Quota Against On-Target Earnings
It’s an age-old question: Where should you set Quota for AEs? The accompanying chart maps Quota against On-Target Earnings among 83 members of BenchSights. As a reminder, On-Target Earnings or OTE, is the compensation that a quota-carrying sales rep (AE) earns if they deliver Quota:
Distribution of AE Quota and OTE
We found an average Quota of $955k in ARR bookings and a median of $750k.
The natural follow-on question is: So what?! Does it matter? Will different levels of Quota drive different levels of performance? The answer: Not really. At least not that’s evident from our data:
Company Sales Segments with an ARR Quota of:
|<$750k||$750k to $1.25M||>$1.25M|
|Median % of Quota Capacity* Achieved||87%||66%||82%|
|Median % of AEs “Hitting” Quota||25%||28%||20%|
|% of Company Segments Meeting/Beating Plan||50%||42%||46%|
Of course, there are many other factors at play. For example: Is it smart to have less than 30% of your reps meeting Quota? Probably not – but keep in mind that most of our data is from 2020, which had some “issues”. Also, direct comparisons of Quota across companies is difficult – a $1.5M Quota at one company may actually be easier to hit than a $750k Quota at another.
We believe the more useful metric is Quota-to-OTE. Look again at the accompanying chart. You can easily fill in the regression line with your own eyes – the slope of 4.8x is actually the mean Quota-to-OTE ratio across our membership.
And, as opposed to Quota by itself, we find the Quota-to-OTE ratio to be strongly correlated with performance. Segments with lower Quota-to-OTE ratios – higher pay for performance – tended to have stronger performance (see our previous post).
So feel free to gauge where to set your Quota by looking at your peers. But make sure to use the Quota-to-OTE ratio, and other variable comp strategies, as more effective drivers of performance.
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* Quota Capacity (QC) is total ARR bookings achieved by the AE team divided by the product of (1) avg. quota per AE and (2) avg. number of AEs.