How much should quotas increase next year?

With the end of the fiscal year approaching for many software companies, management teams are running the numbers for different scenarios.

This year has been tumultuous : most startups reduced their bookings, and grinded through the first six months suffering through pipeline shocks - the result of CFO-budget pressure.

For the last 3 quarters, startups have been executing on reduced targets, attempting to squeeze more juice from their Meyers.

Software purchasing activity seems to be trending up, which should instill more confidence in their pipelines.

Gartner projects an 8% increase in overall spend. Software spending should increase 15% - the fastest rate in the last three years.

Public cloud companies have demonstrated strength in the last quarter.

We should expect the advances in AI to improve sales efficiency, even if modestly. Automated email generation, automated research, automated scheduling. All of these technologies are still nascent & imperfect, but they should improve through the course of the year.

Napkin-math suggests quotas should increase about 20%.

A few notes on this analysis:

First, not all software categories will grow 15%. Some will grow faster than others; others may contract. Second, many software companies raise prices faster than inflation to achieve NDR of 120% already, so the inflation may be already accounted for in plan that way or through the Gartner estimate. Third, AI efficiency is subjective.

Fourth, the IT spending growth hasn’t translated into quota growth. Compounding the last three years’ growth would imply quotas should be 41% more than in 2021. But the dominant strategy has been to hire more reps while maintaining quotas rather than increasing quotas meaningfully - perhaps an artifact of the easy money era.

Headcount reductions in the last year, which impacted every company, should increase the pipeline coverage ratios for the remaining team members. Operating at 5-6x Pipe-to-Quota, rather than the typical 2-3x ratio of the heydays, should drive more predictability within GTM teams.

Combining all these factors, teams should expect a significant boost to productivity in 2024. The exact figure for each team should be a per-company determination.

Management teams who execute an offensive strategy as purchasing resumes will have the opportunity to wrest significant market share wins from competitors, which should translate to disproportionate value capture.