Most quota problems are arithmetic problems that nobody did. The board sets a number, someone divides it by headcount, and the plan goes out. Six months later half the team is under 50% attainment and the comp plan gets the blame. This guide walks through the two ways to build quotas, how to compare them, and what to do when they disagree.
Top-Down: Start From the Company Number
Top-down quota setting starts with the revenue target and allocates it to teams and then to people. It is fast, and it guarantees the quotas add up to the plan. Its weakness is that it says nothing about whether the team can deliver.
The usual method: take the bookings target, add a cushion, and divide by the number of quota-carrying reps, adjusting for territory or segment.
Bottom-Up: Start From Capacity
Bottom-up starts with what your reps can produce and builds upward. You need four inputs:
Headcount by month: who is selling, including planned hires and their start dates.
Ramp: how much of a full quota a new rep can carry in each month until fully productive.
Productivity: what a fully ramped rep has closed per year, from your own history, by segment.
Attrition: how many seats you expect to be empty, and for how long.
Multiply them through and you get capacity: the bookings the team can plausibly produce.
A Worked Example
These numbers are an illustration, not a benchmark.
Target: $12.0M in new bookings.
Team: 10 account executives. Eight are fully ramped. Two start in January and carry half a quota for the year.
Top-down: $12.0M divided by 10 reps is $1.2M each.
Bottom-up: ramped reps have averaged $1.0M a year. Eight ramped reps plus two at half productivity is nine effective reps. Capacity is $9.0M.
The gap: $3.0M, or 25% of the target.
Top-down says each rep needs $1.2M. History says a ramped rep does $1.0M. If you publish $1.2M quotas with no other change, the plan assumes a 20% productivity jump that nothing in the business explains.
Closing the Gap
There are only four levers. Each one should have an owner and evidence.
Add capacity: hire earlier or hire more. Check the ramp math. A rep hired in July contributes very little this year.
Raise productivity: pricing changes, better lead flow, a new product. Put a number on each and ask who is accountable for it.
Use other channels: partner or expansion bookings that do not depend on the new-business team.
Lower the target: the least popular option, and sometimes the correct one.
What does not close the gap is spreading it across quotas and hoping. That moves the shortfall from the plan to the reps' paychecks.
Over-Assignment
Most companies set quotas that sum to more than the target, because not everyone will hit. That cushion is reasonable. The questions are how large it is and where it sits.
In the example, if leadership funds two more hires and capacity rises to $11.0M, quotas totaling $13.2M would carry a 10% cushion over the $12.0M target. Stack another cushion at each management level and the rep at the bottom carries a number nobody at the top would recognize. Decide the total cushion once and write it down.
Test the Quota Before You Publish It
Attainment distribution: apply the new quotas to last year's results. What share of reps would have hit? If the answer is well under half, expect turnover.
Territory fairness: does the quota reflect the opportunity in the patch, or only the headcount?
Pay check: at 100% of quota, does the rep earn target pay? At 80%? Run the plan through the commission calculator.
Cost check: what does the plan cost at 80%, 100% and 120% attainment? The commission budget calculator does this.
Quota to pay: is the quota a sensible multiple of the rep's on-target earnings? See quota-to-OTE ratio.
Mid-Year Changes
Quotas should be hard to change and possible to change. Write the conditions down in the plan document before the year starts: territory realignment, a product removed from the price list, a leave of absence. A rule made in advance is policy. A rule made in August is an exception, and reps will read it as one.
The Short Version
Build the quota both ways. If top-down and bottom-up agree within a few percent, publish it. If they do not, the difference is a list of decisions about hiring, productivity and targets. Make those decisions on purpose, and the comp plan will have a fair chance of working.