Whether you’re shifting from founder-led sales to sales-led growth or scaling your existing team, building a sales team should involve a lot of preliminary thinking. You can’t simply hire a bunch of salespeople (even top-tier ones) and expect your revenues to soar. For that to happen, every hiring decision and revenue target must be intentional and reflect your sales strategy. Otherwise, the result might be the opposite of what you expected when you hired them.

But what makes a successful sales team? Regardless of your industry, a profitable and effective sales team is one that:

  • Makes sense for your GTM motion
  • Doesn’t disrupt your unit economics
  • Matches your growth stage and pace

When we help clients with their fundraiser or growth, however, we’ve noticed that founders tend to overlook these factors when deciding to set up or scale their salesforce. As a result, they end up bleeding money instead of making it—all despite honing tactical aspects like training and team morale. 

Unlike most articles about building a sales team, we won’t focus on aspects such as sales compensation, hiring practices, and sales culture. While important, they won’t move the needle if the fundamentals of your sales strategy are half-baked. 

Instead, we will share the best bits of our advice on how to build a sales team from the ground up and grow it into a revenue-generating machine. 

Let’s start with the key question:

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. Building a sales team before there is a clear business need for one is like putting the cart before the horse: ineffective at best. 

Whether sales team development makes economic sense depends on your go-to-market motion, your business stage, and your average annual contract value.

What is your go-to-market motion?

Whether you are a product-led (bottom-up) or a sales-led (top-down) 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 do just 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 deliver the same results without needing a single sales rep. Slack, for example, reached $4B in valuation before hiring its first-ever sales team. 

As for sales-led companies—where the price tag is lofty, and 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?” The answer will depend on your product stage.

What’s your product’s stage?

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 critical 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 your product is picking up steam, generating enough demand and retention to scale successfully with a sales team. 

What’s your average annual contract value (ACV)?

Before hiring your first sales team, ensure 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. But 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: deciding on the sales team structure

The composition and complexity of your salesforce will heavily depend on four things:

  • Company size and stage
  • Your goals at a given stage 
  • Resources
  • Your region

The smaller the company, the simpler the sales team structure typically is – to the extent that one person may do all the legwork, from attracting leads to closing deals. But as the growth picks up speed, your sales machine will need to become more elaborate to meet your scaling needs. 

Scaling usually means hiring dedicated people to:

  • Attract leads
  • Convert / nurture leads
  • Close deals & maintain existing accounts

These functions are commonly attributed to business development representatives (BDR), sales development representatives (SDR), and account executives (AE). 

While the definitions of these sales team roles and responsibilities can look different depending on the region or company—one brief scroll through SDR positions on Linkedin in different regions shows the lack of consensus on the matter—as a rule of thumb, it looks as follows:

  • BDRs are outbound specialists responsible for attracting 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,” participating in conferences and PR events, creating new partnerships, etc.
  • SDRs are inbound specialists who convert/nurture leads. They work with existing leads received from BDRs or 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 two roles: closing the deal by ​turning a lead into a customer and further cross-selling and up-selling. 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. This sales team structure is considered the “golden standard,” but there are plenty of various sales structure models.

Here’s a quick table with the key differences between these roles:

key differences between roles slide
 * Before creating a job description, check in with your regional job boards to determine what the specialist you need is called in your area.  

This list of roles is incomplete and describes the functions in broad strokes. We have encountered companies whose sales teams also included more comprehensive, strategic positions like: 

  • Business development managers (BDMs) 
  • Business development specialists (BDSs)

It’s also normal for customer success teams to contribute to sales by cross-selling or up-selling to existing customers, especially for product-led companies. 

In other words, there’s no one-size-fits-all sales team structure. Best sales teams are always bespoke and reflect your business, its stage, and its goals at a given moment.

How to grow a sales team correctly

Counterintuitively, more salespeople don’t automatically mean more money. Sometimes, quite the opposite—hire too many too quickly, and you’ll be bleeding more money than your new reps can make up for. But how do you know how many salespeople are too many? 

