Ok so many folks have been in cut, or conserve, or hold down cost mode for a year or so at this point. Great. And if growth is still mediocre, maybe you have to keep doing that.
But for many, growth has returned, or remains strong, and for many, it’s even accelerating. MongoDB for example just reported a blow out quarter, accelerating on the way to $2 Billion in ARR:
— Dev Ittycheria (@dittycheria) September 1, 2023
And so many of you are going to get caught next year with not enough sales reps and capacity. Just when things get good, or good again — you literally will not have enough scaled, high quality reps to hit the plan for next year.
Until founders have real help on the ops side, I usually see everyone get wrong the calculation of how many reps they’ll need to hit the plan 12 months out, and next year.
And it’s almost always more than first-time founders think.
You can back into it:
- First, figure out how much revenue you need to close in the next twelve months. Because that’s a lot more than now. And you have to hire ahead (of course).
- 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, multiple a yield factor. Not all reps will work out. And they will take at least a tiny amount to scale. To be aggressive, assume 75% yielded quota. This is hard to achieve. Assume a 60% yielded quota to be more conservative. Really. I know your first 3 reps are scaled and are crushing it, all hitting 100%. Great. Do not assume that going forward.
- Fourth, add “load”. Your VPs and Directors of Sales and sales ops leaders 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, etc. But in theory, higher quotas should “pay” for specialization so, in theory, this won’t impact headcount too much. But in practice, it often adds 20% or so to the headcount in the model.
So… If you want to add, say, $10m in net new revenue in the next 12 months, and your deals are, say, $25k in ACV each, and a $600k quota is reasonable:
You’ll need at least:
- 16 fully-scaled AEs just to do the work ($10m/$600k)
- 4 BDRs/SDRs to screen the deals (this does NOT include an outbound team)
- 1 VP
- 2 Managers
- = 22 heads / .75 yield = 30+ sales professionals.
So here you need 30 sales professionals to add that net $10m in new revenue, even with a $600k quota!
Most founders intuitively think they can get there with half that headcount.
And with a higher SDR:AE ratio, you may need even a few more heads here.
And again, this is without an outbound team. This assumes the leads come from marketing, or wherever. Add however many heads you need here on top of the above.
Whatever the exact number is — for first-time founders at least, I find it’s probably at least twice what you were thinking. It seems it’s always like twice what you were thinking.
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.
You can also leverage Christoph Janz’s classic Sales Team Hiring Plan to help here, too.
Then also … double it. 🙂
(note: an updated SaaStr Classic post)