Stop Guessing: The Sane Person's Guide to Setting SaaS Sales Quotas
Let's be honest. The way most early-stage companies set sales quotas is an absolute circus. The founders and a finance person lock themselves in a room, look at a scary spreadsheet labeled "BURN RATE," and emerge with a number that has more to do with wishful thinking than reality. They hand it to the sales team like a stone tablet from the heavens, and then act surprised when morale plummets and half the team is on a performance improvement plan by Q3.
And look, this process is a bit like trying to navigate a new city using a map drawn by a toddler. You've got a destination, sure, but the path is pure fantasy, you're definitely going to get lost, and someone is probably going to end up crying. There’s a better way. It’s not a secret art; it’s just math and a dose of reality.
It All Begins With These Four Key Inputs
Before you can even think about a number, you need to know what you’re working with. Pulling a quota out of thin air is how you get reps quietly updating their LinkedIn profiles. You need four key inputs:
Company Revenue Goal: The big number the business needs to hit. This is your destination.
Average Contract Value (ACV): What's a typical deal worth over a year? If you don't know this, stop everything and figure it out. Not knowing your ACV is like being a chef who doesn't know the price of chicken.
Average Sales Cycle Length: How long does it take to close a deal, from first touch to signed contract? This tells you how long a rep needs to ramp up and start hitting their numbers.
On-Target Earnings (OTE): This is the total cash a rep can expect to earn if they hit 100% of their quota (base salary + commission). This isn't just a compensation number; it's the anchor for our first calculation.
You Calculate It From Two Different Directions
There are two classic ways to approach setting a quota. Thinking one is better than the other is the mistake. You need both to find the truth.
Method 1: The Bottoms-Up Approach (The Rep Reality Check)
This is the one most people miss. It starts with the rep and asks, "What is a reasonable amount of revenue this person should be responsible for, based on what we pay them?"
The calculation is beautifully simple: Rep OTE * Quota Multiplier = Annual Quota
The "Quota Multiplier" is the magic number here. It's a benchmark that tells you how much revenue a rep should generate for every dollar they earn. Here are some real-world benchmarks I've seen work:
3x Multiplier: You're probably a very early-stage startup with a complex, long sales cycle. You're still figuring out product-market fit. This is tough territory.
4x Multiplier: A common starting point for many SaaS businesses. It’s ambitious but achievable for a solid rep.
5x-6x Multiplier: You’re in a good spot. You likely have a well-known brand, strong inbound lead flow, and a more transactional sales process.
So, if a rep’s OTE is $120,000, a 4x multiplier gives them a $480,000 annual quota. This is a target grounded in the financial reality of that sales role.
Download the free the rep reality check Quota Planning tool
Method 2: The Top-Down Approach (The Business Reality Check)
This is the method the finance team loves. It starts with the company's needs and works backward.
The calculation is also simple: Company Revenue Goal / Number of Quota-Carrying Reps = Annual Quota
If your company needs to hit $4M in new revenue and you have 5 reps, the top-down quota is $800,000 per rep.
The 'Best' Sales Planning Method Is Actually Using Both
Now you have two numbers. In our example, the Bottoms-Up quota is $480k, and the Top-Down quota is $800k.
See the problem?
If you only use the Top-Down number ($800k), you're setting a target that's almost 7x the rep's OTE. Unless you’re selling a product that sells itself, you're setting your team up to fail. They will burn out, they will leave, and you will miss your company goal anyway.
If you only use the Bottoms-Up number ($480k), you might create a happy sales team, but with 5 reps, you'll only hit $2.4M of your $4M company goal. That's a different kind of failure.
The gap between these two numbers is where the real work happens. A massive gap doesn't mean your sales reps are bad. It means your business model is broken. It means you have a fundamental mismatch between your company's revenue expectations and the reality of your sales engine. You either need to hire more reps, increase your ACV, or adjust the company's goal to something more realistic.
By calculating quotas from both directions, you get a clear, unflinching view of reality. You can find a number that both pushes your reps and gives them a legitimate shot at success while ensuring the business stays on track. It forces an honest conversation about what’s actually achievable.
Stop Theorizing and Start Calculating
Tired of the guesswork? Want to see how your own numbers stack up? I built a simple sheet that does the math for you. You can plug in your own OTEs, revenue goals, and play with different multipliers to see what makes sense for your business.
Download our free Sales Quota Calculator now and build a plan that actually works.