The 4 rules of building a B2B sales team
Updated: Sep 1, 2019
Building an inside sales team is a key concern of B2B SaaS founders when they reach out to me. I wanted to share some insights here on this topic. Enjoy!
Rule 1 - The first salesperson of every great startup is (one of) the founder(s).
Selling gives the founder(s) the chance to go out there, talk to and understand customers, face failure, and, most importantly, improve the product to find product market fit. You might be a natural salesperson or you might hate sales. But learning from this experience is such a critical step for every founder that you shouldn't rush to 'outsource' the selling by hiring a salesperson right away.
Once you have a good understanding of your first target buyers and begin to have some predictability on if and when sales will close, you are ready to hire your first sales people 🙌
Rule 2 - It is all about the funnel.
Sales, similar to marketing for self service products, are all about conversion from generated leads (awareness and consideration) to qualified leads (preference) to revenues (purchase)... and, finally, about keeping as many customers as possible and upselling on them (loyalty and advocacy).
For self service products such as our company Wix, marketing and a seamless onboarding are key from day 1. No sales team is needed. Once you hit the first scalable acquisition channel, most signups should come from organic sources and scale accordingly. Good benchmarks are a 3%-5%+ conversion from website visit to signup and 5-10% from trial to paid.
For high touch sales such as for our companies RedPoints and Adverity with annual contract values (ACV) of $10k+ (much bigger by now), I suggest you start with 2 sales development reps (SDRs) (better you have 2 to be able to benchmark performance), 1 lead generator (LG) and 1 account executive (AE) to drive the sales process. All lead generation should be outbound driven at this point as serious marketing efforts are useless before you hit $2-3M ARR. If needed, find one scalable paid channel (in most cases this is Linkedin...) to help your LGs generate leads. Write some first content on blogs and different landing pages to improve conversion and be considered by referrals. Do not expect a major impact (yet) on lead gen as strong word of mouth by your advocates will drive most referrals.
Now focus on getting this machine ready to scale - define a clear and powerful messaging, find the first optimal customer sources and segments and fix conversion by getting faster to the 'wow' moment. A good lead to qualified lead conversion is 5%+ and a qualified lead to sale conversion is 20%-30%+.
For high touch enterprise sales such as for our companies Walkme and Lightico with annual contracts values of $100k+, I suggest that you hire an experienced enterprise sales lead (make sure you gather enough references as this is a key and expensive hire!) as early as possible and let her/him drive the set up of the sales organisation. In this case, marketing and content will be important since the start as prospective customers will research a lot before taking a purchase decision. Selling to enterprises is more art than science and experience is key as each organisation will be different...
Rule 3 - Sales is a people AND numbers game.
Monitor everything - Lead sources and quality, pipeline size, conversion across precise funnel stages, sales cycle lengths, payback period, sales productivity, optimal quotas and ramp up period for the sales team, average selling price, etc. Here are some nice graphical representations of these KPIs.
Once you have cracked the initial selling, start hiring to grow quicker beyond $1M ARR and get ready for a Series A. As always with startups, hiring is tough and some recruits will not make the cut. So always hire more than you need and assess the newcomers during their ramp-up period vs. in house best practice. Quarterly sales targets of a new sales person go as follows: 0 (learning month) – 1/3 of target – 50% – 100%. You need to find out if someone can sell after 2-3 months by looking at the sales funnel. If pre-predefined targets have not been achieved, you need to do a final revision after the first quarter. If no improvement has been achieved, it is likely that the sales rep has to be dismissed. You have to make sure that revenues do not rely on one overachiever...
Keep in mind that, as you grow the organisation, performance quotas will decrease naturally (up to 40% until Series B level) as your funnel size increases and you are moving from monthly to annual contracts. With 4 AE (vs. the 2 initial ones) you will see what they are doing systematically and adapt the quota accordingly – in theory they will hit 80%-85% of the initial targets.
Rule 4 - Incentivise correctly.
There should never be a limit to how much one can sell 😜 I recommend uncapped bonuses as this will keep your reps hungry. You can use additional 'kickers' to focus on specific targets. The following compensation packages are industry standard:
LG - 90%-100% base salary, 0%-10% bonus
SDR - 70% base salary, 30% bonus
AE - 40-50% base salary, 50%-60% bonus (bonus thresholds can be anywhere between 50%-85% of the quota and need to be optimised for each SaaS business)
In enterprise sales, bonuses are paid quarterly. For smaller accounts, one advice I would give is to pay a majority of the bonus (e.g. 80%) on a monthly basis while paying the rest on a quarterly basis (e.g. 20%) to incentivise on the long term.
In general, an AE should generate 6x+ what you pay him. Including marketing, a sales organisation should generate, at scale, 3x+ what you spend.
Listen also to this podcast with the CEO of our unicorn Walkme. He shares amazing insights and quantitative benchmarks on sales efficiency and customer success management.
Finally, if you feel that you have a great B2B product that is gaining early traction and are considering to raise your first institutional round, I would love to talk! We have lots of learnings to share from our portfolio, so please feel free to reach out.