The answer brings us back to our previous points: the number of your salespeople should reflect your GTM strategy and match your scaling pace. Here are the key things to analyze to pace your salesforce growth properly:

Look at your unit economics

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, you should scale your sales team at a pace that facilitates this ratio.

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. Increased CAC is fine 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.

Check your sales efficiency

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 hire more people to compensate for inefficient employees or processes, which is a major money bleed. 

Here are a few ways to calculate your sales efficiency:

gross sales efficiency formula
*Gross New ARR = New ARR from new customers + Expansion ARR from existing customers.
Net sales efficiency
*Net New ARR = New ARR from new customers + Expansion ARR from existing customers – Churned ARR.

You can adjust these formulas to analyze sales per salesperson, allowing you to track how your salespeople meet their quotas.

The Magic Number
*To track your magic number monthly instead of quarterly, replace quarterly revenue and spending with monthly recurring revenue (MRR) and spending, respectively.
Magic number

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.

How to increase your sales efficiency in two steps

Optimize your lead generation engine and ICP

Your sales team’s efficiency directly correlates with the volume of high-quality leads you generate. Be it through inbound or outbound efforts, your lead stream must be steady and tightly targeted.

When deciding how many people you need, consider the number of already generated leads within your ICP through your sales, marketing, and other outlets. Then ask 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 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.

Set adequate revenue targets

To set optimal and realistic revenue targets for each sales rep, you need to consider the following:

  • Your average revenue per account (ARPA)
  • Your sales reps’ capacity per quarter (historically or according to industry benchmarks)

While you can employ various practices to push your sales reps to close more deals faster, eventually, you will hit a glass ceiling. The only way to break through this ceiling is to approach the problem from the other side: by increasing your ARPA. 

WAVEUP STORY:

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.

Note: Don’t forget to include cross-sells and upsells in your sales revenue plan.

How to forecast your sales: best modeling practices

Having assembled hundreds of financial models for our clients, we can confidently say that the key is to set up a logical sales funnel that confirms your assumptions and revenue model to the investors.

There are a few approaches to sales forecasting. One of the most straightforward and digestible methods is to base it on your sales and marketing budgets, leads volume, and sales team capacities.

sales model

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.). 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 to meet new revenue milestones. However, the results were underwhelming, as their revenues continued to lag. That’s when the business came to Waveup.

After conducting an in-depth analysis, we revealed that their sales 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 sales performance within just a couple of months.

An efficient and profitable sales team results from many strategic decisions

Whether you’re building a sales team from scratch or want to scale your existing salesforce, taking the following steps will ensure you’ll get it right: 

1. Check if (or when) your GTM motion calls for a sales team assembly: Determine whether your company has a product-led (bottom-up) or sales-led (top-down) approach. If you’re product-led, focusing on improving your onboarding and customer experience will be a much more productive call in 99% of cases, especially early on. If you’re sales-led, make sure you’ve firmly achieved product-market fit before building a sales team.

2. Calculate your annual contract value (ACV): If it’s lower than $4k, developing a sales team will likely be a bad call. As a rule of thumb, the higher your ACV, the more economically justified and efficient a sales team will be.

3. Keep track of your sales efficiency: Before scaling, make sure your current team is delivering as much revenue as they can. Check your key sales&marketing metrics, learn if you’re generating enough leads within your ICP, and make sure your ARPA is in good shape and your reps are meeting their quotas. If one or more aspects are off, pause growth until you fix them.

4. Scale at a pace that matches your growth and resources: Don’t let your ambitions disrupt your unit economics. New hires won’t automatically bring in more clients, but they always will bring in expenses, so make sure each hire is justified and cost-efficient.

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!

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Anna

Content Writer

Hi there! I’m Anya, a Content Writer at Waveup. I’ve been working with startups in various industries for over 4 years, soaking up the knowledge and learning from their business strategies. Now, I collaborate with the best minds here at Waveup to pick up their expertise and share it with the readers.