How to Set Sales Quotas With Capacity Math, Step by Step

Capacity comes from four inputs that you can measure:

• Average deal size: the typical annual contract value for closed-won deals.
• Win rate: the share of qualified opportunities that close, from your own history.
• Sales cycle: the typical time from qualified opportunity to close.
• Workable opportunities: how many active deals a rep can handle well at once.

The formula is: deals a rep can close in a year is roughly the number of selling months divided by the cycle length in months, times the active deals they can carry, times the win rate. Multiply by average deal size to get revenue capacity.

Use your own numbers. The average B2B new-logo win rate is 19 percent¹, a reference point only, since your rate depends on how you qualify. The sales velocity guide shows a related way to combine the same inputs.

Say a mid-market rep has 11 selling months a year after leave and holidays. In this example, the sales cycle is 3 months, the rep can carry 12 active opportunities and the win rate is 25 percent, and the average deal is $40,000.

Work it through:

1. Cycles per year: 11 divided by 3 gives about 3.7.
2. Opportunities worked through a full cycle: 3.7 times 12 gives about 44.
3. Deals won: in this example, 44 times 25 percent gives about 11.
4. Revenue capacity: in this example, 11 times $40,000 gives about $440,000.

That's the ceiling for a fully ramped rep in this example, before any buffer for a bad quarter. Set the quota at or below capacity, and note what has to be true, such as pipeline being available to feed 12 active deals at all times. If that pipeline doesn't exist, the quota is fiction whatever the formula says.

Capacity is the theoretical number. Adjust before assigning it:

• Ramp: for a new rep, pro-rate quota by how many productive months they'll have and how long their first deals take to close, given your cycle.
• Leave and holidays: subtract planned time off from the selling months.
• Seasonality: if your buyers close most business in one or two quarters, split the annual quota to match, so a rep isn't measured against a quarter that can't deliver.
• Territory or account differences: a rep with strong existing accounts and one starting from scratch don't have the same capacity.

Document each adjustment, so a rep who asks why their number is what it is gets a reasoned answer. Also see the CRO framework for fair quotas for how to communicate them.

Once you have a capacity-based quota, run two checks.

Against pay. Compare quota with on-target earnings. Some teams use a quota-to-OTE multiple as a sanity check, but derive yours from your margins, not from a rule of thumb. Say a rep's OTE is $150,000 and the quota is $440,000. In this example, that's a multiple of about three, and you'd ask whether the cost of sales at that multiple fits your economics. The quota-to-OTE ratio guide explains the tradeoffs.

Against the company target. Add up rep quotas. If the total is below the revenue goal, you have a gap to close through hiring, pipeline growth, expansion or a lower goal. Some leaders add a buffer by assigning total quota above the target to absorb misses, but do it on purpose and know the cost: reps see a number that's less reachable.

Recalculate at least annually, and after any change in pricing, product, territory, sales cycle or lead flow. Check quarterly whether actual attainment is matching your assumptions:

• If nearly everyone hits quota, it's likely set too low or your capacity estimate is off.
• If almost no one does, look at the inputs. Is pipeline sufficient? Is win rate lower than assumed?
• If a few reps do well and the rest don't, examine territories and lead distribution before blaming individuals.

Sales compensation software such as QuotaPath can track attainment from CRM data and let reps see progress, though you should confirm in a demo that it fits your plan structure. For expansion or account manager roles, quotas follow a different logic; see expansion quota setting, and for capacity across the team see sales capacity planning and coverage ratios.