Mastering sales quotas: strategies for effective sales planning

Sales quotas—minimum targets that your reps must achieve—are notoriously difficult to set and enforce.  

Studies indicate that over two thirds of sales reps don’t expect to meet their quota this year. And, in fact, the vast majority (84%) missed theirs last year.

In short, there’s a disconnect between what sales leaders expect and what representatives can deliver, creating opportunities for internal conflict. Poor quota attainment can also cause disappointment if you’re reporting sales results to stakeholders who had your initial quota in mind.  

It’s clear that how sales quotas are set needs to change to become more data-driven, but how exactly is this done?  

In this article, we'll share a guide to how sales operations and sales managers can determine the pros and cons of various quota models with considerations and examples. To start, let's get on the same page when it comes to the definition of a sales quota generally.

What is a sales quota? (vs. a sales target, or sales goals)

Sales quotas are the minimum goal you expect your reps to achieve during a reporting period. Most quotas are financial based, like a minimum revenue or profit target that agents must meet before they receive their on-target earnings and become eligible for extra bonuses or commissions.

An example of a sales quota would be requiring a new business development rep to achieve a minimum of $70K of new business in each quarter.

Importantly sales quotas differ from sales targets, which are more ambitious goals that span above and beyond the minimum quota. For example, you might have a sales quota of $50,000 per employee each quarter but an ambitious sales target of $80,000. The quota is a foundational expectation that each representative must meet; the target is a more ambitious, overarching goal that you incentivize reps to work towards.

Sales quotas are also different from the overarching sales goals set by executives in the company (based on the financial and sales forecasts). Sales quotas are a portion of the sales targets that make up the sales goals.

The strategic importance of sales quotas in revenue operations  

Sales quotas play a key role in strategic sales planning because consistent quota achievement accounts for a steady flow of predictable revenue coming into the business, which is critical for cash flow management and resource allocation.  

The last thing you want to do is allocate $50,000 toward a new territory expansion, only for your sales reps to perform $20,000 under quota. It'd be difficult to fill the gap without asking for a budget increase from your executive stakeholders.

Quotas increase sales productivity as sales teams can prioritize their time and focus high-value activities that are most likely to help them hit quota. If your organization is pushing to increase market share within a specific territory, for example, the quota could be to sell a minimum of 500 units within that territory. In this case, you'd maximize sales capacity by allocating resources (i.e. agent’s time) to activities that would hit quota and push the business closer to its goal.

Defined sales quotas also provide a framework to measure sales performance on, whether that’s individual salespeople, territory teams, or the sales organization as a whole. Quotas can act as leading indicator of performance, and those who consistently fail to hit quota can be coached ahead of performance review.  

Common challenges of sales quota setting and management  

Despite the best efforts of even the most seasoned sales leaders, the path to successful quota management is filled with complexity. Unexpected hurdles can often disrupt the rhythm of a sales team, causing frustration and misalignment. Below, we'll dive into three of the most common obstacles.

1. It can be tough balancing short-term revenue targets with long-term strategic goals

Sales quotas are typically designed to drive immediate revenue by encouraging sales reps to close deals quickly. Sometimes, this means you’ll sacrifice activities that work towards bigger picture company-wide goals.

As an example, consider a software company whose long-term strategic goal is to reduce customer churn. In the case where quotas are based on revenue targets, reps will prioritize activities like lead generation and nurturing. This means reps busy trying to hit quota may deprioritize check-ins with existing customers or winning back lost ones, and so the revenue quota will inadvertently risk the top-level churn goal. In this example, the quota set isn't necessarily aligned with achieving the long-term strategic goal of the company.

In another example, perhaps the company’s goal is to increase market share in the enterprise market. Here, the long-term play is to introduce a new subscription model that offers advanced features required by upper mid-market or enterprise brands. Sales reps solely focused on bringing in any type of revenue, however, will end up pushing products or services to small businesses as they’re most familiar with selling to this type of account, and you won't make any headway on the long-term vision as a result. You need to introduce hurdles or spiffs aligned to multi-product bags to balance out the quota in this case.

