December is when most SaaS startups are closing out the year, trying to finalize next year’s operating plan (hint: I know a software company that can help with that), starting to get a clear view on which salespeople are going to make their number, and thus beginning the process of figuring out who to invite to the annual “Quota Club” (a.k.a. President’s Club, Achiever’s Club, or Sales Club).
In this post, I’ll discuss why Quota Clubs are so controversial and how I learned to think about them after, frankly, way too much time spent in meetings discussing a topic that I view nearly as difficult as religion or politics.
Quota Club is always highly controversial:
- It’s exclusionary. Consider this quote my friend Lance Walter heard years ago (I think at Siebel): “the last thing I want at Quota Club is to be lying on a chaise lounge by the pool, roll over, and see some effing marketing guy next to me.” Moreover, the sales personality tends not to blend well with other departments, so a well-intentioned attempt to send the top documentation writer on a trip with 30 sales people is as likely to be perceived as punishment as it is reward.
- It’s expensive. The bill can easily run in the hundreds of thousands of dollars for companies in the tens of millions of annual recurring revenue (ARR) and in the millions for those above that. That doesn’t help your customer acquisition cost (CAC) ratio.
- Even the basics of qualification are somehow complicated. Now, on the face of it, you might that “making quota” would be sufficient to qualify for quota club, but in some people’s minds it’s not: “no, at this company we expect people to make quota, so Quota Club should only be for those at 120% of quota.” (The idea that maybe quotas are set too low doesn’t seem to occur to these people.) That’s not to mention minimum attainment rules required to avoid accidents with ramped quotas (e.g., a new rep who sells $400K on a $200K quota.) Or the intractable problem in decentralized organizations where Country A runs large number of junior reps at low quotas while Country B runs small numbers of senior reps at high quotas — so someone who sells $1.25M in Country A attends club while someone who sells $1.75M in Country B does not.
- Invitations beyond quota-carrying reps (QCRs) are always controversial. Do consultants who hit their utilization target get invited? (No.) Do sales development reps (SDRs) who hit their opportunity goals? (No.) On what basis do sales consultants (SCs) get invited? (Depends on SC model.) Do CSMs who hit their renewals goals? (Maybe, depends on your customer success model and how much selling they do.) What about the executive staff? What about a regional VP or CRO when he/she didn’t make their number? Who presents the awards to their people? And this isn’t to mention companies that want to inclusionary and invite some hand-picked top performers from other departments.
- Guest policies can be surprisingly tricky. Normally this is simple — each qualifier gets to invite a spouse or partner, with the implication that the company wants to reward the chosen guest for the sacrifices they made while the qualifier was working long hours on the big deal and doing extended travel. What if the guest is a friend as opposed to spouse or partner? (Well, that’s OK if not quite the intent.) But what if that friend is coworker? (Hum, less so.) What if that friend is another quota-carrying rep who failed to make their number? (Even harder.) Or, changing angles, what if their spouse is a sales rep at your top competitor? What if they run competitive intelligence at your top competitor?
- Opinions diverge on family policy. Should qualifiers be encouraged to bring their children? How about Grandpa to watch them? Are these family members invited to any events or activities? Can their pay their own way on the snorkeling cruise if they want to? Is babysitting covered? Is the reward for spending too much time away from your family a mandatory vacation away from your family?
- The business meeting can be a religious issue. Many sales VPs think Club should be a 100% reward — a complete vacation with no work. If so, the CFO will take an income tax withholding from each qualifier: thus was born the business meeting that keeps Club a business affair and off the W-2s of the attendees. Some sales VPs thus think: do the absolute minimum to stave off the tax man. More enlightened folks think: what a great opportunity to meet with our top performers to talk about the business.
- People can’t even agree on the dress code. Should the awards dinner be California Casual, Summer Soiree, Creative Black Tie, Brooklyn Formal, or just a regular Black Tie Affair. (And where do they get these names?)
- Picking the location is is difficult. The Caribbean isn’t exotic for East Coasters and Hawaii isn’t exotic for West Coasters. Some people think Clubs should always have a beach location, some think European cities are more exotic. (By the way, try to find a reliably warm beach location in February or April.) Should you invest your money in flights to a relatively inexpensive place or get cheaper flights to a more popular and presumably expensive place? And this isn’t to mention any debates about hotel brands and their significance.
- In-room gifts can jack up the price. Club planners seem to love to include special gifts each night. A welcome bottle of champagne the first night, a beach kit the second, a Tumi backpack the third, and a farewell mini-Margarita kit can quickly add up to $500 in extra cost per qualifier.
- Planning is intrinsically difficult. It’s inherently hard to plan when you have 30 QCRs and you’re not sure if 10, 20, or 30 are going to qualify — this is particularly difficult when you plan sales-only Clubs because you have less to fudge in terms of non-QCR attendees. What do you do mid-year when you’ve planned for 20 and forecast that only 10 are going to make it? Devalue Club by dropping the qualification bar for some reps or (the same act seen through a diametrically opposed lens) preserve the incentive value of Club by making it a realistic goal for the reps who otherwise had no realistic hope?
