{"id":1087,"date":"2020-11-22T23:17:25","date_gmt":"2020-11-22T23:17:25","guid":{"rendered":"https:\/\/sellingsherpa.com\/?p=1087"},"modified":"2020-11-22T23:26:46","modified_gmt":"2020-11-22T23:26:46","slug":"cros-and-cfos-should-lower-quota-and-ote","status":"publish","type":"post","link":"https:\/\/sellingsherpa.com\/index.php\/2020\/11\/22\/cros-and-cfos-should-lower-quota-and-ote\/","title":{"rendered":"CROs and CFOs Should Lower Quota and OTE"},"content":{"rendered":"<div class=\"nolwrap\">\n<p>As competition for labor escalated to a fevered pitch in the last decade, companies lured AEs with promises of higher on-target-earnings (OTE).  To keep the cost of sales constant, CFOs demanded higher quotas. <\/p>\n\n\n\n<p>But along the way, something bad started to happen. Fewer and fewer AEs hit quota. This was a lose-lose-lose for CFOs who ended up with lower margins, for CROs who lost their jobs, and for AEs who wrestled with failure on a daily basis.<\/p>\n\n\n\n<p>In some instances, even more bizarre things began to happen. The old rule-of-thumb for quota over-assignment (how much more quota is collectively assigned to AEs as compared to CROs) was 10%.  Today, it is not uncommon to see over-assignment as high at 50%.  That is sheer madness.<\/p>\n\n\n\n<p>It is time for a reset. <\/p>\n\n\n\n<p>Though I don&#8217;t have the data, I have a strong hypothesis that average new business generated by B2B SaaS AEs has not wavered all that much from $600K.  But, imagine you have a $120K OTE with a 50-50 split and a $600K quota (hence a 20% theoretical cost-of-sale).  Further, assume the following performance distribution:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>40% of reps hit $500K<\/li><li>40% of reps hit $600K<\/li><li>20% of reps hit $800K. <\/li><\/ul>\n\n\n\n<p>In this case, the &#8220;average&#8221; rep attainment is $600K.<\/p>\n\n\n\n<p>The take-home pay for AEs (assuming the company pays 10% for sales up to quota &amp; 20% beyond)<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>$110K for the reps who hit $500K<\/li><li>$120K for the reps who hit $600K<\/li><li>$160K for the reps who hit $800K<\/li><\/ul>\n\n\n\n<p>The cost of sale is therefore 20.7% (higher than 20% since we have &#8216;over-paid&#8217; the &#8216;under-performing&#8217; reps.  <\/p>\n\n\n\n<p>As I&#8217;ve stated, a big problem here is that 40% of AEs go to bed each night feeling as though they are failing.  There is a better way.<\/p>\n\n\n\n<p>Imagine instead quota was lowered to $500K and OTE was lowered to $110K. Now: <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>The 40% of reps who hit $500K still get paid $110K.<\/li><li>The 40% of reps who hit $600K will still get paid $120K. (assuming we pay 10% on the first $100K over target).<\/li><li>The 20% of reps who hit $800K will still get paid $160K. (assuming we pay 20% on all sales after exceeding $100K over target).<\/li><\/ul>\n\n\n\n<p>Here, the same amount of money changes hands yet every rep gets to feel successful. This leads to stronger retention and a culture of success.<\/p>\n\n\n\n<p>Now, some may object that we are favoring the reps who earn $500K and making the comp plan more complex (with the odd accelerator thresholds). To fix that, set OTE to $100K, quota to $500K, and continue to pay 20% for sales over quota.  Now we pay:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>$100K for the reps who hit $500K<\/li><li>$120K for the reps who hit $600K<\/li><li>$160K for the reps who hit $800K<\/li><\/ul>\n\n\n\n<p>I prefer this final simplification.  CFOs sleep happy since cost of sale is a predictable 20%. CROs sleep happy because quotas have been set reasonably and they don&#8217;t win even when their reps lose.  All the AEs are happy too. Those hitting $600K or $800K are not impacted. Most of those who hit $500K are probably better off overall (due to the lift in well-being) even if they would not have traded $10K for the mental health benefit.<\/p>\n\n\n\n<p>If you want to make this change with an existing sales team, then you probably need to go with the $500K quota + $110K OTE option since you&#8217;ll do more harm lowering people&#8217;s take home pay.  However, if you are adding a new team, I recommend setting quotas where everyone is a winner.<\/p>\n\n\n\n<p>Finally, some will argue that if you lower quota then you lower performance.  I don&#8217;t buy that unless quota is very low and OTE is astronomically high.  I&#8217;d argue that AEs who feel successful are driven to pursue greater success &#8211; much more so than AEs who give up feeling they have failed. And, the extra 20% for every dollar won is a strong incentive.<\/p>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>As competition for labor escalated to a fevered pitch in the last decade, companies lured AEs with promises of higher on-target-earnings (OTE). To keep the cost of sales constant, CFOs demanded higher quotas. But along the way, something bad started to happen. Fewer and fewer AEs hit quota. This was a lose-lose-lose for CFOs who [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":1088,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_import_markdown_pro_load_document_selector":0,"_import_markdown_pro_submit_text_textarea":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[1],"tags":[],"class_list":{"0":"post-1087","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-uncategorized","8":"entry"},"aioseo_notices":[],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/sellingsherpa.com\/wp-content\/uploads\/2020\/11\/lower-quota-scaled.jpg?fit=2560%2C753&ssl=1","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p9j2qV-hx","jetpack-related-posts":[],"_links":{"self":[{"href":"https:\/\/sellingsherpa.com\/index.php\/wp-json\/wp\/v2\/posts\/1087","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/sellingsherpa.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/sellingsherpa.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/sellingsherpa.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/sellingsherpa.com\/index.php\/wp-json\/wp\/v2\/comments?post=1087"}],"version-history":[{"count":3,"href":"https:\/\/sellingsherpa.com\/index.php\/wp-json\/wp\/v2\/posts\/1087\/revisions"}],"predecessor-version":[{"id":1091,"href":"https:\/\/sellingsherpa.com\/index.php\/wp-json\/wp\/v2\/posts\/1087\/revisions\/1091"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/sellingsherpa.com\/index.php\/wp-json\/wp\/v2\/media\/1088"}],"wp:attachment":[{"href":"https:\/\/sellingsherpa.com\/index.php\/wp-json\/wp\/v2\/media?parent=1087"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/sellingsherpa.com\/index.php\/wp-json\/wp\/v2\/categories?post=1087"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/sellingsherpa.com\/index.php\/wp-json\/wp\/v2\/tags?post=1087"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}