Granted, sales quotas mean that revenue is coming into the business in the short-term, but the long-term goals can suffer if you're not careful. This alone can lead to conflict as exec stakeholders don’t measure performance in the same granular way as sales leaders do.  

2. You'll contend with quota burnout and turnover  

Sales organizations have amongst the highest staff turnover rates of all industries, likely because reps are constantly pushing to exceed sales targets. The always-on mentality and pressure to hit quota can result in burnout, eventually leading to demotivated sales staff at risk of quitting.  

This situation becomes even more likely if you’re setting unrealistic expectations that aren't rooted in data. Reps can end up working around the clock to hit quota, which isn’t sustainable long term.

Quota burnout is an expensive problem to contend with: not only do sales reps fail to hit quota (impacting your business’ expected revenue), but the cost of hiring a replacement can total 1.5 to 2 times their average salary once you’ve taken recruitment and onboarding costs into consideration.  

This is ultimately why you need to learn to set fair quotas based on accurate revenue projections and data.

3. External market factors are unpredictable

Lastly, it’s difficult for salespeople to hit quota when contending with external factors impacting buyers. Market changes, economic downturns, and seasonal fluctuations all affect how likely a lead is to convert, average deal length, and willingness to spend—and these are all incredibly difficult to predict or plan for.

“It’s tough because every market shift, every new competitor, or even a change in consumer behavior can impact sales outcomes,” says entrepreneur Chris Bajda.  

“To overcome [external factors], I try to stay as flexible as possible. Instead of locking in rigid quotas at the start of the year, I keep the lines of communication open and adjust targets as needed. This adaptive approach helps keep the team motivated and aligned with the reality of the market.”

The five types of typical sales quotas and examples

As you get to setting your quotas, you can remember they aren't one-size-fits-all; there are different types of sales quotas, with each designed to align with specific business objectives and sales strategies.  

Below we'll break down the five most common types of sales quotas, with some clear examples of their pros and cons.

1. A revenue quota

The most common type of sales quota, this format is based on the total revenue generated. For example: sales reps might have to bring in $25,000 in revenue each month before they’re eligible for additional incentives.  

The benefits:

• There’s a clear financial focus for sales reps

Potential risks/considerations:

• Reps can prioritize quick wins or high-value deals to meet financial quotas, potentially neglecting long-term customer relationships.

• Can be difficult to set blanket revenue quotas applicable to the entire team if deal sizes vary significantly (Instead, consider setting different quotas for different teams, like a higher revenue quota for teams targeting a lucrative territory and a lower benchmark for those operating in less plentiful regions.)

• Ideally, you’ll want a comprehensive sales performance management (SPM) platform or (at minimum) an incentive compensation platform—in place to process commissions once reps exceed their targets to manage this quota type accurately

2. The volume quota

Volume quotas focus on the number of units sold, rather than the total revenue a deal generates.  

The benefits:

• Volume quotas are easier to track than revenue quotas  

• These are best suited to organizations that prioritize high-volume sales or sell low-cost, high-turnover products.

Potential risks/considerations:

• This quota type can incentivize agents to push lower-margin products that aren’t as lucrative for the business. I.e. On the surface, reps who’ve sold 5,000 units per month might look incredibly valuable compared to reps only attaining 1,000. But the agent who sold 1,000 units could’ve promoted items with a 37% profit margin compared to the high-volume agent’s 5.8% average.  

3. A profit quota

A profit quota is a minimum profit margin that you expect your sales team to achieve.

The benefits:

• This quota type is a good balance between revenue and volume quotas as it incentivizes reps to close deals that make the most profit for the business after expenses are taken into account.

Potential risks/considerations:

• You’ll need to conduct some extra reporting/calculate profit quotas accurately: It involves tracking detailed financial metrics, including cost of goods sold (COGS), discounts, and returns, which can be complex and time-consuming.

• Profit quotas can also cause misalignment within the sales organization. If the business’ goal is to expand market share in a new territory, for example, the strategy would be to accumulate as many new customers as possible. A profit-based quota, however, could cause reps to prioritize fewer, high-margin deals.

