When I began as a salesperson in the early-80's quota's were fixed and set once a year based on overall revenue achievement. If you were skilled (or lucky) at the end of the year you would be celebrating as a member of the 100% Club, or similar recognition for meeting, or exceeding quota. Other times your customer, or territory may have fallen on difficult times, and try as you might, you couldn't reach the goal.

Back then, the general economy didn't seem to undergo the tumultuous changes we have experienced in the past ten years, and certainly not with the global impact we see today. So there has been a continuing shift by many company's to make quota's variable, adapting to the quickly changing economy we experience today. Before examining variable quota's and metrics being used today, let's establish some parameters. Regardless of the economy, what are guidelines which enable quota's to benefit the company, and employee?

QUOTA GUIDELINES
•  Reinforce Corporate Goals
Align compensation to reinforce Corporate Goals and desired behavior.
•  Fair and Attainable
If employees don't believe the quota is attainable, you're creating a disincentive, which will negatively impact moral. Over time, if ~70% of your team isn't making quota, then the bar is set too high, or other major problems exist.
•  Sufficient Financial Reward
It needs to motivate and differentiate those employees that exceed quota, not just meet quota. Exceptional performance should be acknowledged and rewarded accordingly, which means smaller incentive to those who just meet quota.
•  Readily Available Measurement
The top performers will want to know their progress, make sure the data is readily available.
•  Easy to Understand
Can they explain it to their wife? If it takes a scientific calculator to determine their progress, consider providing a graph, or table that can provide close approximations.

Variable quota's can take many forms, from simply re-setting the quota on a semi-annual, or quarterly basis, too using a lagging 60-day average to define the next quarter bounds. The benefit is to greatly reduce the positive and negative excursions in performance measurements. I think this is generally a win-win scenario. What are some of the metrics being used today to set quota's?

QUOTA METRICS
•  Revenue
Almost always a primary metric, now used frequently in combination with other metrics.
•  Special Focus: Product, Strategic Company, or Market Segment
Another means to reinforce the Corporate Goals, beyond revenue.
•  Gross Margin (GM), or Contribution Margin (CM)
GM is seen more and more, and a de facto metric in many industries. CM is getting wider usage as some company's have very high fixed costs.
•  Bookings
Bookings are a 'leading' indicator and some industries with very long lead times find this to be a better measurement.
•  Management By Objective (MBO)
A catch-all, especially for senior management and those with P&L responsibility. Usually a blend of personal responsibility and overall company performance.

The method for paying-out quota's has continued to become more sophisticated, and each has its own merit. Some are more common in some circumstances, e.g., it is not uncommon in 'commission only' to see a Straight Line, from Dollar One, with no Cap.

QUOTA PAYOUT
•  Straight Line
In this description, meant as a straight-line curve payout from Dollar One with no Cap.
•  Dollar One
Meaning a payout from Dollar One, regardless of the shape of the curve.
•  Minimum Floor
A minimum level of performance where payment begins, below this there is no payout.
•  S-Curve (See: Normal Cumulative Distribution Function)
In the bottom range the slope is very gradual, in the mid-range the slope is steep, almost a straight line, and in the top range the curve becomes asymptotic, or self-capping. Good flexibility, can be used with Dollar One, or Minimum Floor, and has a built-in Cap. (Also can be implemented as a shifted sine function.)
•  Cap
A point on any payout curve where the slope becomes zero; the payout ceases to increase.
•  Hold-Back
Part of two-stage payout; some percentage is held-back, usually until the end of the year. When quota's were fixed and set once a year, this used to be a way to prevent large windfall payout's in a single time period (quarter), when other quarters may be below quota. It becomes almost moot with variable quota's.

What is the current trend and how much payout is typical? The current trend seems toward a Minimum Floor, and Cap, with varied curve shapes, and/or steps. The amount of payout varies, but as a function of annual base salary (x) typical ranges for sales managers are from 0.5x to 3.0x. Your mileage may vary...

If you need help with compensation plans for your direct sales, or channel partners—please feel free to contact me. I can also help with associated items such as: forecasting, pipeline management, and monitoring appropriate KPIs via Graphical Dashboard.