Sales-driven SaaS startups end up with about half their headcount in sales and marketing
It sounds high at first, until you realize that's just how the math works
Software itself and other departments get leverage. Sales doesn't.
— Jason ✨Be Kind✨ Lemkin (@jasonlk) February 17, 2022
One thing that sneaks up on you in SaaS is just how many sales, marketing and revenue professionals you are going to need:
- First it sneaks up on you in the early days because the initial tiny team become so efficient.
- Then, it sneaks up on you again as you scale and you realize you need to have about 1.5x-2x the sales headcount you thought you did to hit the full plan for this year, and Q1 of next year. More on that here.
- And finally, it dawns on your there is no leverage in sales. If your bookings are say $500k per rep, you’ll need a 1:1 ratio of reps for each $500k you grow. Always.
And that lack of leverage, even with a partial boost from upsells being more efficient than new business, means sales and marketing together end up being about half your headcount and half your costs even as you approach $10m ARR … and then forever.
Let’s look at some examples:
The average is a bit less than 50%, but not much less.
Now, if you are self-service, you can obviously get by with a lot less. But even there, oftentimes, marketing expense fills the “gap” and ends up consuming as much of your revenue and headcount as sales would in a fully sales-driven model. For example, Asana is about 50% self-serve, 50% sales-driven. But almost half its revenue still goes to sales and marketing expenses. More here.
So as you begin to scale, say past $2m-$3m ARR, first do the math. How many reps do I really need to hit the plan for the next 12 months? And start hiring all of them now. Or you’ll get behind.
And then once you see have 10, 15, 20+ reps on the team … realize that’s just the beginning. Nearly half your team will likely be in sales and marketing forever.
👀Half of Twitter’s employees are now in sales, after Musk’s purge of the tech orgs.
— Amir Efrati (@amir) May 16, 2023
sko image from here