Whether you’re shifting from founder-led sales to sales-led growth or scaling your existing team, composing a sales force should involve a lot of preliminary thinking. The way you build, scale, and forecast your sales team determines whether the team becomes your growth superpower or a drain on your budget.
To assemble an effective and scalable sales team that makes you more money than you spend on it, you must first consider the following questions:
- Do I need a sales team?
- If I do, what should it look like?
- How many people should I hire?
- How much will it cost me?
This article will help you answer these questions. At Waveup, we have repeatedly helped startups with growth strategies and financial forecasting, and we are happy to share the set of tools that guide our hands.
Let’s get into it!
Do you even need a sales team?
As you may or may not know, having the budget for a sales team doesn’t automatically mean you need one. Hiring sales reps before there is a clear business need for them is like putting the cart before the horse: ineffective at best.
To ensure that building a sales team makes sense economically, consider the following factors:
Whether you are a product-led or a sales-led company makes a big difference in how much emphasis you should put on sales and how soon you’ll need to see growth.
Product-led companies where users onboard themselves through free trials and freemiums might be fine without a single sales rep for a very, very long time. There is a vast arsenal of growth strategies that B2C companies with short buying cycles or product-led B2Bs with simple onboarding can resort to before involving the sales game.
Enhancing your product and website UX, fostering viral growth, and providing users with self-service options and customer support might achieve you success without the need for a single sales rep. Slack, for example, reached $4B in valuation before hiring its first-ever sales team.
As for sales-led companies where users can’t onboard themselves without your help, the question is not “do you need a sales team?” but rather “how soon do you need it?” It’s all about timing your transition from founder-led sales to a sales organization. How soon you need a sales team depends on the stage of your product.
The stage of your product
A sales team is a scaling instrument, and you can’t scale before you’ve achieved product-market fit (PMF). For SaaSs, one of the key signs of having PMF is when your customer retention rate is over 90%. Until you achieve this number, it might be wiser to stick to founder-led sales through personal networks, word-of-mouth, and referrals.
Another indicator of good PMF for SaaS businesses is annual recurring revenue (ARR). Typically, when ARR is less than $1M, it is normal for a founder to comfortably lead the sales growth. Crossing this threshold signals that your product is picking up steam, generating enough demand and retention to scale successfully with a sales team.
Average annual contract value (ACV)
Before hiring your first sales team, make sure that the average contract value is high enough to cover sales-related expenses and ensure growth.
As for what your minimum annual ACV should be to economically justify a sales team, opinions vary. Some sources say it should start at $4k, while others insist on a $10k minimum. The overall logic is that the higher your ACV becomes, the greater the chance that your sales team will be profitable and, therefore, make more economic sense – vice versa.
Who to hire: the composition of your sales team
The composition and complexity of your salesforce will heavily depend on four things:
- Company size and stage
- Your goals at a given stage
- Your region
The smaller the company, the simpler the sales structure will be – to the extent that one person may do all the legwork, from lead outreach to closing deals. As the growth picks up speed, however, your sales machine will need to become more elaborate to meet your scaling needs.
There are quite a few sales positions, but the most common roles are business development representative (BDR), sales development representative (SDR), and account executive (AE).
The definitions and responsibilities of these titles can look different depending on the region or company – a brief scroll through SDR positions on Linkedin in different regions says it all.
Give or take, here are the most common definitions of each position:
- BDRs are outbound specialists, which means they are usually responsible for generating leads through outreach (i.e., finding people who don’t know about your solution but could be interested in it). These specialists work “in the field,” taking part in conferences and PR events, creating new partnerships, etc.
- SDRs are inbound specialists. They work with existing leads received from BDRs or from marketing activities, qualifying them to ensure they fit the company’s ideal customer persona (ICP) and turning them into prospects.
- AEs often are “hybrid” specialists with a two-part role: closing the deal by turning a lead into a customer and then further cross-selling and up-selling to them. AEs work with qualified leads passed to them from BDRs/SDRs to perform more in-depth discovery calls or conduct demos to eventually close the deal. After that, they manage client accounts, offering clients other products or services that might fit their needs.
As you can see, each specialist here is responsible for a different sales funnel stage, working together to attract, nurture, and convert leads.
Here is a quick table with the key differences between these roles:
This list of roles is not exhaustive and describes the roles in broad strokes. We have encountered companies whose sales teams also included more comprehensive, strategic positions like:
- Business dev managers (BDMs)
- Business dev specialists (BDSs)
It’s also normal for customer success teams to contribute to sales by cross-selling or up-selling to existing customers.
In other words, don’t look for a one-size-fits-all approach. Consider your business and goals, then build up your team from there.
How many people do you need at every stage of growth?
Counterintuitively, more sales reps don’t automatically mean more money. Hire too many too quickly, and you’ll be bleeding more money than they bring in. But how do you know how many salespeople are too many?
The answer is simultaneously simple and complicated: the number of salespeople should reflect your GTM strategy and match your scaling pace. Here are the key things you need to analyze in order to pace your salesforce growth properly.
The goal of any go-to-market phase is to achieve scalable unit economics. One of the conditions indicating strong unit economics is when the lifetime value of your customer is three times higher than the cost of acquiring them (LTV/CAC > 3). Hence, your decision to hire X salespeople should facilitate, not obstruct it.
