Quota Setting
Definition
Quota Setting is the process of assigning revenue or pipeline targets to individual sales reps and teams based on capacity, territory potential, and company goals.
Why It Matters
- Accountability: Clear performance expectations
- Motivation: Achievable but challenging targets
- Planning: Capacity-based quotas drive hiring needs
- Fairness: Equitable distribution of opportunity
- Forecasting: Aggregate quotas = team capacity
Quota Setting Principles
1. Top-Down (Company Goal Driven)
Company Revenue Goal → Territory Targets → Team Quotas → Individual Quotas
Pros: Aligned with business objectives Cons: May not reflect market reality
2. Bottom-Up (Capacity Driven)
Individual Capacity → Team Capacity → Territory Capacity → Company Achievable Revenue
Pros: Realistic, achievable Cons: May undershoot growth ambitions
3. Hybrid (Best Practice)
Top-Down Target: $50M
Bottom-Up Capacity: $45M
Gap: $5M
Resolution:
- Increase quotas by 10% (stretch)
- Hire more reps (close gap)
- Adjust target (realistic revision)
Quota Setting Framework
Step 1: Set Company Revenue Target
Example: 2026 Planning
2025 Revenue: $40M
2026 Goal: $50M (25% growth)
New ARR Target: $10M
Step 2: Allocate to Territories/Segments
Territory Allocation:
| Territory | 2025 Actual | 2026 Target | Growth |
|---|---|---|---|
| North America East | $12M | $15M | 25% |
| North America West | $10M | $12.5M | 25% |
| EMEA | $10M | $13M | 30% |
| APAC | $8M | $9.5M | 19% |
| Total | $40M | $50M | 25% |
Step 3: Calculate Required Capacity
Formula:
Required Capacity = Territory Target / Expected Attainment %
Example: North America East
2026 Target: $15M
Expected Attainment: 85%
Required Capacity: $15M / 85% = $17.65M
Step 4: Determine Rep Count
Formula:
Rep Count = Required Capacity / Standard Quota per Rep
Example:
Required Capacity: $17.65M
Standard Enterprise AE Quota: $1.4M
Rep Count: $17.65M / $1.4M = 12.6 ≈ 13 reps
Step 5: Set Individual Quotas
Three approaches:
A. Equal Quotas (Simplest)
13 reps × $1.4M = $18.2M capacity
Expected Revenue: $18.2M × 85% = $15.5M (exceeds $15M target)
Pros: Simple, fair Cons: Ignores territory differences
B. Differentiated by Territory Quality
Territory scoring:
| Rep | Territory | Score | Quota |
|---|---|---|---|
| Tom | Enterprise (High) | A | $1.6M |
| Sarah | Enterprise (High) | A | $1.6M |
| Jessica | Enterprise (Medium) | B | $1.4M |
| Kevin | Mid-Market | C | $1.0M |
Pros: Fair based on opportunity Cons: Complex to score territories
C. Differentiated by Experience/Tenure
Experience-based:
| Rep | Tenure | Experience | Quota |
|---|---|---|---|
| Tom | 3 years | Senior | $1.6M |
| Sarah | 2 years | Mid | $1.4M |
| Mark | 6 months | Ramping | $0.7M (50% ramp) |
Pros: Accounts for rep capability Cons: May demotivate newer reps
Worked Example: North America East 2026 Quotas
Context
Territory: North America East 2026 Target: $15M Current Team: 13 reps Role Mix: 7 Enterprise AEs, 6 Mid-Market AEs
Step 1: Set Standard Quotas by Role
Enterprise AE Standard Quota: $1.4M
Mid-Market AE Standard Quota: $1.0M
Step 2: Calculate Initial Capacity
Enterprise: 7 reps × $1.4M = $9.8M
Mid-Market: 6 reps × $1.0M = $6.0M
Total Capacity: $15.8M
Expected Revenue (85% attainment): $15.8M × 85% = $13.4M
Gap: $15M target - $13.4M expected = $1.6M short
Step 3: Close the Gap
Option A: Hire More Reps
Need: $1.6M / 85% = $1.88M more capacity
Hires: $1.88M / $1.4M = 1.3 ≈ 2 more Enterprise AEs
New Capacity: $15.8M + $2.8M = $18.6M
Expected Revenue: $18.6M × 85% = $15.8M ✅ (exceeds target)
Option B: Increase Quotas (Stretch)
Increase by 10%:
Enterprise: $1.4M × 1.1 = $1.54M
Mid-Market: $1.0M × 1.1 = $1.1M
New Capacity:
Enterprise: 7 × $1.54M = $10.78M
Mid-Market: 6 × $1.1M = $6.6M
Total: $17.38M
