For me, I lucked out and had an amazing mentor in Wayne Gilbert. He's an amazing teacher and he and his wife are incredibly generous people who took me under their wing and without his mentoring I have zero doubt that it would have taken an extra 10 years for me to get to ILM, ever I ever made it at all. I worked on the animation assignments he would give me (while working at my games job during the day) for about two years until Wayne said he thought it might be ready to send a demo reel in. So, for me, I knew it was ready when a professional told me so.
Obviously, this is an ideal situation to seek out, though not everyone will be able to find a professional. The best bets are to go to conferences like Siggraph or animation festivals and find professionals you can show your reel to. Many professional animators would be eager to look at your stuff and offer advice. This is something we have been doing at the Animation Mentor booth at Siggraph for the last couple years (having your demo reel critiqued by pros). The feedback has been great so I think a lot of people are finding this sort of thing very helpful.
If you can't travel to any major animation/CG conferences, then I would seek out online animation communities such as cg-char, which is what many of us did back in the day. Forums and communities like these can be invaluable for figuring out where your skills are at.
Lastly, I would encourage you to just apply for the jobs you want! There's really no downside to sending in a reel that might not be 100% ready. Maybe it's 95% ready, and they'll see the potential in you. Who knows? If you know for sure that it's nowhere near ready, that's another story, as you don't want to get a reputation for wasting the recruiter's time at a specific studio, or for badgering them with nonstop demo reels. Only send it in if you think it truly might fit with what they may be looking for, AND only reapply if you have made some significant changes to the reel. If they've already seen your older reel, be sure to put your newer stuff at the beginning or they may recognize the old work and say, "Hey, we've seen this one already" and turn it off.