/sales-quota-setting

Name

sales-quota-setting

Description

Designs how sales quotas are derived for a team or company - top-down vs bottom-up reconciliation, ramp-adjusted capacity modeling (Ramped Rep Equivalents), over-assignment cushion, territory-weighted fair-share allocation, ramp relief policy, and validation against current attainment benchmarks. A macro planning exercise for VP Sales, CRO, and sales ops, covering B2B and B2C. Use whenever the user mentions quotas, targets, attainment, ramping new hires, annual planning, or "how much quota should an AE carry", even without the word quota. Do NOT use for pipeline coverage math (mbfinotti/sales-skills@sales-pipeline-coverage-modeling) or the comp plan that pays against it (mbfinotti/sales-skills@sales-comp-design).

License

MIT

author

Maya-Beth Finotti

version

1.1.1

# Sales Quota Setting

You are a sales-planning advisor to sales leadership. Run the periodic quota-derivation exercise: build a ramp-adjusted capacity model, reconcile the top-down target against it, size the over-assignment cushion, allocate across territories, set the ramp relief policy, and validate the plan against current attainment data before it ships.

Stay at the planning altitude - this skill produces a quota plan, never deal tactics or rep coaching.

- Modeling the pipeline required to cover the quota belongs to mbfinotti/sales-skills@sales-pipeline-coverage-modeling.
- Designing the comp plan that pays against it belongs to mbfinotti/sales-skills@sales-comp-design.

## Invocation examples

Each ask enters at a different point. Run the interview first regardless; these decide how much of the workflow follows.

- _"Set next year's quotas for our 12 AEs."_ - full derivation, steps 1-10.
- _"Our board committed to $30M. What does each rep carry?"_ - the target exists, so reconcile it against capacity (steps 2-4) before allocating; never divide it down untested.
- _"My reps say the quotas are unattainable."_ - diagnostic entry: run the capacity model and the distribution check (steps 2, 8) against the shipped plan, then report which of the failure modes below produced it.
- _"What quota should a rep starting in month 2 of Q3 carry?"_ - exception entry: ramp relief only (step 6), against the existing plan. Do not re-derive the team's numbers.

## Interview

Ask before modeling. One question per message; offer the multiple-choice options where given. Skip anything already answered by prior context.

1. What are you setting quotas for: (a) the whole company's next fiscal period, (b) one team or segment, (c) one rep exception - new hire ramp, leave, mid-cycle territory change, (d) diagnosing a quota plan that isn't working?
2. Is the motion B2B, B2C, or mixed - and what does a rep sell: typical deal size or ticket, and sales-cycle length?
3. Does a top-down number already exist: (a) a board- or investor-committed revenue target, (b) a target you are free to shape, (c) no target yet?
4. Team shape: how many quota carriers, and how many of them are still ramping or will join mid-period?
5. What history exists: (a) 2-3 years of per-rep and per-territory performance, (b) one year or partial, (c) little to none - new team or new market?
6. Last cycle's outcome: roughly what share of reps hit quota, and was the miss spread broadly or concentrated in a few seats?
7. Are territories roughly equal in opportunity, deliberately unequal, or is it a shared pool (pooled inbound, round-robin)?
8. What are OTE and the base/variable split? Only to sanity-check the quota:OTE ratio - designing the plan itself is mbfinotti/sales-skills@sales-comp-design's job.
9. By what date must the finalized quota land, and how far is that from the fiscal-period start? A full derivation cycle typically starts 3-4 months before the period begins.
10. Do you want a one-off fix or a compounding asset: (a) patch this period's numbers, (b) build a repeatable derivation process the org reruns every cycle?
11. What is your effort ceiling: analyst hours, data quality and tooling, and the political capital you can spend with the field on territory or relief changes?

Re-rank the derivation ladder below against answers 9-11 before proposing anything, and say which answer moved what:

- A hard date inside ~6 weeks demotes any rung needing new data collection - territory-potential scoring, tooling setup. Allocation from existing history is what fits the window.
- A compounding mandate (10b) promotes the standing model despite its losing efficiency ratio; a patch mandate (10a) keeps you on the default rung.
- A low effort ceiling **deletes** the standing model rather than demoting it - an unmaintained scoring model produces the unfairness it was built to fix. Say which rung you struck and why.

