Imagine this scene: A company is missing its sales quota and asking for help.

CEO: We don’t have enough pipeline. We need to generate more to fuel our growth.  Can you take a look at our demand gen and outbound efforts and help us improve?

You: Sure, we’ll look at that in a moment. But before we get there, how much quota do you have deployed versus the planned quota?

CEO: I’m not sure – what do you mean by “deployed”?

Let’s start at the top. Growth companies missing their quota isn’t uncommon – many companies set aggressive goals and don’t achieve them. And lack of pipeline is a common culprit – you can’t close deals you aren’t nurturing in the pipeline. Before we delve into pipeline dynamics, we should identify one of the most critical factors driving why companies in this predicament don’t have sufficient pipeline. Often, it’s because of a concept called sales capacity.

Sales capacity refers to how much quota you have actually deployed, not just planned for at a high level. Also known as “quota on the street” (QoS), it’s the exact amount of quota, including ramps and attrition, that is deployed at any given moment. Deploying the quota is critical because it means three things have happened. You’ve onboarded and ramped a sales rep, given that rep a comp plan, and made sure that comp plan has a quota for the time period being measured.

These three items are critical, because when a sales rep has started, you do have the butt-in-the-seat, but you don’t necessarily have the quota truly deployed. Sales reps take time to train and get enabled, so most companies provide them with an initial time period during which the rep is active in his/her territory, they don’t have quota yet. Instead, the quota is usually staged over the rep’s ramp-up period.

Let’s look at three scenarios to explore the value of QoS and sales capacity in action.

SCENARIO 1:

Your business plan is $500K for the month.

Your plan called for you to have six fully ramped reps onboarded and selling, each with a $100K quota for the month.

Your actual is six reps are onboarded and ramped.

This means your sales plan is $500K and your sales capacity is $600K. Good for you; you have 20% over-assignment above your quota, which is exactly what the plan called for.

SCENARIO 2:

Your business plan is $500K for the month.

Your plan called for you to have six fully ramped reps onboarded and selling, each with a $100K quota for the month.

Your actual is four reps onboarded and ramped.

This means your sales plan is $500K and your sales capacity is $400K. You don’t have enough quota deployed to hit team quota. Specifically, if 100% of your AEs hit 100% of quota, you will still deliver less than your plan. This is called being under-capacity.

Under-capacity is a common reason companies miss quota and don’t have enough pipeline.  Think about it this way – does one AE create all of your pipeline? Of course not. It’s a team effort. To achieve your pipeline coverage, you need sales reps working with marketing and generating more pipeline. If you’re down on sales reps, the cause-and-effect is that you’ll be down on pipeline too.

The examples above are fairly simplistic. Let’s examine a more nuanced version of how you can get under-capacity without quite realizing it.

SCENARIO 3:

Your business plan is $500K for the month starting in August.

Your plan called for you to have six fully-ramped reps onboarded and selling, each with a $100K monthly quota.

Your plan assumes that reps ramp over 3 months, wherein the first month they have $0 in quota, $50K in the second month, and $100K in the third.

Using the chart, with the green boxes illustrating deployed quota according to hire month, you can figure out your QoS: Reps 1, 2, and 4 have been onboard all year and are fully deployed. But Rep 3 unexpectedly resigned in July, leaving you with a $100K gap. Rep 5 was supposed to be hired in May, but you didn’t get her onboarded until July, so in August she is still ramping and only has partial quota deployed. Rep 6 was supposed to be hired in June, but you just started him in August, so he has $0 in quota deployed.

In scenario 3, your August business plan is $500K and you have five reps on board. But due to a resignation and missed hiring dates, you only have $350K of quota deployed for the month. For September, you add $100K more of quota deployed but you’re still under plan at $450K deployed vs $500K plan. In October, assuming you haven’t re-filled rep 3, you only have $500K of quota against a $500K plan.

All of the above conditions mean that for Q3 you will deploy $1.3M of quota versus a $1.5M plan.

Your problem may indeed be the lack of pipeline, but the root of the pipeline gap is not marketing. The cause is not enough reps to create the needed pipeline. Here’s the rub – your reps may be doing well on their individual pipeline building and creating 3X pipeline. But even if they all hit 100% of quota, the company will still miss plan!

This is why measuring sales capacity is so critical and why this metric should be tracked on the weekly CEO dashboard.  Specifically, your team should track:

Business plan quota:              $XXX

Quota deployed on street:    $YYY

This should shape your hiring decisions and how you spend money on recruiters.

One final scenario to consider: Imagine your team missed Q2 quota by 20%. Your reaction is to pause hiring until the team shows better performance. Before making this decision, grab your business plan and look ahead to Q4, as well as Q1 of next year. Look at what the plan says, then zero out any hires you are contemplating pausing.

I can predict what this crystal ball will tell you. It’ll say in those future periods, your plan is higher than your QoS. So tread carefully when you consider pausing any quota-bearing hiring. That call can have a multi-quarter impact.