4. An activity quota

In this sales quota model, agents are rewarded on how productive they are within their working hours. An activity quota is a minimum benchmark you’ve set for specific sales activities, such as: cold calls made, calls booked, meetings arranged, proposals submitted, and more.

The benefits:  

• Activity quotas are best suited to organizations that want to promote proactive engagement and pipeline development.  

Potential risks/considerations:  

• Activity-based quotas don’t always correlate directly with results. Reps who know they need to initiate 500 conversations might sacrifice lead quality in order to meet quota. On the surface, it looks like they’re incredibly productive by contacting 20 new leads a day. In reality, the vast majority of contacted leads may be unlikely to generate revenue for the organization.  

If you're looking at setting sales quotas based on activity, you may find our take on activity-based incentives helpful. Watch our on-demand webinar on the powerful role activity-based incentives will play in the future of SPM and sales compensation.  



5. Combination quotas  

Lastly, a combination quota model is what it sounds like; it integrates multiple quota types within the same structure. Here’s an example of what that might look like where your overall sales quota is a mix of:

• Revenue quota: $50,000

• Profit margin: 20%

• Activity quota: 100 sales calls and 20 product demonstrations

The benefits:  

• You can get more granular with exactly what you’re expecting from sales reps.  

• You can balance out the disadvantages of relying on just one single quota model. (Reps who need to make 100 sales calls while also generating $50K in revenue at a 20% profit margin are likely to prioritize profitable leads that are most likely to convert, which is the most productive way to spend their time.)

Potential risks/considerations:  

• Effective tracking can be difficult as you’re relying on multiple metrics from different systems to calculate quota attainment. You’ll want robust SPM software to pull everything together in a single platform and automatically calculate incentive compensation structures based on your reps' combined sales quota.

3 sophisticated types of sales quota examples 

Now, because no sales quota model is perfect, some sales leaders experiment with more sophisticated approaches to quota setting. Here are three examples below of even more specialized types of quotas, and the use case considerations for each.  

Dynamic quotas  

Considering one of the major challenges we discussed early re: market flux, dynamic quotas work by adjusting sales quotas in real-time based on market conditions. Unlike traditional quotas that are fixed for a set duration, dynamic quotas can fluctuate based on changes in consumer demand, economic conditions, or supply chain disruptions.

Let's consider a situation where you’ve asked sales representatives to bring in $60K of revenue per quarter as their quota. Your next quota evaluation is scheduled in three months’ time. But three months from now, reps have had to contend with customers’ inflation concerns and last-minute changes to regulations. The vast majority of agents end up failing to meet the quota when the review arrives, and you’ve spent the last few weeks prioritizing the wrong activities.

In stark contrast to this, dynamic quotas pick up on these shifts before your review period. A sudden downturn in economic conditions, for example, might mean you drop your sales quota to $40K in real-time. Reps now don’t feel like they’re facing an uphill battle when trying to meet an unrealistic or overly ambitious quota that’s made even more difficult due to unfavorable market conditions that you couldn’t have anticipated when setting the original sales quota.

Performance-based quotas

Performance-based quotas change depending on how much headway a sales representative or team has made towards the original quota. They integrate key performance indicators (KPIs) to track sales performance in real-time and incentivize team members to meet more ambitious targets once they’ve demonstrated success.

We can see this in practice with a sales rep that had a quarterly quota of 25% profit margin. Six weeks in, they’re comfortably sitting around the 35% mark. Bumping that quota up to 40% gives them another target to work towards before the quarter ends.

A performance-based quota also works in the opposite direction. If you have a sales team that’s way off base and has no chance of meeting their quota, a performance-based quota could drop the benchmark and still incentivize them to meet the new quota, rather than losing motivation entirely.  

To implement performance-based quotas successfully, you’ll need to consider the role of commissions and incentives in your structure. Reps who become eligible for commission once they hit their 25% profit quota won’t appreciate the goal post being moved to 40% once they surpass the initial target.  

