2 minute read / Jul 21, 2016 /
The Smallest ACV to Justify an Inside Sales Team at a SaaS Startup
What is the smallest price point at which a SaaS startup can justify building an inside sales team? This is a natural question that many SaaS startups raise as they begin to complement bottoms-up, product-led adoption with assisting customers through the sales process.
There are publicly traded SaaS companies at nearly every price point - even very small ones. At IPO, Wix went public with an average annual revenue per customers of $87. Xero at $167; RingCentral $352.
| Ticker | ACV | Market Cap, $B |
|---|---|---|
| WIX | 87 | 1.3 |
| XRO | 167 | 2.7 |
| CTCT | 265 | 1.1 |
| LOGM | 314 | 1.6 |
| RNG | 352 | 1.6 |
| ZEN | 1801 | 2.6 |
| SPSC | 3259 | 1.1 |
| ATLS | 5554 | 6.0 |
| HUBS | 6094 | 1.9 |
| TRAK | 6777 | 4.0 |
| FLTX | 6788 | 1.7 |
| ATHN | 7721 | 5.5 |
| NEWR | 8027 | 1.8 |
But not all of these lend themselves to the classic sales development representative-to-inside sales model canonized in Predictable Revenue because of two constraints: customers-to-quota and cash.
Let’s take the example of an inside sales account executive with a $500k annual quota. At a $500 price point, between RingCentral and Zendesk, that AE would need to sell 1000 customers per year, 83 per month, 4.2 per working day. There are some amazingly productive salespeople, but those velocity figures are stratospheric - and unrealistic.
Given that constraint, a sales team might reduce quota to $300k, but that reduces the number of customers per month to 50 or 2.5 per day. Why not lower quotas further? Cash.
At a $300k annual quota and a fully loaded cost per AE of $100k, the account executive generates $200k of revenue over their costs. That’s not very efficient.
| Quota | $300k | $400k | $500k | $600k |
|---|---|---|---|---|
| Number of Reps Needed to Book $10M | 44 | 33 | 27 | 22 |
| Annual Opex of the Sales Team,$M | 4.4 | 3.3 | 2.7 | 2.2 |
As the table above shows, to close $10M in bookings with at a $300k quota and a 75% quota attainment rate requires 2x the annual cash investment as the same business with a $500k quota. Lower quotas are possible, but they require a startup to raise more capital to attain the same bookings number and growth rate.
At lower price points, self-signup and scalable customer support/success models are more prevalent because the economics can’t justify sales team involvement. These customer acquisition mechanisms rely on product, self education and high volume customer support to convert users to paid accounts.
Many startups prefer to field sales teams on accounts that are $3k+ because the velocities are sustainable and the quotas are attainable.