Raising Quota Won't Grow Your Revenue

Jun 09, 2023
Raising Quota Won't Grow Your Revenue

Lower quotas = higher revenue.

I've never seen this not be true.

Yet most companies raise quotas in effort to increase revenue.

The reason this is generally backwards is because people don't sell best when being squeezed like the juice of an orange.

People sell best when they're comfortable and confident.

People are comfortable and confident when their role is predictable and the goalpost never moves.

People sell best when they're "crushing it" because their dopamine and serotonin receptors are firing off like the fourth of July, which drives them to produce more (while enjoying it).

I created a spreadsheet model so our friends in finance can comprehend it in their language!

On multiple occasions I've tested reducing quotas by 20% and have seen each time roughly a 20% increase (or more) in average revenue per rep.

Of course, it's not as simple as a tweak in the numbers. There's leadership that goes behind it to make it work.

But generally speaking, raising quotas in hope of higher revenues is usually a fool's errand.

Raising quotas is also often done in effort to reduce compensation with the expectation that it won't disrupt performance. It's also often done as the result of competitive job markets and companies wanting to advertise a higher OTE (on target earnings) to help recruit talent.

However finance teams end up increasing quotas to justify the higher OTE in their spreadsheet model, but they fail to calculate the psychological impact this has on the salespeople and team.

This is the kind of strategy a CFO brings to the table, but it's a short-sighted decision that leads to the ultimate degradation of team momentum, engagement, and sales performance.

Below shows a rough example of what happens when we position the formula in such a way that salespeople are reducing their stress earlier in the month by working toward more achievable quotas. The end result can actually be better than the job that's advertised with the higher OTE (but coupled with extremely stressful quotas).

This provides a good visual of a salesperson's stress levels on each day of the month. In both scenarios it's most likely the salesperson will high higher stress levels in the beginning of each month, but the key difference is how long they remain in that mindset each month.

Currently I believe the industry has pushed this too far and the result has been low quota attainment industry-wide in effort to justify the inflated OTE's that were necessary to compete in a market that was continuously flooded with more and more cash. As mentioned above, this is a simple math equation gone wrong, but can be corrected easily.

Lower quotas that can be achieved earlier in the month are often the key to unlocking the peak potential and morale of a sales team. When industry-wide quota attainment is down, it tells us there's a math problem to be solved.

Now that we know the reason (competitive and inflated OTE), we can begin to correct the problem and sellers can begin selecting roles more intelligently by knowing that OTE is not the only thing that matters, it's equally as important to understand how achievable the quota is since this lever has just as much of an impact on your earnings as the OTE itself.

Salespeople should avoid being blinded by a high OTE without finding out the average quota attainment on the team, including reps who have departed (super critical detail). So ask the tough questions and ensure you're setup for true success.

So what have we learned? The one true sales hack that actually works is setting accurate quotas, which correlates directly to setting accurate OTE, which is something we can do more easily in a deflationary economy when companies aren't competing so aggressively for talent (with inflated OTE coupled with inflated quotas).

I hope you found this helpful but remember there's no such thing as a successful rubber-stamped comp plan. Each company has it's own unique set of challenges which all need to be taken into consideration.

The only universal rule in this blog is that higher quotas do not equal higher revenue!

If you need help restructuring your compensation plan book a coaching session and I'll be happy to help you.

Happy Selling,

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