Expected Revenue: $17.38M × 85% = $14.8M (close, but still $200K short)
Option C: Hybrid (Hire + Stretch)
Hire 1 more Enterprise AE: +$1.4M capacity
Increase quotas by 5%:
Enterprise: $1.4M × 1.05 = $1.47M
Mid-Market: $1.0M × 1.05 = $1.05M
New Capacity:
Enterprise: 8 × $1.47M = $11.76M
Mid-Market: 6 × $1.05M = $6.3M
Total: $18.06M
Expected Revenue: $18.06M × 85% = $15.4M ✅ (meets target)
Decision: Option C (Hire 1 + 5% stretch)
Step 4: Assign Individual Quotas
Final 2026 Quotas:
| Name | Role | Tenure | 2025 Attainment | 2026 Quota |
|---|---|---|---|---|
| Tom | Enterprise AE | 3 yrs | 110% | $1.47M |
| Sarah | Enterprise AE | 2 yrs | 95% | $1.47M |
| Jessica | Enterprise AE | 18 mo | 105% | $1.47M |
| Mark | Enterprise AE | 1 yr | 85% | $1.47M |
| Rachel | Enterprise AE | 2 yrs | 100% | $1.47M |
| David | Enterprise AE | 3 yrs | 120% | $1.47M |
| Chris | Enterprise AE | 2 yrs | 90% | $1.47M |
| New Hire | Enterprise AE | New | - | $1.47M |
| Kevin | Mid-Market AE | 2 yrs | 95% | $1.05M |
| Lisa | Mid-Market AE | 1 yr | 75% | $1.05M |
| Amanda | Mid-Market AE | 18 mo | 100% | $1.05M |
| Mike | Mid-Market AE | 2 yrs | 110% | $1.05M |
| John | Mid-Market AE | 1 yr | 85% | $1.05M |
| Emma | Mid-Market AE | 3 yrs | 105% | $1.05M |
Total Capacity: $18.06M Expected Revenue: $15.4M (85% attainment)
Quota Attainment Targets
Healthy Distribution
Target curve:
| Attainment | % of Team | Interpretation |
|---|---|---|
| < 50% | 5-10% | Bottom performers (PIP or exit) |
| 50-80% | 15-20% | Below expectations (coaching) |
| 80-100% | 30-40% | On track (core performers) |
| 100-120% | 20-30% | Exceeding (reward) |
| 120%+ | 10-15% | Top performers (promote) |
Average team attainment: 85-95% is healthy
Red Flags
🔴 Too many missing quota (< 70% avg attainment):
Problem: Quotas too high, or poor enablement
Fix: Lower quotas or improve training
🔴 Too many hitting quota (> 110% avg attainment):
Problem: Quotas too low, leaving money on table
Fix: Raise quotas next period
🔴 Bimodal distribution:
Problem: 50% at < 50% attainment, 50% at > 120%
Root cause: Territory imbalance or poor hiring
Fix: Rebalance territories, improve hiring
Quota Adjustments Mid-Year
When to Adjust
✅ Adjust when:
- Territory changes (account reassignment)
- Role changes (promotion to manager)
- Extended LOA (> 4 weeks)
- Market shifts (major customer loss)
❌ Don't adjust for:
- Individual performance (quota is the target, not moving target)
- "Fairness" requests (maintain consistency)
- Short-term fluctuations
How to Adjust
Example: Rep promoted to Manager mid-year
Rep: Tom
Current Quota: $1.4M annual ($350K/quarter)
Promotion: July 1 (start of Q3)
Options:
Option A: Prorate Individual + Add Team Quota
Q1-Q2: $350K × 2 = $700K (individual IC quota)
Q3-Q4: Team quota $5M (as manager)
Annual: $700K individual + $5M team
Option B: Full Year Manager Quota
Annual: $5M team quota (Q3-Q4 prorated at 50%)
Q1-Q2: Retroactively count toward team quota
Option C: Hybrid (Best Practice)
Q1-Q2: $700K individual (completed as IC)
Q3-Q4: $2.5M team quota (50% of annual team quota)
Annual: $700K + $2.5M = $3.2M blended
Ramp Quotas for New Hires
Standard Ramp Schedule
6-Month Ramp (Most Common):
| Month | Ramp % | Monthly Quota | Calculation |
|---|---|---|---|
| 1 | 0% | $0 | $117K × 0% |
| 2 | 25% | $29K | $117K × 25% |
| 3 | 50% | $58K | $117K × 50% |
| 4 | 75% | $88K | $117K × 75% |
| 5 | 90% | $105K | $117K × 90% |
| 6 | 100% | $117K | $117K × 100% |
Assumes: $1.4M annual quota / 12 months = $117K monthly
Quarterly Ramp Quotas
New hire starts Month 1 of Q1:
| Quarter | Ramp % | Quarterly Quota |
|---|---|---|
| Q1 (Mo 1-3) | 25% avg | $88K |
| Q2 (Mo 4-6) | 92% avg | $322K |
| Q3 (Mo 7-9) | 100% | $350K |
| Q4 (Mo 10-12) | 100% | $350K |