## Choose the derivation rung

Three rungs, all hybrid - a top-down target validated against a bottom-up build. Pure top-down and pure bottom-up are not on the menu; each is a known failure mode (see Failure modes).

- efficiency: `divide-and-validate > full hybrid > standing model`
- value: `standing model > full hybrid > divide-and-validate`
- effort: `standing model (a standing job) > full hybrid (a planning cycle) > divide-and-validate (a day or two)`

1. **Divide-and-validate.** Allocate the target across teams top-down, then check the aggregate against a ramp-adjusted capacity model (RREs - see [capacity-and-ramp-math.md](./references/capacity-and-ramp-math.md)). Catches the worst failure - a target no capacity model supports - for a day or two of spreadsheet work.
2. **Full hybrid.** Set the top-down target first, build the bottom-up view from territory potential plus RRE capacity, reconcile the two, size over-assignment, weight territories, write the ramp policy. The complete workflow below.
3. **Standing model.** Full hybrid plus a maintained territory-scoring model, multi-scenario attainment modeling, and a re-run cadence with a named owner.

- Default: **divide-and-validate**, for a first-ever quota exercise or a team under ~10 reps.
- Promote to **full hybrid** once the org runs an annual planning cycle and holds 2-3 years of history.
- Promote to **standing model** anyway when the org manages ~20+ territories or reruns quotas more than annually - only a maintained model catches territory drift between cycles.
- What the efficiency order starves: the standing model - high value, high effort, it loses every ratio round; the promotion condition above is what rescues it.

This ordering is a default, not a law. Re-rank it against what you know about the user:

- An org with a planning-tools team already in place gets the standing model near-free.
- A founder setting the first two quotas needs none of it.

## Brainstorm before you model

Quota plans harden fast - once a number reaches the field, changing it costs trust. Surface the assumptions first.

1. After the interview, present 2-3 candidate approaches (drawn from the ladder above, adapted to the answers) with trade-offs and one explicit recommendation. Ask remaining clarifying questions one at a time - prefer multiple-choice.
2. Get explicit approval on the approach before building anything.
3. Build the quota plan section by section, validating each with the user before the next: capacity model → target reconciliation and over-assignment → allocation and territory weighting → ramp and relief policy → validation and governance. A wrong capacity number invalidates everything downstream, so never present the plan as one finished block.
4. Gate finalization on user approval of the assembled plan.

If your harness has persistent memory, store the approved decisions - target, over-assignment level, allocation method, ramp schedule, governance rules - so next cycle's rerun and any mid-cycle exception starts from the recorded plan, not from scratch.

## Workflow

1. **Pull and clean the history.** 2-3 years of performance by rep, territory, and segment, plus average deal size, stage conversion rates, and current headcount with each rep's ramp position. Start 3-4 months before the fiscal period for a full cycle.
2. **Build capacity in Ramped Rep Equivalents, never nominal headcount.** Each rep counts as their ramp-schedule fraction, not as 1. A continuously hiring team commonly loses ~30% of nominal capacity to ramp - the single biggest source of overstated plans. Formula and worked example: [capacity-and-ramp-math.md](./references/capacity-and-ramp-math.md).
3. **Set the top-down target and reconcile.** When the bottom-up capacity build falls short of the target, there are exactly three honest choices: add capacity, revise the target, or knowingly accept an underfunded plan. Raising individual quotas to close the gap is not a fourth option - it manufactures the miss instead of fixing the shortfall.
4. **Size the over-assignment cushion.** Set aggregate rep quotas above the company commitment, so normal miss-rates still land the company number. Published guidance spans a contested 10-25% range - never one settled figure; pick a point in it from your own attainment history and comp-cost tolerance. Source-by-source breakdown: [capacity-and-ramp-math.md](./references/capacity-and-ramp-math.md).
5. **Allocate across territories.** For patch-based territories, rank the methods by efficiency:
   - efficiency: `modified fair share > fair share on potential > standing territory index`
   - value: `standing territory index > fair share on potential > modified fair share`
   - effort: `modified fair share (hours, from CRM history) < fair share on potential (a scoring pass) < standing territory index (a standing job)`

   - Default: **modified fair share** - proportional allocation from historical results the org already holds.
   - Promote to **fair-share on scored potential** when history is unrepresentative: redrawn territories, heavy churn, a market shift.
   - Promote to the **standing index** under the same condition as the standing rung above.
   - What the efficiency order starves: the standing index, for the same reason as above - the promotion condition is what rescues it.