Holy Cow, just making this list gets my blood pressure up. Are we sure we want to do this? My answer remains yes.
Most startups, once you’re beyond $5M to $10M in ARR, should have some sort of Quota Club. Here is my advice on how to do it:
- Define it as the CEO’s club. You can call it Quota Club or President’s Club, but make it clear to everyone that it’s the CEO’s event. It’s a big expense (with a huge opportunity to waste a lot of money on top) and it’s full of decisions that are both subjective and polarizing. Listen to what your current sales VP wants, but make those decisions yourself.
- Start small. At MarkLogic our first Quota Club was something like 10-15 people for two nights at the Bellagio in Vegas.
- Leave room to make it incrementally better each year. This is what I call Narva’s Rule, after my friend Josh Narva who came up with it. (By the way, had we better applied his rule, we’d have held the first MarkLogic Club at Caesar’s Palace, saving the Bellagio for the following year — but at least we got the two days part right, leaving room to later expand to three.) Don’t cover every bite or drink that goes in someone’s mouth in the early years: folks can get a breakfast croissant at Starbucks or a drink by pool on their own nickel. You don’t need a group breakfast and a pool party to cover it.
- Be inclusive of other functions. This lets you recognize a few folks outside of non-quota-carrying sales each year. (It also makes planning a little easier.) Don’t be so inclusive that QCR/QCM attendance is less than 50%. But take all your qualifying QCRs and quota-carrying managers (QCMs). Add your selected SCs. Add your qualifying CSMs (according to whatever rules you establish). Then perhaps add a few folks — based on their helpfulness to sales — maybe from consulting, marketing, product, or salesops. Helpful e-staff are also good candidates and can benefit from the direct feedback they will get. Think: I’d rather run a bit less luxurious event and invite a few more folks from across the company than the converse.
- Do it at a beach in April, alternating East and West coasts. Or, if you have a strong ski contingent, alternate between a ski resort in February and a beach in April. Beware the sales VP will gripe about too much first-quarter time in meetings with a January kickoff and February Club. But who says you can’t still ski in April?
- Be family-friendly. Be clear that kids and family are welcome at the event (at the attendee’s cost) and at most, but not all, activities. If you have two dinners, make one a bring-the-clan affair and make the awards dinner spouse/guest only. Let family opt-in to an any easily inclusive activities like snorkel trips. Help folks find and/or pool babysitting.
- Take the business meeting seriously. Run the meeting on the morning of day 2. I like doing attendee surveys in advance (e.g,. via SurveyMonkey) and then doing a detailed review of the results to drive discussion. This sets the tone that the event is for both fun and business and that the company isn’t going to miss the chance to have a great conversation with its top performers. Discussing business at Club isn’t a party foul. It’s part of why you have Club.
- Stay aligned with event planner, particularly in the early days when you are trying to run a discount event as they will, by default, try to run a standard one. Skip the bells and whistles like custom event logos, fancy signage, custom beach bags and towels, in-room gifts, and all-meals coverage. Define what your program is going to be and deliver against that expectation. Then make it better next year.
- Make and hold to a sensible budget. Know, top of mind, the total event cost and cost/attendee — and remember that cost/qualifier is about double the cost/attendee, since each qualifier invites a guest. As part of Narva’s Rule, increase that cost every year. Because I like to make things concrete, I think cost/attendee should range from $2.5K to $5.0K as a function of your typical salesperson’s on-target earnings (OTE) and your company’s lifecycle. This means the “prize value” of the Quota Club invitation is $5K to $10K, equivalent to a roughly 2-4% bonus against typical OTEs. On this sort of budget, you can offer a very nice, high-quality event, but you won’t be doing the truly unique, memorable, over-the-top stuff that some CROs like.
- If you want to have an ultra-club do what we did at BusinessObjects. While during most of my tenure at BusinessObjects we ran in nice-but-not-crazy mode, towards the end of my tenure there was a movement to make Club truly exceptional and unique. That first led to discussions on how to trim down Club in order to increase the spend/qualifier, including potentially increasing the attainment bar from 100% to 125% and ending our inclusive philosophy. I’m glad we didn’t do that. Instead, we ended up creating an intimate ultra-club as a few days tacked on to the end of Quota Club. It provided some niche cachet when the attendees were whisked off onto their continuation trip. It allowed “the movement” to do some truly exceptional things for a small number of people. Most of all, I think we correctly figured out who the “right people” were — not the one-hit wonder reps who had one big year, but instead the consistent reps around which you truly build a company. I believe we set 5 years of consecutive Quota Club attainment as the criteria for an invitation to the ultra-club. I’d invest extra in those people any day of the week.
(Cross-posted @ Kellblog)