and reps and report correct numbers to leadership and make business decisions, including designing compensation plans!
Once you start getting data on your sales team's historical performance, you can start using it to inform your enablement strategy.
Part of the enablement strategy should empower the sales team to hit their goals.
With historical data, you can understand which reps are hitting their quotas and which reps aren't. And then, you can develop a plan to help underperforming reps hit their targets.
For example, building sales playbooks with plays around demo meetings, call objections, and cold emailing could help the BDRs generate more qualified opportunities. This could help AEs close more deals by giving better demos.
Your enablement person can increase the revenue-generating capacity per sales rep through content management, communication, and training. When that increases, the likelihood of achieving and surpassing the quota also increases.
Whatever method you choose for your sales compensation and capacity planning, it's essential to set quotas appropriately.
Remember: make sure they're clear and realistic.
Quotas are a critical part of every sales organization, you just have to be sure yours set your team up for success.