Set clear expectations early that outline the possibility of quota adjustments to prevent changes from surprising to your reps. You could also consider non-traditional sales commission structures like:

• Tiered commission rates that increase in proportion to quota attainment

• Performance bonuses in lieu of traditional commission

Customer-centric quotas

Customer-centric quotas focus on metrics like customer lifetime value (CLV) and retention. They’re most often used by businesses that want to limit their reliance on new revenue streams by maximizing value from customers they’ve already converted.

Jason Smit, CEO of Contentellect, does this with a quota structure based around retention:  

“Our sales reps look to cultivate long-term relationships, and that's why one of their main quotas is tied directly to customer retention rates....We like to stress that it’s not always about how many clients you can sign, but more about how many you can keep glued to our services. We're not interested in churn and burn—we're trying to build a global content ecosystem that thrives on stability and growth."  

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Jason adds:  

“The beauty of this model is that it forces our sales team to think like strategists. They're not just selling; they're absolutely trying to solve long-term content challenges, transforming their sales process into a consultative journey, where the end goal isn't a signature, but a symbiotic partnership.”  

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On how to set sales quotas: the top-down vs. bottom-up approaches  

Top-down sales quotas

When referring to 'top-down sales quotas' this means senior management sets the shared vision and company-wide goals that the entire organization will work towards, and—from there —Sales and RevOps leaders set and assign a top-level target and use it as the foundation for the resulting sales quotas.

The advantage of a top-down model is that everyone works in harmony and the goal is likely stated in pretty clear measures. Stakeholders don’t grow frustrated because success is measured in a language they understand. You can easily provide evidence to show that your sales plan is making headway on goals the C-suite care about.

That said, executives aren’t on the ground talking with your customers on a daily basis. They might assume a goal can be met in a fraction of the time it actually does, risking rep motivation because of overly ambitious and unattainable quotas.

Top-down quotas can also be less flexible. If you need to pivot your quota strategy to account for a sudden change in market conditions, it’s unlikely that the business’ overarching goals will change in tandem. Stakeholders can be resistant to adjustments in their previously-agreed quota. This type of quota setting also doesn't factor in your reps' individual skillsets.

Which brings us to...

Bottom-up sales quotas

Bottom-up sales quotas rely on your sales representatives’ direct knowledge and quantitative sales history. Together, you’ll consult historical performance, assess territories, account potential, and market conditions to propose realistic sales quotas.

These bottom-up quotas then go up the chain of command—first to your wider sales team, then RevOps leaders, and finally to exec-level stakeholders who will give the final seal of approval for the quota roll out.

Bottom-up quotas tend to be more realistic than top-down quotas because the people who will be working towards them have had involvement. They know exactly what’s realistic and what’s too ambitious. This ownership means reps can also be more motivated, especially if their performance is judged on a metric they’ve had input on.  

The downside is that bottom-up quotas leave room for misalignment. What your sales reps prefer might not be in-line with what stakeholders are striving for. There tends to be back-and-forth in the chain of command before sales quotas are agreed upon.

Which sales quota method is best for my organization?

There is no “right” way to set sales quotas within an organization. Both approaches have their advantages and disadvantages. Sometimes it takes trial and error to find what works for your company at various stages.

For example: your organization might use a top-down approach when you’re expanding a product line or expanding into a new territory. Sales representatives don’t have much experience in either area. It makes sense to allow stakeholders to set quotas based on the reason and ideal outcome of the expansion.

On the other hand, a bottom-up approach might be better suited if the organization operates in a mature market and the goal is to retain market share. Reps have already interacted with these customers and understand the typical sales process for accounts within this territory. They can weigh in on what’s realistic when setting quotas.

Strategies for maximizing quota attainment

Alright, once your quotas are set, now what? Below are some best practices for attaining quota.  

Analyze your data to track (and adjust) quotas

As Chris Bajda shares:

“I’m seeing a trend toward more data-driven and dynamic quota-setting processes...Instead of setting annual targets and forgetting about them, there’s a growing emphasis on quarterly or even monthly adjustments based on real-time data. This approach aligns better with the fast pace of today’s markets and keeps teams more agile.”  

For this, remember that sales quotas are a combination of art and science. Your gut instinct might tell you that a specific quota model or goal is attainable, but data is the much-needed final piece of the puzzle that proves your hypothesis and solidifies achievable but motivational quotas.