Annual ramped quota: $1.11M (vs $1.4M full)
Quota Setting by Role
Enterprise AE
Typical Annual Quota: $1.4M - $2.0M
Factors:
- Deal size: $50K - $200K
- Sales cycle: 6-12 months
- Win rate: 15-25%
- Required pipeline: 3-4x quota
Benchmark: $1.4M for mid-sized SaaS
Mid-Market AE
Typical Annual Quota: $800K - $1.2M
Factors:
- Deal size: $20K - $80K
- Sales cycle: 3-6 months
- Win rate: 25-35%
- Required pipeline: 3x quota
Benchmark: $1.0M for mid-sized SaaS
SMB AE
Typical Annual Quota: $500K - $800K
Factors:
- Deal size: $5K - $30K
- Sales cycle: 1-3 months
- Win rate: 30-40%
- Velocity-focused
Benchmark: $600K for mid-sized SaaS
SDR (Pipeline Quota)
Typical Annual Quota: $400K - $800K pipeline generated
Or: 50-100 qualified meetings/year
Conversion:
If AE close rate = 25%
SDR pipeline quota = AE quota / 25% = $400K pipeline per $100K ARR
Best Practices
1. Set Quotas Annually, Adjust Rarely
Annual planning cycle:
Q4 prior year: Set quotas for next year
Q1: Lock quotas, no changes
Q2-Q4: Minimal adjustments (only for major changes)
Why: Consistency, fairness, motivation
2. Tie Quotas to Compensation
OTE Structure:
Base Salary: 50-60% of OTE
Variable (Commission): 40-50% of OTE
Commission: Tied to quota attainment
- 50% quota: 50% variable paid
- 100% quota: 100% variable paid
- 120% quota: 120%+ variable (accelerators)
3. Use Accelerators for Over-Performance
Accelerator example:
0-100% quota: 1.0x commission rate
100-120% quota: 1.25x commission rate
120%+ quota: 1.5x commission rate
Rep hits 130% of $1.4M quota = $1.82M
Commission payout:
- $1.4M @ 1.0x
- $280K @ 1.25x (100-120%)
- $140K @ 1.5x (120-130%)
= Higher than linear to reward top performers
4. Benchmark Against Market
Use data sources:
- Comp surveys (Radford, Pave, Option Impact)
- Peer companies
- Industry reports (SaaS Capital, OpenView)
Example benchmark:
Your Enterprise AE quota: $1.4M
Market median: $1.5M
Your quota is: 93% of market (slightly lower, easier to attain)
5. Review Quarterly
Quarterly quota review:
Q1: Assess Q1 attainment distribution
- Too many missing? Quotas too high
- Too many hitting? Quotas too low
Q2: Minor adjustments if needed
Q3: Preview next year quotas
Q4: Finalize next year quotas
Common Pitfalls
1. Sandbagging (Quotas Too Low)
Mistake:
Set quotas low to ensure everyone hits
Result: 100% of team at 120%+ attainment
Problem: Left revenue on the table
Fix:
Target: 85-95% average attainment
Top 20% at 120%+
Bottom 20% at < 70%
2. Heroic Quotas (Too High)
Mistake:
Set quotas based on aspirational goals
Result: 10% of team hits quota, mass demotivation
Fix:
Hybrid approach: realistic quotas + stretch goals
Or: Hire more reps to close gap
3. Ignoring Ramp
Mistake:
New hire Month 1: Assign full $1.4M quota
Result: Rep misses badly, feels set up to fail
Fix:
Ramp quotas: Month 1 = 0%, Month 6 = 100%
Fair expectations
4. Unfair Territory Distribution
Mistake:
Rep A: Tier 1 accounts, high intent
Rep B: Tier 3 accounts, low intent
Both have same $1.4M quota
Result: Rep A hits 150%, Rep B hits 60%
Rep B feels unfair
Fix:
Adjust quotas by territory quality:
Rep A (Tier 1): $1.6M quota
Rep B (Tier 3): $1.2M quota
Or: Rebalance territories
5. No Capacity Math
Mistake:
"Let's give everyone $1.5M quotas!"
No check on: Do we have enough reps? Is it achievable?
Fix:
Capacity math:
Team capacity = Σ (individual quotas)
Expected revenue = Capacity × attainment %
Does this meet company goal?
Related Terms
- Quarterly Quota - Converting annual to quarterly
- Capacity Planning - Using quotas in planning
- RRE - Capacity-weighted headcount
- Gap to Target - Quota vs actual analysis
References
- Standard practice in B2B sales
- Annual quota planning cycle (Q4 prior year)
- Tie to compensation plans
- Review quarterly for health check