What is a Sales Quota?
A sales quota is a specific sales target that a salesperson or sales team is expected to achieve within a defined time period - typically monthly, quarterly, or annually. The quota is the foundation of most sales commission plans and determines when the salesperson has reached their goal and thus earned their full variable pay.
Quotas can be expressed in different units: revenue ($), number of deals, new ARR, number of meetings booked, or other measurable results. For SaaS companies, quotas are typically set in new ARR (Annual Recurring Revenue).
A well-designed quota is ambitious but achievable - typically companies aim for 60-70% of the sales team to hit their quota. If everyone hits quota, it's probably too low; if no one hits it, it's too high.
Types of Sales Quotas
There are several different types of quotas that can be used alone or in combination:
1. Revenue Quota
The most common type where the goal is a specific revenue amount.
- Example: $500,000 in annual revenue
- Pros: Simple to understand and measure
- Used for: Account executives, senior salespeople
2. ARR Quota
Specific to subscription businesses where the goal is new annual recurring revenue.
- Example: $400,000 new ARR annually
- Pros: Focuses on long-term customer relationships
- Used for: SaaS salespeople, subscription sales
3. Activity Quota
Measures activities rather than results.
- Example: 50 calls per day, 10 meetings per week
- Pros: Controllable by the salesperson
- Used for: SDRs, telemarketers
4. Volume Quota
Focuses on number of units sold or deals closed.
- Example: 25 closed deals per quarter
- Pros: Simple to track
- Used for: Transactional sales, retail
5. Combination Quota
Combines multiple target types.
- Example: $300,000 revenue AND 5 new customers
- Pros: Balances different business objectives
Setting Sales Quotas
Setting the right quota is a balancing act between ambition and realism:
1. Top-Down Approach
Company revenue goals are distributed down to individual salespeople.
- Company goal: $10M new ARR
- Sales team: 25 reps
- Average quota: $400,000 per rep
2. Bottom-Up Approach
Quotas are set based on historical performance and market potential.
- Rep's historical performance: $350,000
- Expected growth: 15%
- New quota: $402,500
3. Territory-Based
Quotas are adjusted based on territory size and potential.
- Major metro: $500,000 quota
- Mid-size city: $350,000 quota
- Rural area: $200,000 quota
Quota and Commission Calculation
Quota is directly linked to commission calculation:
Example: Account Executive
- Annual quota: $400,000 new ARR
- Quarterly quota: $100,000
- OTE: $140,000 ($80,000 base + $60,000 variable)
- Commission rate: $60,000 / $400,000 = 15%
At 100% Quota Attainment
- Sales: $100,000 (quarterly quota)
- Commission: $100,000 × 15% = $15,000
- Total quarterly compensation: $20,000 + $15,000 = $35,000
At 120% Quota Attainment with Accelerator
- Sales: $120,000
- Commission on quota: $100,000 × 15% = $15,000
- Accelerator above quota (1.5x): $20,000 × 15% × 1.5 = $4,500
- Total commission: $19,500
Quota Periods
Quotas can be set for different time periods:
Monthly Quota
- Pros: Quick feedback, ongoing motivation
- Cons: Can create pressure, hard to smooth seasonal fluctuations
- Typical for: Transactional sales, SMB sales
Quarterly Quota
- Pros: Balances short and long-term, smooths fluctuations
- Cons: Can lead to "hockey stick" behavior
- Typical for: B2B SaaS, mid-market sales
Annual Quota
- Pros: Focus on strategic deals, long-term thinking
- Cons: Delayed feedback, risk of losing momentum
- Typical for: Enterprise sales, complex solutions
Quota Attainment and Performance
Quota attainment is a key metric for sales performance:
Typical Benchmarks
- Under 50%: Underperformance - requires coaching or plan
- 50-80%: Below target - potential for improvement
- 80-100%: Solid performance
- 100-120%: Strong performance
- Over 120%: Top performer
Team-Level Benchmarks
- Healthy distribution: 60-70% of team hits quota
- Too easy quota: Over 80% hit quota
- Too hard quota: Under 40% hit quota
Quota Ramp for New Hires
New salespeople typically receive reduced quota during an onboarding period:
Example: 6-Month Ramp
- Month 1-2: No quota (training)
- Month 3: 25% of full quota
- Month 4: 50% of full quota
- Month 5: 75% of full quota
- Month 6+: 100% of full quota
Best Practices for Sales Quotas
1. Set Realistic Goals
Quotas should be ambitious but achievable. Use historical data and market analysis as foundation.
2. Communicate Clearly
Salespeople should understand their quota, how it was set, and what's required to hit it.
3. Adjust for Seasonality
If your business has seasonal variation, quotas should reflect this.
4. Provide Ongoing Feedback
Use dashboards and reports to give salespeople visibility into their progress toward quota.
5. Evaluate and Adjust
Review quotas at least annually and adjust based on market changes and performance.
Related Concepts
- OTE (On-Target Earnings): Expected compensation at 100% quota attainment
- Quota Attainment: Percentage of quota achieved
- Commission Rate: Percentage of sales paid as commission
- Accelerator: Increased commission rate above quota
- Ramp: Gradual increase of quota for new hires
- ARR: Annual Recurring Revenue
Track Quota Performance with Prowi
Keeping track of quota attainment for your entire sales team requires reliable systems. Prowi gives you full visibility.
With Prowi you get:
- Real-time tracking of quota attainment per salesperson
- Automatic commission calculation based on quota level
- Dashboard with team performance and benchmarks
- Forecasting of expected quota attainment
- Historical analysis of quota attainment over time
Book a demo today and see how Prowi can optimize your quota management.