The art of defining sales quotas: Balancing fiscal responsibility with motivation

You're a revenue leader reviewing last quarter’s results, and the numbers are...not great.  

You’ve got reps who blew past their quotas so fast they’ve already checked out for the rest of the year, and then there are those who didn’t even come close—the reps who’ve been calling you, frustrated, burned out, and ready to jump ship.  

You start to realize the root of the problem: your quotas. They were supposed to push the team, but instead, they’ve left you with a handful of disengaged overachievers and a large pool of discouraged underperformers.  

So how did it all go wrong?

Setting sales quotas is not just about picking a number and hoping for the best. Similar to territory planning, it’s a delicate balancing act. If quotas are too high, you risk driving your team to exhaustion and killing motivation. If they’re too low, your top sellers will coast, and revenue will stagnate. It’s a knife’s edge, and when you miss the mark, it can turn your entire sales strategy upside down.

So, in our recent webinar, our resident experts Kyle Webster and David Gerardi—with 23 combined years of experience in quota setting, territory design, sales force sizing, and incentive compensation—dove deep into the art and science of setting quotas that not only drive performance but also motivate your sales team properly.  

Below, we’ll cover their key takeaways, but you can register below to get all the Masterclass sessions on-demand to watch, too.  

Why quota setting is so critical to sales strategy

Right out of the gate, Kyle and David established quotas are the North Star guiding your entire sales team, and when they’re wrong, everything tends to go sideways.  

As Kyle noted:

As Kyle highlighted, "While arguments can be made in either direction... No matter how well-designed your comp plan is, if a rep feels their quota is completely unrealistic, they’ll check out from day one."  

This underscores the importance of setting fair, data-driven quotas, as unrealistic ones lead to disengaged sales reps and missed targets.

For revenue and sales operations leaders, the stakes high. You’re not just responsible for individual reps hitting targets—you're responsible for ensuring that the entire machine works efficiently. Quotas need to align with broader financial goals, but they also need to reflect reality on the ground. As David explained, “[It's] a balancing act between the company’s overall revenue target and what your teams can realistically achieve.”

Miss that balance, and you’ll feel it everywhere. Sales reps start disengaging and revenue forecasts go from reliable to risky.  

But when quotas are fair, motivating, and aligned with your business objectives, everything clicks. Reps feel empowered to push for more, sales performance becomes more predictable, and you can finally take a breath knowing you’ve set your team up for success.

This is why quota setting is essential.  

So, what does a typical quota setting exercise ensuring alignment across all layers of the sales team hierarchy actually look like in practice?

The 5 critical steps in a robust quota setting exercise

At Forma.ai we've typically seen five primary steps, which our experts ran through in our Masterclass session:

1: Collaborating with finance to define the overall sales target number

One of the foundational steps in quota setting is defining the total number your sales team needs to hit, or the global or national budget that will be allocated down to the territory level. This is typically done in collaboration with finance, who provide the overall revenue target, picked up by RevOps or SalesOps, who then own the quota-setting process.  

You'll often get a total organizational number from finance, and it may be broken out by geography or product line. It's the number your quotas will need to cover.

2. Determining your quota allocation methodology

In step two, you determine the quote allocation methodology for each of the metrics that you'll measure the sales team on There are a variety of ways to calculate quotas, ranging from simple to advanced predictive analytics.

But ultimately, this step is about trying to identify predictive metrics based on the customer base the products that you're selling and historical performance to support a fair allocation of quota.

3. Testing and iterating on your initial quota calculations

In this step, you run quota calculations and test your methodology using data to see if your methodology is actually generating fair and accurate quotas. Steps three and two in this process are highly iterative. You'll run simulations, tweak the methodology based on your results, and keep doing this until you feel confident in the result.

4. Engaging sales managers for their insights and refinement

Before communicating the quotas broadly, giving sales management the opportunity to be involved, understand, and help refine quotas (applying their in-field knowledge) can lead to better outcomes. As Kyle shared this step helps with buy-in at the manager level. When these stakeholders are involved, they’re more likely to support the quotas when presenting them to their teams.

