So I’ve been doing SaaS for a while, and the costs of doing business have just gone up. Inflation is everywhere. Salaries have gone up. Marketing expenses have gone up. And expectations for OTE have gone way up.
The net effect I see this happening today is a squeeze in U.S.-based SMB sales positions. SaaS sales execs with even a little bit of experience at other SaaS companies are looking for higher and higher OTEs, often with lower effective attainment and high support costs.
Net, net the math isn’t really penciling out anymore. U.S.-based sales reps often aren’t really willing to work, or excel, at sub-$100k OTEs anymore.
Almost every SMB SaaS company I work with has moved most of its sales team outside the U.S. once it starts to scale
It used to just be outside of the SF Bay Area
— Jason ✨Be Kind✨ Lemkin (@jasonlk) September 18, 2023
Classic SMB sales rep math was something like this:
- $3k ACV
- Close 15-20 deals a month
- Close $600k+ for top reps, maybe $400k yielded overall
- Take home $80k-$120k OTE
That started to break quite some time ago, pre-2020, when SF Bay Area comp expectations were much higher than most of the rest of the U.S. So almost everyone would build an SMB sales deal in a lower cost center, from Phoenix to Portland to Utah to Atlanta to parts of Florida. These all sprung up as more cost-effective centers of excellence for SMB and even some mid-market sales reps.
SaaS companies would often prove the sales model in the SF Bay Area, and then hire 10, 20, 100, 500 reps in other, more cost effective parts of the U.S. for non-enterprise sales.
This already had started to break pre-2020, as the war for talent drove up costs in these “secondary” sales centers. It seemed like every AE I knew in Atlanta had 5-10 job offers, for example.
And then of course, post-2020, the world changed for sales reps. First, of course, sales reps aren’t filling up endless floors of offices in SOMA in San Francisco. Second, sales comp expectations ballooned in the Boom Times of mid-2020 to early 2022, and haven’t really come down. Many SaaS companies would prefer to promise huge OTEs now — even if attainment is low. And third, sales comp has flattened across the U.S., and many SaaS companies pay the same now no matter where the reps work.
The net effect I see is most SMB SaaS companies I work with are in many if not most cases skipping having SMB sales reps in Utah, in Arizona, in Oregon after $10m ARR … and instead simply building teams in Latin America or more cost-effective parts of Europe. Or both.
At first, I was a bit skeptical. Isn’t it worth paying up a bit for SMB reps in the U.S., if they are selling to U.S. customers? In theory, yes. But in practice, if you’re already running a distributed sales team, you’ve figured out how to train and enable reps anywhere. And second, even with SaaS layoffs, many experienced reps in the U.S. simply don’t really want these jobs. It can seem like everyone in the U.S.. wants a $200k+ OTE, no matter what the role.
So it’s probably a natural evolution. First, the SF Bay Area priced itself out of doing SMB SaaS sales. And now, with inflation in both comp and expectations, the entire U.S. seems to have priced itself out of doing SMB SaaS sales.
Of course it’s not quite this binary. You can always train “kids” out of college, that’s always worked in SMB sales. And you can also pay up a bit if you sell to customers Small, Medium and Large. You often use SMB sales as your training and proving grounds in that case. In that case, SMB sales doesn’t always have to be quite as efficient as it does if it’s your entire business motion.
But what I can tell you is today, my highest-performing SaaS SMB investments have all moved most of their AEs outside of the U.S. to scale.
A trend it is.
(remote sales image from here)