The bottom line
This is a topic on which sales leaders and finance people have strong opinions. While I’ll discuss some of the nuances around the topic below, my bottom line is that most people should achieve or exceed quota.
To be more specific, more than half of the people should hit or exceed their goal. This would be clear evidence of a “achievable quotas.” While it may be difficult to tell at the start of the measurement period whether or not assigned quotas are truly achievable, it is not at all difficult to tell by the end of the measurement period — if most people achieved the quotas, then they were achievable; if not, then they weren’t.
Why do attainable quotas matter?
- Motivation. Most people, and even more sales people, want to be “successful.” The quota is the performance standard. People who don’t get there are underperforming, and people who get to quota are performing well, and people who exceed their quota are over performing. The opportunity to be successful, and to be seen as successful, and to enjoy the fruits of success (good variable pay) — these are powerful motivators. Quotas which are out of reach for most people create at least as much frustration as motivation.
- Management credibility. Attainable quotas are a sign that the company and sales leaders understand their market, their value proposition, and their selling model. Territories are balanced, sales resources are appropriately deployed, and a reliable selling system is in place so that the relationship between sales capacity and sales results is a stable. Sales people like to be part of such a system, customers like to be served by such a system, investors like to invest in such a system. Attainable quotas are a clear sign that this sort of value-creating selling process is in place.
- Delivering market-competitive pay. Most companies intend to pay their sales people at a level which is competitive for the market. If the combination of base pay plus the incentive that target (at quota) is set so that it will deliver market-competitive pay, then if most of the sales organization does not achieve their quotas you will have most of the sales organization not earning market-competitive pay. Some companies mitigate this risk communicating above-market pay in anticipation of under-performance versus quotas, hoping to actually deliver market-competitive pay median performer. However, you can imagine how assumption-filled the analysis is which connects expected total compensation to market values.
- Budgeting and performance prediction. For the purpose of predicting the performance of the sales organization and the cost of their compensation, the most straight-forward approach would be based on assuming that average quota attainment is 100% of quota average target incentive earned is a bit more (usually 5% to 12% depending on the amount of acceleration in the comp plan). Trying to predict total sales productivity and the cost of compensation in a business in which quotas are generally not attained can become an exercise guessing, gamesmanship, and frustration for all involved.
This is all about quota — what about the rest of the performance distribution?
If the objective is to maximize the motivational value of the comp plans, the ideal performance distribution is:
- Not more than 5% of the sales people “out of the money” (earning no variable pay), and the these people should generally not be “keepers”
- About 40% of the sales people earning some variable pay, but less than the target amount
- About 45% of the sales people earning more than the target amount, but less than the fully leveraged upside (fully leveraged upside is generally 2 to 3 times the target incentive)
- About 10% of the sales people earning the fully leveraged upside or more.