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.