And finally...

5. Communicating the quotas to the team

Rolling out the quotas, the last step, will involve goal reports for various levels of sales management, and goal sheets for each rep.  

As a best practice, blend top-down vs. bottom-up quota setting methodologies

When it comes to quota-setting methodologies, David outlined the two main approaches briefly—top-down and bottoms-up.  

The top-down approach starts with a company-wide number, which is then allocated down to territories. For example, this would look like an overall US national budget being allocated to each respective state.  

Whereas bottoms-up looks at individual territory performance and applies growth factors to last year’s numbers, summing the result to create the broader, national total. As an example, this might look like state-level market share growth forecast aggregated to a national US budget.

The possible downside of either approach on their own?  

• A bottom's up quota setting methodology, when aggregated, may not satisfy the overall growth ambitions of the board or shareholders

• Whereas with top-down goal setting, this may be too aggressive or detached from reality on the ground. The main criticism is that it can amount to wishful thinking.

Our experts emphasized neither approach is perfect in isolation, which is why we recommend using a combination of both. As David shared:

"The reason we're saying that neither approach is perfect in isolation is that you have to look at the implications from both sides.

In a bottoms up goal setting you can make a whole bunch of assumptions about growth rates about market share and so on, but you have to then look at what that means at a company level for your overall number...is that actually something that will be too much or is it too little from what our organization is hoping to get next year?

Similarly with top down...what does the figure imply about the growth rate for every territory? What does it imply about the market share that these territories would have to end up at if they actually achieved the quota that we dished out from the top down?"

‍

Ultimately, the two methodologies need to be blended to ensure quotas are grounded in both the company’s targets and realistic expectations for sales teams.

The quota setting methodology you choose usually has an inherent tradeoff between simplicity and fairness

Overall, when it comes down to these two different approaches there's a spectrum of around seven different methodologies you can use ranging from simple to complex. Where, the simplest is just an equal amount in absolute dollar value allocated per territory. Whereas toward the more complex end, you start to look at historical and potentialization exercises.  

Try these two analyses to assess the accuracy of your quota methodology

After selecting your methodology, as you move into step three of the quota setting exercise (the testing and iteration phase), there are two key analyses you can use to assess your current methodology: quota accuracy and quota fairness testing.

Quota accuracy, also known as a performance distribution, is an analysis that visually shows how the sales team is performing against their quotas across different teams, roles, and metrics.

What this analysis will tell us is how accurate were quotas. What you'd generally expect to see is a normal distribution centered around 100% attainment.

Below, we see a good distribution—a normal bell curve with reps clustered around 100% attainment. This indicates that quotas are set fairly.

In contrast, below we have a bimodal distribution, with reps either significantly under- or over-achieving their quotas, which suggests inaccuracies in quota setting:

The above type of performance distribution (uneven peaks and valleys) indicates there might be a problem. There's an extremely wide range of performance levels and no critical mass of sales reps around 100% of quota. It shows we have a bunch of reps that came in way below quota and we have a bunch of reps that came in way above quota and not a ton in between.

This is common to see at organizations where there's no strong quota setting methodology in place, producing inaccurate quotas.  

Overall, this quota accuracy distribution is an insightful method for analyzing quotas that you can use as you approach annual planning. After you get your numbers from running your initial methodology, you run the data and (ideally) see a bell curve centered around 100% attainment, which shows your end-stage quotas are both fair and motivating.

Quota fairness testing

This second type of analysis checks for biases in the quota setting process, for factors outside of the rep's control.  

It helps us highlight if our goal setting methodology is overweighting specific factors that may create unfair goals. For example, we might look at whether quotas are biased based on territory size or rep tenure.  

In the whisker plot below, we can see the range of quota attainment is similar across small, medium, and large territories, indicating that the quotas are equitable:

However, if you see significant skew, with larger territories achieving much higher attainment, this suggests a bias.

How do you conduct this analysis?

• Building off quota accuracy analysis, group territories based on a certain attributes (e.g. rep tenure, territory size, etc.).  