You see, every new salesperson comes at a high price, which includes:
- Employee costs (e.g., salary, benefits, insurance)
- Resources for recruiting and preparing them (typically +25% of the direct cost)
- Overheads (e.g., office utilities, hardware supply, software subscriptions)
All these things inevitably affect the cost of sales, increasing customer acquisition costs. This is not a problem as long as your LTV/CAC remains at a 3:1 ratio, but you must ensure that your sales are efficient enough to keep this ratio intact.
Before growing your sales force, you must ensure that your current sales engine brings in the maximum results for the money you spend on it. Otherwise, you will only be hiring more people to compensate for inefficient employees or processes. This will inevitably result in a major money bleed.
Here are a few ways to calculate your sales efficiency:
You can adjust these formulas to analyze sales per salesperson, allowing you to track how your salespeople meet their quotas.
If you see that your sales are inefficient, focus on solving the root cause before scaling your sales team. You might find this solution in one of the two following points.
For your sales to be efficient, your customer acquisition engine should function like clockwork. To achieve that, marketing and sales must work together.
Yes, your reliance on these teams depends on your business model and GTM strategy. But even the most sales-led organizations have marketing teams to drive customer acquisition if they plan to scale.
Hence, when deciding how many people you need, consider the number of already generated leads within your ICP through your sales, marketing, and any other outlets. Then as yourself: Do I need more people to process these leads? Or do I first need to find more effective ways to drive leads? And, most importantly, am I attracting the right leads, or should I double-check my ICP?
You can use some additional “rule of thumb” metrics, like how many AEs you need per each SDR based on your business size and the pace of your revenue growth.
Annual average revenue per account (ARPA)
ARPA is another horseman of sales efficiency after lead generation. Your ARPA determines the glass ceiling of the revenue you can achieve per salesperson (and in general). This helps to understand what targets you need to set for your sales reps.
We had a client with an ARPA of $1,000. Historically, their sales reps’ capacity allowed them to close a maximum of fifteen clients per quarter. As a result, their sales revenue target for each sales rep was $15,000 per quarter.
With some creative effort, they learned their competitor’s quarterly revenue target for salespeople was $45,000. But this revenue didn’t come from closing 45 deals; it was the result of their higher ARPA of $5,000. So, if our client was to pursue this result, loading his sales reps with unrealistic quotas wouldn’t do the trick without also increasing his ACV and ARPA as a result.
High ARPA, coupled with your sales and marketing ability to generate enough leads within your ICP, creates perfect conditions for growing your sales team.
Calculating the cost of your sales team: financial forecasting practices
Having assembled hundreds of financial models for our clients, we can confidently say that the key here is to keep your financial model clear and easy to understand. Your goal is to set up a logical sales funnel that confirms your assumptions and revenue model to the investors.
There are a few approaches to forecasting your salesforce. One of the most straightforward and digestible methods is to base it on your sales and marketing budgets, leads volume, and sales team capacities.
You can also read more on how to reflect your hiring plan in the financial forecast.
While these steps reflect the general logic behind forecasting the cost of your salesforce, they will vary depending on your circumstances (e.g., your team composition, responsibilities, etc.). Overall, your model must demonstrate your sales funnel, your sales team’s roles, and how much the team will cost.
Remember to use reliable industry benchmarks and to back-check the calculations, as you must be able to ensure your financial model makes sense and is defendable to investors.
How not to build a sales team: Waveup case study
One of our clients had a problem: following their investors’ demands to speed up revenue growth, they tripled their sales team with the goal of meeting new revenue milestones. However, the results were underwhelming, as their revenues continued to lag behind. That’s when the business came to Waveup.
After conducting an in-depth analysis, we revealed that their sales simply weren’t efficient. On top of their low annual contract value of $500, they also didn’t generate enough leads to achieve the expected sales growth with such an ACV.
Our team suggested a set of solutions to solve this problem (feel free to steal them):
- Double-check the ICP to ensure you’re targeting the right people.
- Review the efficiency of the existing customer acquisition channels and, if necessary, develop new ones to give your lead generation a leg-up.
- Increase the price and, as a result, amplify annual contract value by either reevaluating your current cost or advancing the product and its functionality.
- If increasing the price is not an option, switch from a sales-led to a product-led GTM motion by simplifying onboarding and UX.
- Constantly analyze the performance of your salesforce and review their targets to see where they can be increased.
As a result of implementing some of these recommendations, our client improved their performance within just a couple of months.
In sales, more isn’t always better
Whether you’re thinking about hiring your first salespeople or want to scale your existing salesforce, the North Star guiding your decision should be sales efficiency. In other words, your sales must bring in more money than you spend on them. And, for this to be the case, any decisions about building and growing your team should be based on factors like:
- Your GTM motion. Product-led companies can grow with little-to-no investments in sales, while sales-led companies depend on them.
- Your stage of growth. Regardless of your GTM strategy, don’t put too much emphasis on a sales team before you achieve product-market fit.
- Your annual ACV. The higher your ACV is, the more justified and efficient your sales team will be, and vice versa. With an annual ACV lower than $4k, the development of a sales team makes no sense.
- Your sales efficiency. Before scaling your sales team, make sure your current team operates at its maximum capability. Make certain you have a bulletproof ICP, a well-oiled lead gen machine, a decent ARPA, and that your sales reps meet their current quotas.
This is a more difficult way to approach your sales strategy and headcount, but it’s the only way to deliver the results you expect.
If you need a hand, just drop a line to Waveup’s advisory geniuses, and we will help you plan, grow, or forecast your salesforce!