— Jason ✨2022 SaaStr Annual Sep 13-15 ✨ Lemkin (@jasonlk) March 3, 2022
In SaaS companies in the very wide band from ~$1m to $40m ARR or so, the debate over Quarterly vs. Monthly Quotas comes up all the time. We’ve talked about it a lot at SaaStr, and I wanted to update one of our classic posts here with a new poll, video, and some updated thoughts.
And it especially comes up when you hire your First VP of Sales, because odds are, he or she will want to move from Monthly to Quarterly Quotas. They’ll probably be more used to Quarterly quotas and goals. And also — they’ll think it gives them some breathing room. A chance to make up for any weakness in the quarter during its last month.
But if you do move to Quarterly Quotas — at least for the first few quarters, you’ll probably hate it as a Founder. And often, see worse results. Because you’ll almost immediately move to a pattern whereby each quarter, you see 15-25-60. I.e., of the quarterly quota, you close, say, 15% in the first month, 25% in the second month, and 60% in the final month. The larger your ACV, the more extreme the ratio. The more transactional your sale, the less extreme it will be. But it won’t be 33/33/33, I can guarantee you that, once you move over.
Let’s be clear — once you move to Quarterly Quotas, you’ll see more revenue slide to the last month of the quarter. I’ve never seen it play out otherwise. Your stress will likely go up. Because your real visibility (not Sony Baloney Pipeline visibility, but real visibility), will go down.
And yet …
You likely have to do it at some point, to move to quarterly quotas and goals. At least if your sales cycles are anything longer than 1 month.
Because in the bigger deals, if the sales reps close less than, say, 20-30 deals a year (the # of deals is inversely proportionate to the deal size), then they just aren’t going to fall ratably each month. And as time goes on, and you segment your sales team into S, M, and L … at least the L guys won’t ever be able to meet a monthly quota. Not really.
So what’s to do?
- Sometimes, folks try to create accelerators for deals closed in the first month of the quarter. While that seems to work at the margin, the problem is that money has to come from somewhere. It either drives up your costs higher than plan (= stress), or it forces you to net net lower sales comp in the other 2 months (counterproductive, maybe).
- Another variant is to have a smaller monthly quota and a larger quarterly quota. The simple way to do this in our basic, first comp plan is not to pay any bonus in any month the rep doesn’t cover their costs. So you have to close at least some portion of your quarterly quota in the first two months to get your full paycheck. This doesn’t really move the needle here that much in the end, but in the early days perhaps can help without the Rob Peter to Pay Paul of the prior point.
- Allowing more discounting earlier in the quarter can work. This is pretty uncommon, but it can work wonders. Once you have a system to control and automate discounting, if you “secretly” let reps discount more in the first month or two of the quarter, they will close more. But — you need to be OK with the discounts. And even with a CPQ system, it’s hard to hold the line here.
- Hold out. At least hold out until next year to switch from monthly to quarterly. This may be the simplest tactical advice.
- Trust in your VP of Sales, and ask her to figure it out. This is the best answer in the end. Let her figure it out. Tell her you need more predictable revenue, and that you want to hold her to X% of the revenue for the quarter to close each month.
I wish I had the perfect answers here, I don’t. But I have four ideas above. Share your learnings here as well.
When you are at $100m ARR, you’re gonna be stuck with Quarterly Goals and Quotas unless you have a hyper-transactional model.
But if you can force the team to sweat it out with Monthly Quotas as long as possible — you’ll have much better visibility, and less variability, as CEO. At least in the early and middle days, until you have so many deals landing, things start to really smooth out.
It’s worth holding the line as long as you can, until you see it no longer matters.
And a similar post here, but written from a VP of Sales perspective — coming to the same conclusion:
(note: an updated SaaStr Classic post)
Go to Publisher: SaaStr
Author: Jason Lemkin