How to set a sales quota for SaaS Sales Development Reps

By Graham Collins • September, 2022 • half dozen mins

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As Manager of Sales Development, I ran a team of forty Sales Evolution Representatives (SDRs) for about three years at a Software as a Service (SaaS) company in Austin, Texas. Previously, as a sales manager, I learned that it'south tough to set a sales quota… and simply every bit hard to set quotas for SDRs. During my tenure, the sales quota shifted a few times depending on visitor needs — and with it, the SDR quota shifted.

For managers who are creating a bounty plan for SDRs for the first time or wondering how to re-design your company's sales development compensation programme, here are a few ways to think most setting quotas that set up your reps upwards for success.

While sales quotas are more often than not just based on how much revenue the rep generates, at that place are several unlike means that SaaS companies ready SDR quotas. These typically fall into three buckets:

  1. Activity
  2. Opportunities
  3. Acquirement

Oftentimes Sales Development Rep quotas are based on more one of these buckets.

Need help figuring out what your team's quota should be?
Book a gratuitous consultation with Graham Collins, Caput of Growth, or endeavour our free Sales Bounty Calculator.

Activity

What it is: For the sake of this post, "activeness" means anything that the SDR has consummate command over and can vary depending on their level of effort.

Examples: Number of cold calls made, number of emails sent, number of new companies prospected

When to apply it: Equally with any sales quota, you will get the results that you compensate for. So managers should apply activity as a quota when your SDRs accept low activity and yous need it to increase. If, for example, your SDRs are 'whale hunting' (but going afterward theoretically loftier-value accounts or contacts), calculation in an activity quota can improve your quantity of opportunities.

When not to utilise it: Because there is no intrinsic value to cold calls and cold emails, I would never recommend using activity every bit your sole quota metric.

Opportunities

What it is: Opportunities can mean whatsoever number of dissimilar things, but this is the placeholder between action and revenue. This can exist equally early in the pipeline as a gear up demo or as late equally a sales qualified opportunity. How far along in the sales process y'all approximate your SDRs depends on how involved they are with the sale. If they prepare the coming together and laissez passer it off to a sales rep without whatsoever qualifying, and so a Demo Set up quota might exist ideal. If the SDR does a discovery phone call or even a demo, then compensating on the number of pipeline opportunities would exist amend.

Examples: Demos Set up, Demos Held, SQLs (Sales Qualified Leads), Sales Accustomed Opportunities, Pipeline Opportunities

When to apply information technology: If you demand a proxy for Airtight/Won acquirement, I would recommend using opportunities as your quota. Information technology's a proficient mid-bespeak between action and revenue because SDRs experience they have control over their performance and in that location is a value-add to the organization.

When not to employ it: If your sales reps shut nearly every opportunity handed to them, you'd exist better off using revenue as your metric. The same applies if your sales bicycle is transactional or very short (<5 days); acquirement or number of Airtight/Won opportunities is a better metric for you.

Revenue

What it is: Pretty straightforward, revenue is the value of Airtight/Won deals created past your SDRs.

Examples: ARR, MRR, Acquirement, Number of Closed/Won deals

When to apply it: Using acquirement as a quota is virtually effective when y'all can straight aspect your SDR's efforts to a bargain endmost. Ideal for short sales cycles (<30 days) and smaller bargain sizes (<$25,000 average contract value). Too when you're looking to move your SDRs into a closing function, tying them to acquirement can aid familiarize them with what a good opportunity/account looks like.

When not to employ it: You want to empower your SDRs to command of their destiny (and paychecks). You lot as well want the work they do to take a tangible impact on the Closed/Won deals. Therefore if your sales bicycle is longer than 90 days, it's hard to aspect your SDR'southward efforts to those deals. You tin can get an entire quarter and not know if you demand to change your SDR'south behaviors, target accounts, etc. Additionally, if your arrangement is closing vi figure enterprise deals at a rate of one to two per quarter, I would urge you abroad from using revenue as a quota for SDRs for like reasons.

How to fix a quota

Unless you subscribe to the 'guess and cheque' methodology of quota setting or you lot're a make new sales organization, there'south going to exist some math involved in setting quotas.

Hither's the formula that I follow:
Activity x conversion rate = Opportunities x close rate = # of Closed/Won deals x average contract value = Acquirement

Or working backward:
Revenue / boilerplate contract value = # Closed/Won deals / close rate = Opportunities / conversion charge per unit = Action

Conversion rate is the % of activities (calls, emails, chats, tradeshow leads, etc.) that turn into what you lot've adamant to be an opportunity.

Close rate is the % of those opportunities that turn into Airtight/Won deals.

With this math, you lot can formulate what success looks like for each of the dissimilar quota types.

A lot of information goes into how much acquirement each sales development rep should generate: customer acquisition cost, lifetime value of a client, SDR salary, growth model, etc. but if you lot're looking for the simplest guide, you can go with v-8x the SDR'due south on-target earnings (OTE). That means that for an average SDR making $72,000 on target, you'd be looking for them to generate $360,000 to $576,000 per year or $30,000 to $48,000 per month. Permit's say for this case our goal is 6x OTE, so $36,000 per month, average contract value is $eighteen,000, the shut charge per unit is 10%, and our conversion rate is 2.v%.

$36,000 acquirement / $18,000 average contract value = two Closed/Won opportunities / 10% shut rate = 20 opportunities / 2.5% conversion rate = 800 activities (xl per day)

So there you have information technology, with a piddling agreement of diverse quota metrics and with this helpful formula, you can go fix your quotas with confidence! If you lot have any questions virtually your current SDR quota, I'k always hither to help. Feel free to email me at graham@quotapath.com.

Updated on September, 2022

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