It’s February 1st and many software startups herald the new fiscal year with Sales Kick Off (SKO). During SKO, leaders discuss the strategy of the company, discuss product advances, and share the financial plan highlights including changes to quota and accelerators for sales commissions.

During the past few weeks, finance and management teams will have been busy developing the financial plan for this year. The key number is the new bookings which implies the growth rate for next year.

For sales driven companies, the new bookings number falls out of the number of account executives staffed on the team multiplied by their quota multiplied by the expected quota attainment (typically 60-75%).

More sophisticated financial plans include other components to drive better prediction accuracy:

• discounting quota capacity by discounting quota for ramping (new) account executives
• consideration for both account executive and sales manager turnover of around 20-25% annually
• funnel analysis tying sales performance to lead generation and marketing budget for program spend and headcount

Expected quota attainment is consistently overlooked and over-projected. In many of these plans, teams project using the average quota attainment for last year. This assumption can be problematic, and instead the projections should use the median. Let me show you why.

Imagine a sales team with five people with the following attainment for last year and for simplicity, I’m assuming all of them are fully ramped.

The average quota attainment is 79%. Remember that number.

Now let’s change the individual attainment around, while keeping the company’s bookings performance last year the same.

Do you remember the average last time? It’s the same average this time: 79%.

But you should trust the first team’s ability to attain 80% of quota next year much than the second team. Why? In scenario 2, two AEs of five contribute 85% of the performance. The average doesn’t capture this concentration and the risk associated with assuming continued performance. Imagine the impact to attainment if a competitor were to poach Siana in Q1.

This is why median is a better metric in this case. The median attainment for scenario 1 is 80%, identical to the average. The median for the second scenario is 50%.

How does this hurt companies? Let’s assume this hypothetical company planned using 80% (average) but achieved only 50% (median). The company would hire about 40% fewer account executives than they would need to achieve their plan.

And as anyone who operates a SaaS company knows, these businesses compound. A much better year next year compounds over and over.

If AE quota attainment follows a uniform distribution, then using the average is fine because it’s the same as the median. But I can tell you with a decades’ worth of experience, more AE quota attainment charts resemble the second scenario than the first, especially in the early days.