Deconstructing a Quota

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Posted: September 22, 2011 | Sales

The best time to start discussing quota and pipeline with a salesperson is at the interview stage, not after the salesperson has started in the company. It’s also a good way to find out if the interview candidate really knows their business and their territory.

The quota should be related to the on-target-earnings (OTE) of the salesperson. A quota can be somewhere between five times and ten times OTE. In smaller companies it tends to be higher, but in larger companies it may be lower because big companies are more likely to have a strategy to saturate the territory with salespeople.

So once the number is set, then comes the inevitable question ‘where are the sales leads?’. Most inexperienced sales people will look exclusively to marketing to solve their pipeline challenges. This would be Utopia if it was to happen, but it rarely does. Marketing does a great job with demand generation, building awareness, analyzing lead cost, lead sources, etc., but the salesperson who understands the various sources of their pipeline, will be ahead of the game. They will be better placed to achieve their number, but can also have meaningful discussions with marketing to influence demand generation tactics and maximize marketing’s contribution to their pipeline.

Quota will come from pipeline, a pipe-to-close rate will determine what pipeline coverage is required. A rate of 20% is acceptable, 40%+ is best in class. Too high is just as bad as too low, a sign that sales are hiding pipeline.

Now that you have established roughly the amount required, you need to determine what percentage is from new business and what percentage is from the installed base (add-on/up-sell/cross-sell).

The new business figure then needs to be deconstructed into its different sources, typically:

• Marketing (inbound demand generation)
• Partner or channel
• Telemarketing (outbound team if you have one)
• Self generated (salesperson’s own activities)

The percentages attributed to each of these four categories can vary dramatically from sales team to sales team. An SMB team may have a high figure for inbound and a low figure for outbound, whereas an Enterprise team may have a low inbound figure from marketing and a higher figure from outbound telemarketing.

With this understanding of pipeline composition, a sales person is in a much better position to start thinking of a territory plan that’s realistic for their own goals and those of your company.

Fergus is the Managing Director Europe at Marketo. He has over 25 years of experience in the technology space, concentrating on the breadth of knowledge required to make a software company successful.

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Deconstructing a Quota

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