Insights From The RevOps Manual

Quota planning is critical aspect of sales management, requiring not just precision in numbers but also strategic alignment across the entire organization. This is where the role of Revenue Operations (RevOps) comes in. RevOps really acts as the bridge between sales leadership, the marketing team, finance, customer success and broader business goals, making sure that the quotas given to the sales team are both data-driven and aligned with the company’s overall strategy.

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Key Metrics and Definitions

Before getting into this,  let’s define some key metrics involved in quota planning:

• Ramp Time: The time it takes for a new sales rep to reach full productivity, impacting how much quota they can realistically carry.
• Assigned Quota (AQ): The total quota allocated to all sales reps, considering their ramp-up time and individual targets.
• Achievement Rate (AR): The percentage of the Assigned Quota that needs to be achieved to meet the company’s revenue goals.
• Over-Assign Cushion: The additional quota assigned to create a buffer against variables like attrition and underperformance, ensuring the company can still hit its targets.

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RevOps’ Role in Quota Planning

RevOps plays a pivotal role in ensuring that quota planning is not only about hitting numbers but doing so in a way that is aligned with the company’s overall strategy and risk tolerance.

1. Enhanced Pipeline Visibility:
   • RevOps provides a clear view of the sales pipeline, allowing for more accurate forecasting. This visibility ensures that quotas are based on real data rather than optimistic projections. You want to make sure that you can generate enough pipeline before increasing the size of your sales team.
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2. Data-Driven Quota Setting:
   • By analyzing past performance and other key metrics, RevOps can help set quotas that are both challenging and achievable. For instance, if your team historically achieves 85% of their Assigned Quota, you might set an Achievement Rate around this figure, considering sales cycle length and market conditions. But you should also consider historical ramp times, attrition rate and the overall capacity of your GTM team. Think about how many meetings your SDR team can book, how much pipeline you typically generate, your lead volume, etc.
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3. Cross-Functional Coordination:
   • RevOps ensures that sales targets are aligned with marketing campaigns, product launches, and customer success strategies. This alignment helps create a cohesive plan that drives growth across all functions.
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4. Risk Mitigation through Attrition Analysis:
   • Attrition is a significant risk factor in quota planning. RevOps can incorporate attrition rates into the planning process to ensure that even with personnel changes, the company is still on track to meet its goals. For example if your attrition rate leads to the loss of $500K in quota per rep annually, and you expect to lose 3 reps, that’s a $1.5M gap. RevOps would factor this into the Assigned Quota, ensuring the remaining team can still meet the revenue target.

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Example:

If your revenue target is $20M, and you have a 6-month average ramp time with an annual attrition rate of 22%, you might decide on an Achievement Rate of 85%. This means your Assigned Quota should be $23.75M to cover the target. With an average rep quota of $1.25M, you would need approximately 19 reps, factoring in a buffer for ramping and attrition.

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Understanding Over-Assignment: Balancing Risk and Cost

One of the most critical decisions in quota planning is determining the right level of over-assignment. Over-assignment, or the practice of assigning more quota than the company target, serves as a buffer to account for the fact that not every rep will hit 100% of their quota. However, the level of over-assignment you choose has significant implications for both risk and cost.

1. The Basics of Over-Assignment:
   • Over-assignment is essentially the inverse of the Achievement Rate. If you set an Achievement Rate at 80%, you’re effectively over-assigning by 25% to ensure there’s enough buffer to meet the company’s revenue target.
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2. Balancing Risk and Cost:
   • The lower the Achievement Rate, the more reps you’ll need, which provides a larger buffer and reduces risk but increases costs. Conversely, a higher Achievement Rate requires fewer reps, reducing costs but increasing risk.
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3. Incorporating Attrition and Ramp-Up Time:
   • It’s essential to consider attrition and ramp-up time when determining your over-assignment. High attrition or longer ramp times require more over-assignment to maintain a safety net.
     

Example:

Let’s say your company plan is $20M. With an Achievement Rate of 75%, your Assigned Quota needs to be $26.25M. If each rep has a quota of $1.25M you’ll need 21 reps. However, if you raise the Achievement Rate to 90%, the Assigned Quota drops to $22.5M, requiring 18 reps. The difference of 3 reps could represent significant cost savings but at the risk of having a smaller buffer.

If you over-assign too much (e.g., with an Achievement Rate of 70%), you may end up with a very costly plan that burdens your sales team and your budget. On the other hand, if you under-assign (e.g., with an Achievement Rate of 95%), you might save on costs but could miss your revenue targets if a few reps fall short

Suppose your team experiences a 22% annual attrition rate, and it takes 6 months to fully ramp a new hire. If you expect to lose 4 reps in a year, that’s a loss of $2M in quota (assuming $1.25M per rep). You’d need to over-assign by at least that amount to cover the shortfall, leading to an Achievement Rate closer to 75%.

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Aligning Quota Planning with Strategic Goals

RevOps plays a crucial role in ensuring that quota planning is not just about setting ambitious targets but doing so in a way that balances risk, cost, and strategic alignment. By providing data-driven insights, incorporating factors like ramp time and attrition, and ensuring cross-functional alignment, RevOps helps CROs create quota plans that are both achievable and aligned with broader business objectives.

When determining your over-assignment strategy, it’s crucial to balance the desire for growth with the realities of your sales environment. Too much caution can lead to unnecessary costs, while too much risk can result in missed targets. By working closely with RevOps, you can find the right balance that aligns with your company’s risk tolerance and financial goals.

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Use our Quota Planning Tool to play around with different levels of Attainment and Assignment!

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