Dear SaaStr: How Many Sales Reps Do I Need?
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, 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
Q: Dear SaaStr: If a VC Backs Out of a Signed Term Sheet, Should the Entrepreneur Spread the Word?
First, there’s a good chance it’s at least 1% your fault. Rarely in an auto accident is one party truly 100% at fault. Are you sure you didn’t hide something, even inadvertently? That you were totally upfront about that issue with your co-founder? Etc. etc. We talked about 10+ reasons deals fall apart the other day. You’re likely at least 1% to blame. Perhaps not. But likely.
So if it’s even 1% your fault — you’ll look bad “spreading the word.” And it won’t get you anywhere.
Two, no one will care. Not really. I know, but the thing is, someone else will still take their money. Also, no one really thinks VCs are saints, folks. It’s a tough business, with sharp elbows, and half promises. Everyone knows this. If you refuse to work with VCs that have never done something remotely questionable — your VC network will end up being close to zero partners.
Three, let it go. As founders, we have to let a lot of stuff go. It’s hard. Man, it’s hard. But let it all go. Move on and focus on your business. Not this one episode.
Having said that, you’ll get your chance here. The answer isn’t to spread the word. The answer is that when a founder comes to you later, and says, should I take money from the Backed Out VC or from This Other VC — you can say the latter.