What Is Quota Retirement?

Your commission agreement may include terms such as:

• Quota retirement
• Quota attainment
• Tier attainment

Here at Sales Cookie, we process billions in sales for the sole purpose of calculating sales commissions. This terminology of “quota retirement” can be confusing, but we will explain in plain English what it really means (with examples).

So You Got a Quota To Retire?

Let’s say that you are John, a sales executive in a technology company called “Fine Works Technologies”. You were given a quota of $100,000 per quarter. Your job is to sell high-end computers. You received a confusing description of your sales incentive program. The commission agreement you just signed includes a paragraph about “quota retirement”. You want to better understand what this means.

How To Retire A Quota? Get Attainment!

To retire a quota, you need attainment. Your attainment will count towards meeting your quota and help you advance past it. Your attainment is measured by closing deals / selling computers. Doing this will successfully will count towards your quota’s attainment. It will help you retire your quota.

Once you have retired your quota, it’s in the “rear mirror” (and you might feel good about this). You may even qualify for richer rewards.

For example, your quarterly quota of $100,000 could be met based on the following crediting rules:

• New Business deals retire quota based on their [Contract Value]
• Service deals retire quota based on the [Service Amount] * 50%
• Renewal deals do not retire quota, but are still eligible for commissions

In this example, we can see that depending on the deal type, the amount of credits received varies. For “New Business” deals, the full [Contract Value] of each deal counts towards attainment. For “Service” deals, those only represent one-time revenue, so only 50% of the [Service Amount] is given in credits. For “Renewal” deals, since they require less effort to close, zero credits are given (so those deals will NOT help you retire your quota). However, you may still receive a commission on those Renewals, even though no advance is made towards your quota.

The intent of this commission structure is to say – “you can only make progress towards your quota when you close New Business deals (and to some limited extent Service deals)“. And – “sorry, but closing Renewals will not help you with quota attainment, but we will still pay you over those deals“.

Why Retire Quotas?

There are 2 main reasons for retiring quotas:

• If you fail to meet quotas, you may be punished!
  • You may be fired if the quota is an absolute baseline that everyone is expected to meet or because it’s required to “pay for your job”
  • You may receive a lower commission rate – or even no commissions
  • You may not be eligible for a draw
  • You may not receive a promotion
• If you successfully move past quotas, you may be rewarded
  • You may keep your job
  • You may receive higher commission rates
  • You may receive a flat cash bonus
  • You may receive a promotion

Beware of commission agreements which mention quota retirement, but without extra payouts specified once the quota has been retired. Those types of commission agreements often indicate that the assigned quota is an absolute minimum (required to keep your job).

What If There Are Multiple Tiers?

Let’s say you have a commission structure with a quota and 3 tiers:

• Tier 1 = 0-80% of quota
• Tier 2 = 80%-120% of quota
• Tier 3 = over 120% of quota

At which point have you “retired quota”?

• When you reach 100% of your quota in attainment?
  • This seems a bit strange as 100% falls in the middle of Tier 2.
• When you move past Tier 1 in attainment?
  • This seems a bit strange at Tier 2 starts at 120%.

The answer is that the idea of “retiring quota” is more meaningful when there are just two tiers (below 100% of quota, and above 100% quota). Or at least one tier falling exactly on 100% attainment. In the example above, no tiers falls on 100% of quota, so “retiring quota” does not make much sense.

Do All Companies Use Quota Retirement?

First, not all companies use quotas for their incentive plans. Some just use a flat commission rate, or calculate commissions per-deal (not based on overall attainment), as shown in this example.

Deal Type	Amount	Commission
Renewal	$0-$1000	3%
Renewal	$1000+	5%
New Business	$0-$2500	10%
New Business	$2500+	12%

Second, commission agreements can be written using different terminologies. Not all companies use or understand “quota retirement”. Here are variations of the same commission structure:

• “Once you retire quota, your commission rate increases to 10%”
• “Once you attain 100% of quota, your commission rate increases to 10%”
• “Once your credits exceed quota, your commission rate increases to 10%”
• “Once your attainment exceeds quota, your commission rate increases to 10%”
• “Once you reach 100% attainment, your commission rate increases to 10%”

Should You Use Quota Retirement In Commission Agreements?

While the concept makes sense in regular conversations (and it can feel satisfying to “retire” a quota), we feel that this terminology is confusing and NOT appropriate in a legal commission agreement. It’s a good way to motivate reps, but does not really belong in legal agreements.

We highly recommend defining the following clearly in legal agreements:

• First, define credits
  • How are credits given / calculated?
  • Do all deals give credits?
  • Are credit multipliers applied to certain deals?
  • Do refunds yield negative credit?
• Second, define quotas
  • Are they monthly, quarterly, etc.?
  • Can they change / be adjusted?
  • How are they calculated?
• Third, define attainment tiers
  • Explain that they are based on credits
  • Explain that they are based on quotas
  • Define tiers in relationship to the quota
  • Define payouts for each tier

It may be to your advantage to think about “credits” vs. “payouts” separately. A deal may yield zero credits towards attainment / tiers, but still be eligible for a payout. Conversely, a deal may give yield some credits towards attainment / tiers, but be ineligible for a payout.

This makes sense if you want to credits reps for meeting certain goals (so they feel they are making progress towards their quota), but reward them using different rules. Granted, many organizations use the exact same metric (ex: revenue) to a/ credit reps and b/ pay them.

In Conclusion

In this article, we explained what “quota retirement” means. This terminology is useful and motivating in regular sales conversations, but can be confusing in legal agreements. It is applicable to commission structures having a quota and at least one tier at 100% attainment.

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