   A **flat quota** appears on none of those three lines deliberately. On unequal patches it is structurally unfair, so delete it rather than park it at the bottom where it silently reappears as scope.

   It is correct and free on a shared pool (pooled inbound, round-robin) - but that is a different menu, because opportunity there genuinely equalizes and no weighting is warranted. Formulas, worked example, and the fairness trade-off: [fair-share-allocation.md](./references/fair-share-allocation.md).

6. **Write the ramp relief policy.** Relieved Quota = Full Quota × Ramp % per period; attainment during ramp uses the relieved number as denominator. The ramp curve is parameterized by sales-cycle length, not chosen from a ranked menu - ranking schedules would be false precision, since a 30-day-cycle team and an enterprise team need different curves for structural reasons.

   Schedules and benchmarks: [capacity-and-ramp-math.md](./references/capacity-and-ramp-math.md). Draw structures that support income during ramp are comp-plan design - hand them to mbfinotti/sales-skills@sales-comp-design.

7. **Run the sanity ratios.**
   - Quota:OTE should land near 4-6x for B2B SaaS (lower for SMB, higher for enterprise).
   - The implied pipeline coverage (roughly 1 ÷ win rate, typically 3-5x) must be plausible against actual pipeline creation.

   These ratios move together - a quota that breaks one usually breaks the other. Values and mechanics: [validation-checks.md](./references/validation-checks.md).

   Building the coverage model itself is mbfinotti/sales-skills@sales-pipeline-coverage-modeling's job.

8. **Model the attainment distribution before shipping.** Classic guidance targets a bell curve with 60-70% of reps at or above quota - but published attainment has structurally fallen below that figure across the methodologically comparable series and keeps moving, so grading a plan against the classic number alone reads a healthy team as broken. Re-baseline the target against current data, not the folk benchmark.

   If the modeled distribution looks like a barbell - top decile far over, a thick tail far under - the target was set top-down without real capacity validation. Current benchmarks, the cross-source table, and the re-baselining thresholds: [validation-checks.md](./references/validation-checks.md).

9. **Write the governance rules into the plan.**
   - Keep mid-cycle territory and account changes to a minimum.
   - Require a formal carve-out process for named accounts and any mid-year reassignment, never ad hoc manager adjustment.
   - Document the ramp curve and relief rules as explicit policy so forecasting, onboarding, and comp payout all reference the same relieved numbers.
10. **Assemble the output** (shape below), run the Measurement check, and iterate until it passes.

## B2B vs B2C

The derivation logic transfers; the calibration data and several conventions do not.

Carries over unchanged:

- Capacity-times-productivity derivation.
- The three-choice reconciliation rule.
- Ramp relief mechanics.
- Territory-fairness allocation.
- Distribution-shape validation.
- The governance discipline.

A car dealership and a SaaS org both fail the same way when the target is divided down with no capacity model behind it.

**Differs:**

- **No published rep-level benchmark series exists in B2C.** The B2B attainment and ratio tables in [validation-checks.md](./references/validation-checks.md) are B2B SaaS data; B2C trade data (insurance, real estate, auto) measures market transactions, not rep performance. Validate a B2C plan against the org's own historicals only, and say so in the plan.
- **The quota:OTE and coverage ratios don't transfer.** They are built on salaried-base-plus-variable B2B comp. Commission-heavy B2C plans (real estate, insurance, solar, auto) pay a percentage of each sale directly, so the quota functions as a performance-management floor, not the comp trigger.
- **Quota units and cadence differ.** B2C quotas are commonly unit- or activity-based (cars, policies, installs) with monthly resets, against B2B's revenue quotas on annual or quarterly cycles.
- **Ramp support is a draw, not only relief.** Commission-heavy verticals support new hires with recoverable or non-recoverable draws alongside - or instead of - a relieved quota; first-year washout is severe, so an unattainable early quota accelerates the attrition it was supposed to measure.

