The first time I was tasked with creating a sales headcount and capacity plan, I was directed by the CRO to use a quota over-assignment of 120%. Why 120% I asked? That’s what everyone uses and what I've always used, I was told. So, I created a plan with 120% over-assign. Similar to the common refrain you need a pipeline coverage ratio of 3.0 to start a quarter (which you don’t), too many people stick with a quota over-assignment of 120% or 125% across all segments year after year without understanding the details, risks and costs.
Below, we will dissect the math behind Attainment Factor (also called planned quota attainment), the risks and the considerations to help you determine what the best level is for your company.
But, first some definitions.
Ramp: The amount of time it takes for a new sales rep to execute against their quota. This is primarily driven by onboarding time, pipeline building and length of sales cycle. Typically expressed monthly as a % of full quota.
Street Quota (SQ): The sum of the ramping or ramped amount of assigned quota that sales reps carry. For example, if the monthly quota for a sales rep is $10k and you have 5 fully ramped sales reps you have $50k in Street Quota. Or, if each of the 5 sales reps are in their second month of ramp and the ramp % for the second month is 50%, you have $25k in Street Quota.
Attainment Factor (AF): The % of Street Quota that needs to be closed-won for the company to meet its revenue goals. For example, if total Street Quota is $1,000,000 and the company target is $800,000 the Attainment Factor is 80%.
Over-assign: The inverse of the Attainment Factor that many companies use alternatively for planning. For example, if total Street Quota is $1,000,000 and the company target is $800,000 the Over-assign is 125%.
During annual planning, sales and company leadership align on the Attainment Factor that will be used for plan modeling. This input is used to generate the total number of sales representatives needed to achieve company revenue targets. The higher the Attainment Factor the less sales reps you will require to hit plan, the lower the Attainment Factor the more sales reps you will need.
Company Plan = $15,000,000
Rep Quota = $750,000
AF = 80%:
SQ: $15,000,000 / 80% = $18,750,000
Reps: $18,750,000 / $750,000 = 25 sales reps
AF = 90%:
SQ: $15,000,000 / 90% = $16,667,000
Reps: $16,667,000 / $750,000 = 22 sales reps
In the above example, 3 less sales reps are needed when using an Attainment Factor of 90%, instead of 80%. The Attainment Factor acts as a buffer or cushion between the total quota assigned to sales reps and the company number. A buffer is needed because it is unrealistic to expect that every sales rep will hit 100% of their quota. In addition, other planning assumptions don’t always go as planned such as attrition, start dates and internal moves which eat into sales rep capacity.
The lower the Attainment Factor, the more sales reps are needed which results in more Street Quota and more cushion to the company number. It's a lower risk plan, but also a more costly plan. The higher the Attainment Factor, the riskier the plan, but also less costly.
Attainment Factor is an important driver of risk in the plan. So instead of winging it or just using what you had previously, the setting of Attainment Factor should be intentional and consider the following:
The right Attainment Factor for your business
The analysis below demonstrates how the setting of quota attainment drives risk and costs, and can be used to help determine the ideal Attainment Factor for your business.
Using the assumptions above, the following table shows the planning outcomes for various levels of Attainment Factor. The baseline for this set of assumptions, an Attainment Factor of 100%, is 20 reps to cover the company target. Therefore the cushion of over-assign reps and over-assign Street Quota are both zero. Using the simple cost model above for compensation and overhead, which may consist of payroll taxes, healthcare, equipment and facilities allocations for example, the annual cost of this plan is $5,900,000.
Obviously the lower the Attainment Factor, the less risky the plan is, due to a larger cushion via more over-assign reps and Street Quota. But, the plan is more costly. So what is the right level for you? 95% appears too risky, a cushion of just 1 sales rep out of a base of 20. 60% and even 65% and 70% appear too costly to the business increasing the cost over 20% from the baseline. You are probably better served investing in programs to reduce attrition, increase pipeline or improve performance metrics such as win rate and deal size to drive an improvement in rep attainment. From the table below an Attainment Factor between 75% and 85% appears to be in the zone that best balances risk and cost. This of course depends on your evaluation of the considerations described above. But, in order to truly determine the best zone an analysis that includes attrition is needed.
Using the assumptions above around attrition rate, months to backfill and ramp the following table shows the amount of lost Street Quota and, therefore, cushion that is incurred. In this example, $250,000 of Street Quota is lost for each and every rep that attrits. This is the minimum that is lost, if it takes longer to backfill or ramp, the lost Street Quota will increase. Remember that any move from this segment will incur the loss of Street Quota including terminations, internal transfers and promotions to non-direct quota roles.
In addition to the above loss in Street Quota, the quality of Street Quota for a ramping rep vs one that is in seat is far lower and that gap grows the more tenured and productive the sales rep is that attrits. This means that the impact to revenue from lost Street Quota is often greater than the calculations above. Including attrition based on the above assumptions into the analysis, the best zone of Attainment Factor comes into clearer focus.
You can see that at the 90% Attainment Factor, the entire cushion that was put into the plan is wiped out by the attrition of 6 sales reps. Each of these 6 sales reps drives a loss of $250,000 which eats the entire $1,500,000 in over-assigned Street Quota. This effectively means you are operating in an Attainment Factor of 0% environment. The equivalent zone of an Attainment Factor of 75% - 85% when not considering attrition is in the high 60% to the high 70% when considering attrition.
A few things to keep in mind
As you can see from the above, the Attainment Factor is a key driver in both plan risk and cost. Carve out time to analyze your business and agree on the risk factor and cost levels that are right for your company. Make sure you balance your risk tolerance and costs. If you drive the Attainment Factor up too much to reduce plan costs, you may end up costing the company in other ways such as failure to make plan and growth targets due to an unrealistic expectation of rep achievement. If you move it lower, you may struggle to meet your P&L targets or fund other departments and priorities.
It is very difficult to reduce both risks and costs, but if you focus on improvements across that company that impact quota attainment and sales costs you can drive a plan that does both.
What is the right Attainment Factor for your company? You can download this planning quota attainment calculator and plug in your own assumptions to evaluate Attainment Factor similar to the tables above and find the right assumption for your organization.