Congratulations on finally hiring your VP of Sales! That’s the hardest part of all. But next up is a more nuanced choice — what should her core goal / KPI be?
There are 3 general options:
- Your VP of Sales is responsible for net new revenue only. Churn is not her responsibility, nor is there any material credit for multi-year deals. This is the cleanest structure for a true closer. The VPS is responsible for closing $Xm in net new revenue this year, period. Post-sales, other than upsell which adds to net new revenue for this year, is someone else’s job.
- Your VP of Sales is responsible for the ARR target for the end of the year. This makes your VPS also implicitly responsible for churn as well, as well as net revenue retention for all accounts. This aligns your VPS’ number much better with the CEO and the company — because all the company cares about is its ARR at year end. But if your VPS is responsible for the “all in” number and isn’t also responsible for post-sales, it creates a partial misalignment. Up until $8m-$10m ARR or so, this misalignment is relatively smallb/c it takes a while for renewals (and churn) to be material. But after that, the misalignment can be large if the VPS is a strong closer but churn is high and/or increasing. The lower your churn and the higher your net revenue retention, the less misalignment there will be. But still — do you want your VP of Sales worried about post-closing stuff? Maybe not. An ARR goal sounds good, but it can lead a VP of Sales to spend a lot of time on things other than closing.
- Your VP of Sales is responsible for a “bookings” number, including renewals, multi-year deals, etc. This is common at Bigger Companies — but is very confusing for startups. Should a VP of Sales in a low/net negative churn environment really get a ton of credit for renewals? If so, that may be (and in fact, likely will be) at the expense of new bookings. After all, renewals are easier than closing a new customer. Also, Bigger Companies tend to incent multi-year contracts as full credit bookings for the entire amount, over all the years. But that doesn’t help you build your ARR faster for this year. It may even hurt your ARR if it leads to excessive discounting to get multi-year deals. So I don’t like this variant, but many BigCo VPs of Sales will be used to it. They’ll see all “bookings” as the same. But you won’t.
I say try to go with #2, fear #3, and fall back to #1 if #2 is too much for your VP of Sales to process.
What you don’t want to do is push your VP of Sales to also own Customer Success and retention if she just wants to close. If she just wants to close, let her just do that.
A little bit more on the job spec itself here: What a Great VP Sales Actually Does. Where The Magic Is. And When to Hire One. | SaaStr
(note: an updated SaaStr Classic post)