How much revenue do you want to book for your SaaS startup next quarter? And in 12 months? It is one thing to put a number down on the financial plan. It’s another thing altogether to have the sales team staffed to close that amount of business.
The bookings capacity of the business is the amount of business a sales team should book in a certain period. Bookings capacity is calculated as:
Bookings_capacity = Σ AE_ramp_progress x AE_quota x AE_quota_attainment
In other words, a startup’s booking capacity is equal to the ramp progress of an account executive multiplied by the AE’s quota, multiplied by the expected quota attainment, summed across all AEs. AEs take a certain amount of time to ramp into their role.
They build a pipeline, learn the sales motion, and close a few accounts in the first few months. For inside reps, this ramp period is often 4-6 months. One common ramp scheme sees AEs tasked with 0%, 0%, 25%, 50%, 75%, 100% of quota by month across the first six months. For field reps, the ramp period might be nine months.
Quota attainment is the average quota attainment of the sales team as a whole. Most startups range in the 60-70% range, but the figure depends on how aggressive or conservative your projection might be.
Quota capacity increases as the number of reps increase. The key point, though, is that a startup cannot instantly increase quota capacity. The six month ramp time adds latency. So does recruiting time. If a startup averages 90 days to hire an account executive, and 180 days to ramp, then $525k in bookings capacity has a 9 month lead time. ($750k quota at 70% attainment).
But the AEs don’t operate in isolation. Returning to the idea of a fundamental unit of growth, a cross-functional team must be hired to support that bookings capacity comprising sales development, marketing and customer success. In addition, team leads and managers must also be staffed as the team grows. Adding in some buffer for inaccurate hiring, that half-a-million in bookings capacity must be planned for a year ahead of time.
There’s a conundrum many teams will face in the earliest days of a company. If a handful of account executives perform well in the first quarter or two of sales, a critical question is raised. Do we have enough confidence in our sales execution ability to invest a million or two dollars in building out that team? Invest too soon, and the capital might be for nought. Invest too late, and the company may under-optimize its growth.
Pipeline to quota ratio can be a helpful metric to inform this decision. A PQR greater than 5x suggests the team should be able to beat its numbers and that the AEs have sufficient leads.
As you scale your SaaS startup, bookings capacity is an important metric for growth planning. To achieve next year’s numbers, you’ll likely need to hire today.
Published 2017-05-16 in Sales