How Your Quota and Commission Plan Actually Get Built
Most reps get handed a quota and never ask where it came from. I've built quotas and comp plans as a Chief Revenue Officer, and reps who understand how the number gets made negotiate better offers and pick better companies.
Quota comes first
You can't set comp without a quota, and you can't set a quota without knowing the gap to the company's plan. You also can't know the gap without a real close rate and last year's full pipeline, including the deals that got pushed.
A good quota is achievable, but not easily. Set it too high and people stop trying because it feels impossible. Set it too low and nobody works hard. It shouldn't be the same number for everyone, either. More senior reps should carry more.
Your payout rate is math you can check
Take your variable pay at plan and divide it by your quota. That's roughly your commission rate. If your variable is $100,000 on a $1,000,000 quota, you're earning about 10% on what you close up to plan. When you're interviewing, ask for both numbers and run the math yourself.
Then ask about accelerators. When you go past plan, you should be making more per dollar. If a plan pays the same rate above 100%, ask why.
A plan without a quota is a revenue share
I've reviewed plans that paid a percentage of everything with no target attached. That's a revenue share. Every rep is working on "do as much as you can," and management is working on "I hope they do a lot." Nobody can tell who's actually performing. If that's the plan you're offered, ask what they expect you to book in a year and what you'd earn if you hit it.
Know which number you're paid on
Most quotas are set on bookings, which isn't the same number as revenue. Multi-year deals, renewals, and payment terms all change the math, and renewals often pay a lower rate than new business. Read the plan so you know what counts.
In my world, a rep's job ends at signature. Getting paid matters more to the business, but the CRM should reflect the work the rep did, and the rep did the work when the customer signed. If your plan only credits you when the cash lands, ask how long that usually takes.
What to ask before you sign an offer
- What's my quota, and how was it set?
- What's on-target earnings, and how does it split between base and variable?
- What percentage of reps hit quota last year?
- Are there accelerators above plan?
- Am I paid on bookings or on cash collected, and when?
- How do renewals and multi-year deals pay?
If a hiring manager can't answer those clearly, find out why before you sign.
Happy selling!