What You Think is a “Sales” Problem is More Likely a Marketing Problem

The other day I met with a great founder doing about $40k in MRR that wanted to raise some extra money to “make sales more repeatable.”  Sounds good.

I started to dig in a bit to understand what she really meant though.  At this rough stage ($20k-$80k or so MRR), usually most SaaS startups finally have a regular stream of leads — just not that many.  10 a month, 20, 100, whatever it is.  Leads now come in regularly because at least something is working, there just aren’t a lot of them.  Not enough to grow fast enough, but enough to grow regularly.

So we dug into the math.  This great start-up is closing about 5 new customers a month, and they want more.  They want more “salespeople” to help them.  But let’s dig into what’s really happening:

  • 100 “sign-ups” a month
  • Which they turn into 50 “MQLs” (marketing qualified leads)
  • Of which 20 turn out to be bona fide prospects, or “SQLs” (sales qualified leads)
  • Of those 20, 50% need features or functionality the product simply doesn’t provide yet.  So they can’t be serviced today at least.
  • Of the 10 that are qualified AND can actually get benefit from the product — they close 5.  That month.
  • So their close rate is 50%!

That’s actually kind of amazingly good — a 50% close rate, with a sales cycle of less than 30 days — for a vendor in a very crowded space, with well-established competitors and zero brand awareness, that spends $0 on marketing.

So my advice was simple:  you don’t have a sales problem.  At least not yet.  You have a marketing “problem”.  The founders themselves can handle 10 qualified leads a month.  Not only is that not very many calls, but in the early days, the founders are such experts in the product, its nuances, how to hack it, etc … you want them to keep selling, at least until it becomes > 25% of their time.  10 demos a month wasn’t yet > 25% of their time.

Usually in fact, hiring your first salespeople won’t really help in sales until there are enough leads that the founders just don’t have time.  That’s probably 25+ qualified leads a month, potentially more.  Once you are there — hire your first rep (ideally two in fact, more on that here).  But before that, a warm body that doesn’t know your product well isn’t really going to help.

Instead, hire a head of demand gen.  As we’ve discussed before, $500k in ARR is almost late for a head of demand gen.  Have her help you go from 100 to 200 sign ups a month.  To work the funnel so those 50 MQLs turn into 25 SQLs, not 20.  That’s where the leverage often is at this stage.  More on this here.

Later, when you have a surplus of leads, sales will help you sell more.  And after that, in fact, it will all become a capacity and numbers game.

But in the early days, it’s usually marketing to the rescue.  Not some sales magician.

Published on June 28, 2018

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