What is a reasonable first year quota for a new business salesperson for an outsourcing company? #Q&A

By Zeeva Viola | April 25, 2017

Question:

I was recently offered a quota of $8k of recurring revenue per month in new business, each month, and assuming no churn. This amounts to $624k in revenue in year 1, and my salary is $60k. Is this realistic? Should my quota be related to my salary? The company has no other salespeople, but nearly half a million a month in revenue. I would sell services like providing outsourced customer support for companies. What is a fair and reasonable quota?

Edit: $60k is the base, and the incentive plan also includes 8% commission on my deals for year one, and 4% of any increase for year two, and 2% of any increase for year three. Also included is medical and a 401k after the first year.

Typical deal sizes can range from $1k per month to $100k or more per month. The average deal is probably $5-10k after the ramp-up period.

I understand that there is always churn, just assumed no churn to make the numbers easy.

Answer:

I suggest scrutinizing the internal capabilities and external demand for your outsourcing services to raise your confidence that this is achievable. One concern is your first-year quota ($624k) relative the company’s current revenue ($500k).

A few questions to ask:

• How did the company accrue their existing revenue? Is this one big customer and few small ones? Did the big customer arrive because of a referral or “friendly”?
• How long is the sales cycle? Did it take 3 months or 3 years to land the big customer? Does it take 3 weeks or 3 months to close the smaller $8k deals?
• Is there a general sales model that has been tested to earn these clients, or were they all random in their own way? Scalability is a big factor to moving from the initial $500k to the next $624k you are expected to achieve?

• What is the expected churn? Are any of the current customers grumbling at all about service and results?
• How have the price points been validated? The $8k/month could be more difficult if you are required to discount from list price to achieve each sale, or could be easier if you find that you can begin inching up the price because your existing customers are very happy. Does the price point cover the true costs of business? Is the company’s business model economically viable?
• What happens to leads and territories when salesperson #2, 3, 4 are brought on board later this year or next? How will that affect your ability to achieve your sales targets?

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Base salaries are designed to cover your cost of living and the commission plan is designed to reward a successful salesperson hitting their personal targets. As a general rule, I’ve established  compensation plans so that hitting goals equates to doubling the base salary. The plan you described (8% of $624k = $50k) basically gets you there at target the first year.

I do like the 4% and 2% annuity payout structure so that you seek long-term relationships with clients instead of landing short-term wins for the immediate commission. Overall, it appears to be a sound plan with clear structure and a nice benefits package. Scrutinize the busy model and ask yourself if this is a service you’ll be bragging about to your friends.

**This Q&A article was originally posted on Quora. Check out Scott’s Quora page here.