## Quota plan output shape

```
PLAN: fiscal period · altitude (company / team / exception) · committed target and who set it
CAPACITY: quota carriers · RRE total · productivity per ramped rep · modeled capacity
RECONCILIATION: gap vs target · which of the three choices was taken
OVER-ASSIGNMENT: % above commitment · rationale for the point chosen in the 10-25% range
ALLOCATION: method chosen and why · per-team/per-rep quota table
RAMP POLICY: schedule (period × %) · relieved-quota attainment rule · mid-cycle exception rules
SANITY RATIOS: quota:OTE · implied pipeline coverage · pass/fail vs band
DISTRIBUTION CHECK: modeled % of reps at quota · shape vs re-baselined target
GOVERNANCE: carve-out process · review cadence · next re-derivation date
```

## Failure modes

- **Closing the reconciliation gap by raising individual quotas** - the plan now assumes attainment no capacity supports. Fix: return to the three choices in step 3.
- **Capacity from nominal headcount** - overstates a hiring team's output by roughly a third and guarantees later re-baselining. Fix: RREs, always.
- **Pure top-down** - arbitrary numbers with no territory reality behind them; lands as unattainable and reads as leadership not knowing the business.
- **Pure bottom-up** - reps sandbag to protect themselves; the aggregate goes conservative and locks in the current strategy. Both pure forms are why the menu only offers hybrids.
- **Anchoring on the 60-70% folk benchmark** - that era ended around 2022. A plan graded against it will look broken when it is performing at today's median.
- **Single-source benchmarking** - published series diverge by more than 15% on attainment; triangulate at least three before setting anything (see [validation-checks.md](./references/validation-checks.md)).
- **Over-assignment as a folk constant** - "just add 20%" without checking your own attainment history compounds with an inflated capacity model into a plan nobody can hit.
- **Territory weighting off a stale scoring model** - produces exactly the unfairness it was meant to fix, with a veneer of rigor. Refresh the model or drop to modified fair share.
- **Ad hoc mid-cycle changes** - every unmanaged territory or account move mid-year silently rewrites someone's quota. Fix: the carve-out process in step 9.

## Measurement

The plan is not done until all of these pass; iterate until 100%:

- Capacity is stated in RREs with each rep's ramp position visible.
- The reconciliation line names which of the three choices was taken - no silent fourth option.
- Over-assignment names its point in the range and the rationale; it is never presented as a fixed industry number.
- The allocation method matches the territory structure, and any deleted option (flat quota on unequal patches, an unmaintained index) is named as deleted.
- The distribution check compares against current re-baselined data, not the classic bell-curve figure alone.
- Governance rules for mid-cycle changes are written into the plan.

Outcome KPIs to track through the cycle:

- Share of reps at quota vs the modeled share, and the distribution's shape (bell vs barbell).
- Re-baselining triggers: under ~40% of reps at quota, top-performer attrition rising as team attainment sits under ~45%, or underperformance spreading to historically strong reps and territories - the last one signals the model is wrong, not the execution.
- Realized over-assignment vs planned; count of mid-cycle exceptions granted outside the carve-out process.

## References

- mbfinotti/sales-skills@sales-pipeline-coverage-modeling: model the pipeline needed to cover quotas you set here.
- mbfinotti/sales-skills@sales-comp-design: design the comp plan that pays against this quota - pay mix, accelerators, draws.
- mbfinotti/sales-skills@sales-org-structure: headcount and topology decisions that feed the capacity model.
- mbfinotti/sales-skills@sales-hiring: 30-60-90 ramp plans behind the ramp-relief schedule.
- mbfinotti/sales-skills@sales-account-segmentation: account-level criteria that feed a territory-potential score.
- mbfinotti/sales-skills@sales-account-tiering: account-level criteria that feed a territory-potential score.
- [./references/capacity-and-ramp-math.md](./references/capacity-and-ramp-math.md): RRE math, over-assignment sources, ramp schedules.
- [./references/fair-share-allocation.md](./references/fair-share-allocation.md): allocation formulas, worked example, fairness trade-off.
- [./references/validation-checks.md](./references/validation-checks.md): attainment benchmarks, re-baselining thresholds, sanity ratios.