Throughout the process, you'll need to rely on sales platforms like:

• Customer relationship management (CRM) platforms to uncover changes in customer demand or the buying process that would affect a rep’s ability to hit quota.  

• ICM or SPM software like Forma.ai to find current quota attainment and adjust the incentives on offer as reps meet or exceed quota. Sometimes you may need to adjust compensation plans instead of quota, particularly if reps are underperforming.

• Resource or workforce management tools to plan for upcoming leaves of absence or changes in capacity that make team-wide sales quotas unattainable.

Customize quotas for diverse sales roles and territories  

The quota that works for one representative won’t work for another. Sales reps are balancing different workloads and goals. Combine that with differing levels of opportunity based on the territories they’ve been assigned to, blanket quotas have the potential to cause conflict.

Customized quotas look at each role, representative, or team alone, considering the unique challenges and motivations each one possesses. For example:

• Highly experienced reps might easily hit quota while newer, less experienced agents struggle to reach the benchmark.

• Success for agents recruited to retain existing customers isn’t measured by how much revenue they generated, unlike their sales acquisition colleagues.

• Teams targeting a heavily saturated territory might struggle to hit profitability targets while those in an untapped market exceed them with ease.

Design effective sales compensation plans to drive attainment  

Compensation plans tie earnings directly to quota attainment, helping to financially motivate reps to hit their targets.  

The simplest way to do this is through tiered sales compensation plans that increase in proportion to quota attainment, such as:

• <25% quota attainment:  2% base commission

• 26-50% quota attainment: 3.5% base commission

• 51-75% quota attainment: 4% base commission

• 76-100% quota attainment: 5% base commission  

Consider incorporating more lucrative incentives for over achievement, which pushes reps to hit quota early and allocate more time to achieve ambitious sales targets. That might mean an additional 0.5% in commission for each sale they make over their quota attainment.

“The structure I favor for sales quotas is a mix of fixed and variable targets...the fixed part is the minimum everyone needs to hit, which is based on historical performance and company goals. Then, there’s a variable component that rewards extra effort or exceptional results.  

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“This dual structure not only ensures that everyone has a baseline to aim for but also incentivizes those who want to push a bit harder for extra rewards. It’s about balancing fairness with the opportunity for growth.”  

- Chris Bajda, ecommerce entrepreneur

Use behavioral science insights to motivate sales teams  

Quota attainment largely revolves around rep motivation. Those who aren’t motivated won’t quota, never mind more ambitious targets.  

But sales compensation is difficult to get right. You don’t want to offer world-class incentives that actually sabotage the profit you’re generating, but the incentive needs to be powerful enough for reps to want to achieve it.  

Behavioral science signals help uncover the compensation models that are most likely to motivate your salesforce. For example, some reps prefer activity-based incentives that tie specific sales activities to a reward. They might feel like their quota to generate $50,000 in revenue is more attainable if they know they’re being rewarded for engaging with a buyer, hosting a product demonstration, or sending a proposal.

You could also incorporate less traditional incentives such as high-profile contests or non-monetary rewards. I.e. maybe one or two—sales reps receive a much bigger bonus, like a $2,000 gift card toward a meaningful item tied to their identity.  

Manage quota attainment through continuous performance reviews and coaching  

It’s easier to maximize quota attainment if you’ve given yourself (and your reps) time to readjust before the end of a reporting period.  

Say you’re setting quarterly quotas and configure your SPM platform to notify you when agents are falling behind on their progress. Six weeks in, an agent is only at 30% of their minimum target despite being halfway through the quota duration.

Failing to recognize this means they continue on the same trajectory, coming to the end of the reporting period 40% under quota.

If you spot this early, however, you have time to conduct a performance review with the agent. Do they require more training to improve their product knowledge? Struggle with lead prioritization so wind up spending more time nurturing low value leads? Feel overwhelmed and burnt out? Need specific sales enablement?

Whether it’s coaching or additional training, you’ll overcome roadblocks causing reps to drop below their minimum requirements. Reps still have six weeks left to use your support and hit quota by the end of the quarter.