Where Does My Quota Come From?

The RevOps Truth

Have you ever asked yourself how an account executive quota is calculated? If so, and you’re still looking for answers, you are in the right place. I want to take the next couple of mins to explain to you how your Quota is calculated.

Quota

Establishing a quota is not complicated. RevOps looks at the average selling price, how many deals a rep can realistically handle per year, and then adjusts this to a stretch goal, usually between 5 and 15 percent. The intent is to incentivize stronger performance. The calculation is based on historical averages, which means it already includes underperformance. The goal is to raise the bar, not lower it.

Average Selling Price x Realistic # of Deals x Stretch goal = Quota

So, let’s look at a practical example. In Sole Inc, reps have averaged 19 deals with a sales price of $56k. If I assume a 5% improvement in both deal size and productivity, the calculation is: 19 deals × 1.05 × $56k × 1.05 = $1.173M quota.

Ask-Me-Anything

Do quotas increase when company goals increase? Not always, and not necessarily. RevOps may recommend quota increase only if >80% of individuals are hitting quota. This decision should not be rushed, as it has a significant impact on morale and retention. RevOps and leadership will resource to a series of alternatives (e.g., hiring, new markets, new motions, new teams, pricing, product, or enablement initiatives, among others) to achieve the company number.

Who ultimately decides my quota? The VP of Sales and CRO. In smaller companies, front line leadership may be able to provide feedback for the leadership team, but not in larger organizations.

Is this quota taking general company numbers? Ideally not. Ideally, quota should be set by segment/division and geographically. While you may end up with the same numbers, it is important to do the right analysis to reduce risk due to incorrect assumptions. Timeframes are also important. Usually, we look at a rolling 12–18 months. Note that every company may choose to do this slightly differently based on their own circumstances.

Why is it adjusted for stretched performance? Reality is that the business is constantly doing things to reduce friction and increase revenue. This can come from any area of the business, such as: investments in AI to augment AEs productivity, improvements in the process, product roadmaps, pricing initiatives, enablements of any kinds, etc. Because of this, it is realistic to expect improvements in the outcomes of the AE.

How are quotas for new segments, territories or products set? The short answer is that those are based on benchmarks, assumptions and/or market research. Regardless of the approach, it is RevOps responsibility to make sense and justify these numbers. Most often than not, we have something to work with and make assumptions.

How was my territory valued before assigning my quota? Territory planning is likely my favourite thing to do. A good territory analysis would look at both leading and lagging indicators to, one, validate territory potential, and two, to ultimately work out a fair distribution.

Do territory changes impact quota? Generally speaking, territory has typically a bigger impact on farming roles (account managers, customer success reps, renewal-focused AEs), not hunter roles (new business AEs, outbound SDRs). This is because quota for farmers is based on the portfolio of assigned clients and upside potential. Hunters on the other hand are challenged to find the demand.

If I ran the numbers myself, would I get the same answer? Based on what we are discussing, you should get to the ballpark. There are assumptions that you may have no context for that may explain the difference. My recommendation would be to ask your leadership/RevOps team to explain it.

Are quotas (or anything) ever adjusted mid-year if assumptions break? Transparently, I have never seen this. The board and CEO may agree that more time is needed for execution, adjustment, etc, but are unlikely to agree to changes in goals. The CEO will be responsible for shifting resources and plans, but the goal is unlikely to change. Keep in mind that the board has its own team of experts reviewing and validating the plan, so if initially agreed, it means that there is a path.This said, I always encourage conversation. If your role is dependent on product releases or strategic initiatives/investments that have failed, you may want to have the conversation about quota relief.

What is my leadership thinking! Even when it may not look like it, they are giving their best for the plan to be sound and successful. Do not forget that it is in their best interest for the plan to be successful. They are in business for money, not to torture people with crazy goals or territory changes! Jokes aside. Not only that planning is complex, because of all the alternatives and components that play a role, but also because of the nuances and risk of flawless execution. After all, let’s keep it real, execution is the hardest part.

The Bottom Line

Understanding how your quota is set helps you have more productive conversations with leadership. If your quota feels unrealistic, come prepared with data: your territory analysis, competitive landscape changes, or resource gaps. The best quota discussions are collaborative, not confrontational.