Hurdle Rate

What is Hurdle Rate?

In sales and business contexts, hurdle rate is the minimum acceptable return on investment (ROI) or internal rate of return (IRR) required to pursue an opportunity, project, or initiative. Originally a finance term for capital budgeting decisions, hurdle rates are increasingly used in sales to qualify deals and assess whether an opportunity is worth pursuing.

In Sales Context:

• Minimum deal size worth pursuing
• Required ROI for customer to say yes
• Acceptable customer acquisition cost threshold
• Discount approval limits tied to margin hurdles

Why Hurdle Rate Matters

Opportunity Cost Focus:
Every hour spent pursuing a low-value opportunity is an hour not spent pursuing a high-value one. Hurdle rates force discipline about where sales capacity goes.

Efficiency Signal:
When reps know which deals clear the hurdle, they focus on high-probability, high-value opportunities. Without hurdle rates, everything seems worth pursuing.

Customer Qualification:
For your customers, hurdle rates represent the ROI threshold required to justify purchase. If your solution can't clear their internal hurdle rate, the deal won't close—no matter how good the relationship.

In 2026, with efficiency pressure on both buyers and sellers, hurdle rates are becoming more explicit and more important.

Hurdle Rate Applications

Deal Sizing:

• "We don't pursue deals under $25K ACV"
• Hurdle rate ensures sales effort focuses on high-value opportunities

• "Customers need 3x ROI within 12 months"
• Understanding their hurdle rate helps you build the business case

• "Maximum discount of 15% without approval"
• Discounts that breach margin hurdles require executive sign-off

• "We can spend max $5K to acquire a $25K customer"
• Hurdle rate prevents overspending on acquisition

Setting Your Hurdle Rate

Factors to Consider:

• Average deal size in your market
• Typical sales cycle length
• Sales capacity and rep bandwidth
• Customer acquisition cost targets
• Margin requirements

• Target deal size: $50K
• Target win rate: 25%
• Sales cycle: 6 months
• Each rep can handle 20 active opportunities
• Hurdle rate: Only pursue opportunities with $50K+ potential

Best Practices

1. Make It Explicit: Don't leave hurdle rates implicit. Document and communicate deal size, margin, and ROI thresholds clearly.

2. Segment by Rep: Senior reps may have lower hurdle rates (they can close smaller deals efficiently). Junior reps need higher hurdles.

3. Review Regularly: Hurdle rates should adjust based on capacity, market conditions, and strategic priorities.

4. Track Exceptions: Monitor deals below hurdle rate. Why did we pursue them? Did they convert? Use data to refine.

5. Align with Strategy: If you're moving upmarket, raise hurdle rates. If you're penetrating SMB, lower them.

Common Mistakes

• Setting hurdle rates without considering market reality
• Applying the same hurdle rate to all reps and segments
• Ignoring strategic accounts below hurdle rate
• Not adjusting hurdle rates as business evolves
• Letting reps constantly override hurdle rate criteria

Key Takeaways

• Hurdle rate is the minimum ROI or deal size worth pursuing
• Focuses sales effort on high-value opportunities
• Make hurdle rates explicit and documented
• Segment by rep and adjust based on strategy
• Track exceptions to refine your thresholds over time