Quota Attainment

How to Calculate Quota Attainment

The quota attainment is a critical KPI for the SaaS industry because the metric pertains to meeting revenue growth targets and offers insights into the cost efficiency of a company’s customer acquisition strategy.

In the SaaS industry, the quota attainment is set based on the historical performance of individual sales reps (or the sales team), the urgency to obtain more customers and external factors such as the current market conditions or competitive landscape.

Usually, the quota per sales employee or team is announced by the company right at the start of the month, quarter, or new fiscal period (i.e. end-of-year).

For a SaaS company to achieve its recurring revenue targets and improve its operating performance, the right incentive structure must be intact with its sales team.

However, the right balance must be struck between encouraging sales reps to exceed their sales quotas, without demotivating them (and causing the employees to churn).

Often, the SaaS companies backed by venture firms and competing in a competitive market are those that make the costly mistake of pushing employees beyond their limit, i.e. the pressure placed upon the management team trickles down to the sales reps.

Therefore, the management team must establish a benchmark in sales performance and set the sales quota per employee per historical precedent and industry averages.

The process of calculating the sales quota is as follows:

• Step 1 ➝ Set the Time Frame (Monthly, Quarterly, Yearly)
• Step 2 ➝ Divide the Achieved Annual Recurring Revenue (or Bookings) by the Sales Quota
• Step 3 ➝ Convert the Quota Attainment into Percentage Form (Multiply by 100)

Quota Attainment Formula

The formula to calculate the quota attainment is equal to the annual recurring revenue (ARR) divided by the sales quota, which is then multiplied by 100 to express it as a percentage.

Where:

• Annual Recurring Revenue (ARR) = Monthly Recurring Revenue (MRR) × 12 Months

Once determined, the percentage of the quota met reflects the performance of the sales rep, barring extraordinary circumstances.

The components of annual recurring revenue can include new ARR, renewal ARR and expansion ARR, based on the specific company’s method of tracking KPIs.

Conversely, the quota attainment can be calculated as bookings divided by the sales quota.

The consistency of the sales team of a SaaS company in reaching its monthly, quarterly, or annual sales quota is correlated to its overall revenue performance and growth profile.

If the quota is not met all across the board, the management team must quickly recognize that the current target is to identify areas for operational improvement and make data-driven decisions about its customer acquisition strategies and resource allocation.

• High Quota Attainment ➝ The sales team is functioning efficiently and meeting its sales quota, implying the current strategy in place is working as intended and there is sufficient demand for the product sold to the end market (i.e. the customer base).
• Low Quota Attainment ➝ The sales team must go back to the drawing board to come up with a different plan, or else miss quota targets (and likely, the absence of “product-market fit” will only continue).

Note: The quota is set based on the KPI that matters most to the organization. For instance, the profit generated or upsell conversions could be tracked instead.

What is a Good Quota Attainment?

Most SaaS companies nowadays tie employee compensation (and the monetary incentives) to the quota attainment, which aligns the incentives of the sales reps and the organization as a whole.

Once a SaaS or software business manages to reach the commercialization stage with the target customer and end market to distribute their products, the sustainable pace of growth is contingent on the sales team consistently meeting their quotas — whereas, customer retention and business strategies (e.g. upselling, cross-selling) contribute toward more sustainable profits, or “economic moat”.

One of the most common misconceptions is that a 100% quota attainment implies the company is at break-even. In actuality, a 50% quota attainment is the norm in the SaaS industry — albeit, the target benchmark for each sub-industry is different.

But while setting the quota attainment appropriately matters, of course, understanding the underlying drivers and adjusting accordingly matters even more.

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