Designing a Sales Quota Structure at the Earliest Stages of a SaaS Startup
Creating and optimizing a sales plan for an early stage SaaS company is a challenging task. There are lots of different variables to manage and the truth is it’s always a work in progress even for massively successful businesses. But at the very earliest days, where do you start?
Quota is a function of number of deals closed, sales cycle, price point and conversion rate. When a SaaS company is just releasing its products, none of these are known figures. What is the sales cycle for product that is not yet in market? What is reasonable conversion rate from lead to meeting, and meeting to close? How many prospects can we sell in a month?
In the recent SaaStr podcast, former Senior VP of Sales at Marketo Bill Binch recommends narrowing the question by isolating one variable: number of deals reps can close per month.
Instead of placing the first few account executives in a SaaS company on a dollar-based quota, use a logo-based quota. Three deals per month or four logos per month for example.
Bill recommends this for a few reasons. First, quick wins instill confidence in the sales team which is a key component to building a sense of momentum within the organization.
Second, sales reps are freer to experiment with different sales techniques in this model. They can vary the price and they can experiment with different pitches and sales motions. After all, in this phase, salespeople are discovering what techniques and tactics work to help the company scale. It’s the phase of discovering the processes the company will mechanize over the next few years.
Third, account executive benefit from additional flexibility during a time when product and positioning will likely change substantially from month-to-month. In the earliest phases of the software company, product roadmap can be quite volatile and the marketing message of the business is in constant flux.
After employing the logo based quota for six or so months, sales teams should be able to estimate with a greater degree of accuracy the number of accounts a sales rep can close within a month. This initial experimentation helps solidify one of the key assumptions of a dollar-based quota.
At that point, the company could move to a dollar-based quota and the sales reps, now standing on a strong foundation, are set up for success.
This isn’t the first time I’ve come across the idea of a logo based quota. One business leader has managed his sales team with a logo based quota for several years with incredible success. His sales team books several million dollars per year per account executive. They sell in the mid-market.
When I asked him why logo-based quotas works well for his organization, he replied that the young sales reps he employs don’t have a mental model for what a difficult quota might be. And they have fun challenging each other to see how many deals per month they can close.
It may not be right for everybody and it may not be right at every stage, but the idea of a logo based quota can be a powerful arrow in the quiver of early-stage founders, particularly during the initial go to market phase of the business.