Let’s assume for a minute that your Board of Directors and executive leadership have agreed on a strategy for the coming year. This strategy usually includes specific revenue targets by quarter. Let’s further assume that your Finance organization has converted these revenue targets into the required bookings to achieve those targets. For those of you on a calendar-fiscal this is the time of year when you are faced with the prospect of setting sales quotas across your organization based on global and regional bookings targets. Having done this a few times I have constructed a flexible model you can download and use to create rep level quotas that have better credibility throughout sales and sales management.
So what makes this model so special? Why should Sales Operations or Finance professionals take the time to explore this model instead of just “doing the math” themselves? This model is designed to be distributed to every sales manager, allowing them to customize quotas based on their experience, assumptions uniquely relevant to their territory and their hiring plan. It gives the sales manager a sense of control since they can customize the quotas of the individuals on their team while retaining the integrity their team target. The model definitely helps to get buy-in from your regional managers regarding their ability to make quota.
Once sales leadership has finalized their discrete quotas then Sales Ops or Finance can roll up the numbers into a global master file and determine the quotas for those players on team numbers.
The model as presented here is for two product families and includes provisions for reps to be responsible for selling either or both of them. This scenario is intended to address the sales force of a newly acquired software company when, in order to meet the sales goals of your combined companies, you need to retain their sales team focused on what they know how to sell but you also want your existing team to carry some quota for the new product. This is a fairly common occurrence in the software industry.
The section of the model on the left is to capture those average values that will drive the starting quotas for reps focused on product A or B, or a blended quota for both products. The numbers in blue font are editable while the red font are calculations. To complete this section the sales manager needs to estimate how many deals will close and the Average Selling Price (ASP) by reps focused on either product line A or B or both. If you organization doesn’t have multiple product families then simply set product B to zero.
Also on the left side (not shown above) is a place to enter the expected quarterly ramp for each product family. This is a combination of a seasonality adjustment (e.g. summer in western Europe or September in the US federal space) as well as a market penetration ramp.
The right side of the model is comprised of multiple rows of variables that affect their quotas (one row per discrete sales rep). The starting values in columns O through AN are initially based on the data entered in the left section of the model but there are additional “levers” that allow the sales manager to customize the quotas on an individual basis. The customized quotas are rolled up, discounted for over-assignment, and compared with the original regional target in real time so the effect of any customizations can immediately be determined. The sales leader can customize each rep’s quota based on the following parameters.
- What product(s) the reps will sell (Product A, Product B or a blend of both).
- What quarter the rep starts working (0=already working; 1-4 for their starting quarter and 5 if the row is not used and is to be left blank.
- Adjustments (+/-) by product line to the annual quota for inequitable territories.
- The expected performance of the individual (as a percent of quota) for the year overall. This variable allows the sales manager to see the effect on his regional target by a rep hitting less than 100% of quota. This should be reset to 100% before quotas are finalized.
- Estimated attrition quarter (1-4) that a rep may leave the company. Again, this should be reset to 5 (no attrition) before quotas are finalized.
As you can see the value in this model is less about setting quarterly quotas that roll up to exceed the regional target and more about the sales leader having a sense of control to build the quotas from the ground up and test them using multiple scenarios which makes for better informed quota decisions.
A few additional points. There may be more than one sales role included in the model but all must be what are commonly known as discrete quota carriers; that is, the sum of their quotas covers all of the bookings that roll up to the sales leaders quota. Additional rows of individual quotas can be added by the “fill down” functionality in Excel as long as you adjust the sum formula at the top of the rows. Finally, only the blue shaded cells should be edited by the sales manager. Click here or on any image in this post to download the Excel model and see the color legend in the upper left corner.
I have done my best to test this model but I can’t guarantee its accuracy under all conditions. If it’s anything like my last commission model which had thousands of downloads I know you will contact me with any corrections or suggestions to improve it and I will update it accordingly. As always your comments are welcome!