• For each group of reps, calculate percentage of earnings coming from each component or product category to determine if a bias exists.

Ultimately, with this analysis, if a variable has been identified, the next quota setting process needs to sensitize for this. For example, if you discover smaller territories have a bias towards higher attainment, you need to understand why and ensure set quotas/assigned territories account for this.

An example walkthrough of a quota-setting process in action

To show the five critical steps in action, David ran through the process live in a hypothetical scenario.  

I.e. if you have 100 territories, each with sales for 2024 that total 100 million, how should you distribute new quotas for 2025 based on historical sales and the potential that they have for growth?

For this, first you'll segment all the territories into small medium and large to assess their potential, and then layer on a quota distribution index.

Here's the walk through of this exercise as an example:

Next, test your quota methodology and refine accordingly

In the case of planning for 2025, you'd naturally use 2024's data to set the quotas.  

However, for testing your methodology you can use the prior year's actual data set to simulate and compare to actual performance.

This way you use actual prior performance data to inform your next year's methodology.

Here's a walkthrough of what this looks like in action:

Remember: Conduct quota fairness testing on various factors to avoid biases  

Fairness testing (as step 3 in the exercise) is critical to ensure that quotas aren’t biased. As David shared, you might see a trend where larger territories are outperforming smaller ones, signalling a potential issue with your quota allocation.

Territory size is just one attribute that you can evaluate fairness against. Some other factors you can look at include:

• The account mix

• Territory location (to determine if there may be geographical bias in the methodology that favors territories depending on where they're located in the country).  

• Rep tenure (i.e. are we being more or less favorable towards people who have a long experience with our product bag, with the company),  

• The total number of accounts (when we're doing territory setting it's not always a perfect number of accounts.)

Ultimately, there's an unlimited set of attributes you can look at and this fairness testing step is iterative. As David shared:

"After we’ve identified potential biases, we tweak the methodology to ensure quotas are equitable, considering factors like territory size, rep tenure, and market potential. Even small adjustments can have a huge impact on the sales team's motivation."

Give managers and sales leaders the opportunity to adjust proposed quotas  

Before you actually distribute quotas to sellers, we recommend including sales managers or sales leadership for a refinement step.

This way, you:  

• Benefit from on the ground expertise of the sales manager (the sales leaders are closest to the opportunities in flight, the customer base in the territory, etc.)

• Build buy-in at a manager level as they're going to better understand the methodology for how quotas were set (they'll have some level of influence so when it comes time to discuss with the reps, leaders can justify rationale).

In this step, leaders can make changes to the quota values or amounts within specific thresholds and parameters. You'll provide them with a workbook, and adjustments are generally run as a as a cascading process where VPs can make refinements, then directors, then first line managers.  

To do this, create a refinement sheet for each manager that will effectively walk them through the methodology for how the quotas were calculated, share some relevant data points that that went into the quota calculation, and the quota for each rep.  

Here's a simple example of what this could look like:

The role of a full-stack SPM platform in quota setting

If your organization has reached a certain level of maturity, SPM software can significantly streamline quota setting and management.

As discussed in the session, managing quotas across territories, forecasts, and historical performance is complex. A full-stack SPM platform unifies territories, quotas, and incentives in one system, ensuring that all data is integrated and based on the most accurate information.

An advanced SPM platform empowers sales and revenue operations leaders to manage the entire sales performance process within a single system. This creates a seamless workflow that ensures fairness and consistency throughout the planning and execution stages.

The right SPM platform can take much of the manual work out of the process above, allowing you as a sales ops team to focus on strategy, ensuring that quotas are not only fair but also achievable.

Frequently asked questions in on sales quotas

How many iterations are typically done to reconcile quota expectations across the org?

Because you generally get one chance to roll out and explain the quotas to the field and why they are fair, David and Kyle shared that you typically have one round of iteration at the beginning (as you receive the top-level number that needs to be allocated from Finance), then one subsequent round of iteration to cascade the quotas down and run the refinement process with your sales leaders.