Dear SaaStr: How Many Sales Reps Do I Need?
More than you probably would think.
You can back into how many sales reps you’ll need in SaaS.
- First, figure out how much revenue you need to close in the next twelve months. Because that’s more than now.
- Second, calculate a reasonable attainable quota for your closers, your Account Executives. This is generally derivate of your deal size. If you do small deals, reps may struggle to close $400k a year. Middle size deals, $600-$700k. Bigger deals? Maybe $1m+.
- Third, multiply a yield factor. Not all reps will work out. And they will take at least some time to scale. To be conservative, assume 75% yielded quota. I.e., that only 75% of your reps, as a group, hit their quota. That may actually be high, especially if you are scaling quickly and make a few hiring errors. 60% is OK, too.
- Fourth, add “load”. Your VPs and Directors of Sales and sales ops and rev ops leaders and sales engineers are cost centers here. Assume 1 sales manager for each 8 sales professionals.
- Fifth, the more specialized the sales process is, the more folks you’ll need. SDRs, BDRs, SEs, etc. In theory, higher quotas should “pay” for specialization so in theory, and this wouldn’t impact headcount too much. But in practice, you can’t ask AEs to pay for the help they can closing. So it often adds at least 20% or so to the model.
If you want to add say, $10m in net new revenue next year, and your deals are say, at $25k in ACV each, and a $600k quota is reasonable (and that’s not that low, really):
You’ll need at least:
- 16 fully-scale AEs just to do the work ($10m/$600k)
- 4 SDRs to screen the deals
- 1 VP
- 2 Managers
- 1 Sales/Rev Ops (at least)
- = 23 heads / .75 yield = 30 sales professionals.
30 sales professionals to add that net $10m in new revenue, even with a $600k quota!
You’ll also note in this how & why sales efficiency drops over time. In the early days, you don’t need as much management, and your effective yield is often higher. Just scaling here alone will drop your sales efficiency 30%+ even if everything else stays constant.
Plan for that.
Pro tip – most SaaS companies massively underestimate the requirements to scale in this area. Worth reading 😊 https://t.co/YfYVH52WoF
— Jeff Richards (@jrichlive) June 30, 2022
And a deeper dive here: Why Your Cost of Sales Generally Doubles As You Scale | SaaStr
(sales team image from here)