Dear SaaStr: What is The Best Way to Set Sales Rep Quotas at Each Stage of a B2B Business?
Setting sales rep quotas in a SaaS business depends heavily on your stage of growth and ARR.
Here’s how I’d break it down:
1. Early Stage (Sub-$1M ARR):
At this stage, your primary goal is survival and proving product-market fit. Quotas should be simple and achievable. You want your reps to stay motivated and not quit because they can’t make money. Often, it’s better to overpay early reps slightly than to lose them. For example, you might pay them 100% of what they close for the first few months. If a rep closes $10K in deals, they take home $10K. It’s not scalable, but it keeps them engaged while you figure out your sales motion.
More here:
2. Early Growth ($1M–$10M ARR):
Once you’ve hit some traction, quotas should start aligning with your sales model. A good rule of thumb is to set quotas at 3x to 5x the rep’s fully burdened cost (their on-target earnings, or OTE). For SMB sales, quotas closer to 3x OTE are common, while enterprise sales can push closer to 5x. At this stage, you’re still iterating, so keep quotas realistic but slightly ambitious. You’re trying to find the balance between stretch goals and achievable targets.
More here:
3. Scaling ($10M–$50M ARR):
Here, you’ve likely debugged your sales process and have more data. Quotas should now be tied to historical performance and benchmarks. Look at your best reps and use their performance as a baseline. For example, if your top reps are closing $500K annually, set quotas slightly below that to account for variability. You can also start introducing monthly or quarterly quotas to drive consistency and pace within the team.
More here:
4. Late Stage ($50M+ ARR):
At this point, you’re optimizing for efficiency and predictability. Quotas should be tied to metrics like pipeline coverage, opportunity-to-close rates, and historical data. You might also shift from focusing solely on revenue to incorporating metrics like logo acquisition or customer retention. For example, enterprise reps might have quotas based on both ARR and the number of new logos closed.
A great SaaStr deep dive on this and more with Toast’s CRO here:
Key Tips Across All Stages:
- Benchmark Early: When you don’t have enough internal data, look at similar companies at your stage. What quotas did they set when they were at $5M ARR? Use that as a starting point.
- Iterate Often: Quotas aren’t static. Review them quarterly or monthly, especially in the early days, to ensure they’re driving the right behavior and are achievable.
- Balance Quality and Quantity: Early on, focus on quantity—getting more demos and deals in the pipeline. As you scale, shift to quality metrics like closed-won revenue and opportunity-to-close percentages.
- Don’t Overwhelm Reps: Ensure reps have a manageable number of opportunities. For low-five-figure deals, 25–30 active opportunities per rep is a common benchmark.
Quotas are as much art as science, especially in the early days. The key is to keep them motivating, achievable, and aligned with your growth stage.
