Quota setting is one of the most consequential decisions in revenue planning. Set quotas too high and you demoralize your sales team, drive attrition, and create a culture of sandbagging. Set them too low and you overpay for performance that would have happened anyway, leaving money on the table and understating the true capacity of your organization.
The finance team has a critical role to play in this process, bringing analytical rigor to what is often an overly political exercise. This guide covers the primary methodologies, when to use each, and how to build a process that leadership and the field can both trust.
Why Finance Should Own the Analytical Foundation
Sales leadership understands the market, the competitive landscape, and the capabilities of their reps. But they also have an inherent bias toward lower quotas since their team’s compensation depends on attainment. Finance provides the counterbalance by anchoring quota discussions in data: historical performance, market sizing, capacity modeling, and budget targets.
The ideal process is collaborative. Finance builds the analytical framework and proposes initial allocations. Sales leadership provides qualitative input and adjustments. Both parties agree on the final numbers before communicating to the field.
Top-Down Quota Setting
Top-down methodology starts with the company’s revenue target and works backward to individual quotas.
How It Works
- Begin with the board-approved revenue plan for the period.
- Subtract revenue expected from non-quota-carrying sources (renewals handled by customer success, channel partners, inbound self-serve).
- The remaining number is the total quota-carrying target.
- Divide by the number of fully ramped quota-carrying reps, adjusted for expected attrition and ramp time for new hires.
- Apply a quota coverage ratio (typically 1.1x to 1.3x) to account for the fact that not every rep will hit 100%.
When to Use It
Top-down works best when leadership has high confidence in the revenue target and the sales organization is relatively homogeneous. It is fast, straightforward, and directly connected to the company’s financial plan.
Limitations
Top-down ignores territory-level variation. A rep covering a saturated market gets the same quota as one in an untapped greenfield territory. Without adjustments, this approach can feel arbitrary to the field.
Bottom-Up Quota Setting
Bottom-up methodology starts with individual territory or account-level opportunity and aggregates upward.
How It Works
- Assess the total addressable market (TAM) for each territory or account segment.
- Apply historical conversion rates and average deal sizes to estimate realistic bookings potential.
- Factor in each rep’s tenure, skill level, and historical performance.
- Sum individual quotas to get the total team target.
- Compare the aggregate to the company’s revenue plan and reconcile any gaps.
When to Use It
Bottom-up is ideal for organizations with well-defined territories, strong CRM data hygiene, and enough historical performance data to build reliable models. It is particularly useful in enterprise sales where territory composition varies significantly.
Limitations
Bottom-up is time-intensive and depends on data quality. It also tends to produce conservative aggregate numbers because each territory estimate reflects a “most likely” case rather than a stretch target. You will almost always need to reconcile bottom-up outputs with top-down targets.
Hybrid Approach: The Recommended Framework
Most mature revenue operations teams use a hybrid method that combines the discipline of top-down with the granularity of bottom-up.
Step 1: Establish the Top-Down Envelope
Start with the revenue target and calculate the total quota pool, including the coverage ratio. This is the ceiling that individual quotas must sum to.
Step 2: Build Bottom-Up Territory Models
For each territory or segment, model the realistic bookings potential based on TAM, pipeline history, win rates, and rep capacity. This produces a “fair share” allocation for each rep.
Step 3: Reconcile and Adjust
Compare the sum of bottom-up allocations to the top-down target. If there is a gap, distribute the difference proportionally, weighted by factors such as territory growth potential, rep tenure, and strategic priority.
Step 4: Apply Guardrails
Set minimum and maximum quota changes year-over-year (typically no more than 15-20% increase) to avoid whiplash. Flag any rep whose quota exceeds historical attainment by more than a defined threshold for a management review.
Step 5: Validate with Sales Leadership
Present the proposed quotas to frontline managers and regional leaders for qualitative review. Adjust for factors the model cannot capture, such as a key competitor exiting a market or a major account entering a buying cycle.
Quota Segmentation Strategies
Not every rep should carry the same type of quota. Segmenting quotas by role and motion improves alignment.
New Business vs. Expansion
Separate quotas for new logo acquisition and expansion within existing accounts. Blending the two makes it difficult to diagnose performance issues and often leads reps to favor the easier path.
Product-Specific Quotas
When launching a new product or entering a new market, consider adding a product-specific overlay quota. This ensures reps dedicate attention to strategic priorities rather than defaulting to their comfort zone.
Activity-Based Quotas for SDRs and BDRs
For top-of-funnel roles, quotas should be based on qualified pipeline generated or meetings set rather than closed revenue. Tying SDR quotas to downstream revenue creates a disconnect between effort and outcome that is outside the rep’s control.
Attainability Analysis: The 60/40 Rule
A well-calibrated quota distribution should show roughly 60-70% of reps at or above 100% attainment, with the remaining 30-40% below target. This distribution indicates that quotas are stretching but achievable.
Run this analysis quarterly. If attainment skews heavily in either direction, investigate the root cause before adjusting quotas. Common culprits include market shifts, product changes, territory realignment, or turnover in key accounts.
Timing and Communication
When to Set Quotas
Quotas should be finalized and communicated no later than the first week of the new fiscal period. Ideally, reps have visibility into their targets 2-4 weeks before the period begins so they can plan their pipeline accordingly.
How to Communicate
Deliver quotas in a one-on-one conversation between the rep and their direct manager, supported by a written plan document. Never announce quotas in a group setting where reps compare numbers without context. Provide the rationale behind each quota, including the data and methodology used.
Handling Disputes
Establish a formal dispute window (typically 2 weeks after quota delivery) during which reps can raise concerns with supporting evidence. Have a defined escalation path that includes finance review. This process builds trust even when the answer is no.
Annual Quota Review Checklist
At the end of each fiscal year, evaluate your quota process against these criteria. Assess whether the aggregate quota attainment fell within the 60-70% target range. Determine if the cost of sale remained within budget. Check whether any territories were systematically over- or under-quoted. Confirm that reps who left cited compensation or quota fairness as a factor. Finally, verify that the gap between top-down targets and bottom-up models narrowed compared to the prior year.
Use these findings to refine your methodology for the next cycle. Quota setting is a practice that improves with iteration, and the organizations that invest in getting it right build a meaningful competitive advantage in talent retention and revenue predictability.