When is the right time to increase sales headcount for a SaaS startup? It is one of the most strategic decisions for early-stage business to make given the amount of effort and expense involved in building, managing and scaling a sales team.
While there is no single absolute sign, neither qualitative nor quantitative, these are some of the signals I have found indicate it might be a good time to scale sales.
First, the pipeline to quota ratio exceeds 6X. This means that there is more than enough leads to satisfy the quota requirement for one sales rep. Pipeline to quota ratio indicates the amount of business available to close within a certain time period, a month or a quarter. If the typical sales rep to close 15 – 18% of leads, then to attain quota, the account executive needs 5x-6x the number of leads as total quota. This ratio may not be applicable for the small set of companies whose sales cycles are less than 30 days, however.
Second, customers are buying the product ahead of key features or industry-standard features. This kind of pull from the market irrespective of a product’s maturity means the business has built a product that is a top priority for their customers.
Third, the company is observing shortening sales cycles or very short sale cycles. Fast sales cycles correspond to execution sales, when account executives don’t need to educate the market, rather they just need to finalize the contracts.
I’m sure there are other signs that it is time to scale sales team, but these are the ones that I have seen most frequently.
When a SaaS startup decides it’s time to invest in growing the sales team, the typical goals of that investment are three. First, discover the profile of a successful account executive at the company. Second, establish hiring costs, ramp times and quotas for salespeople so the company can model its growth costs. Third, codify sales motions into a playbook that includes a pitch, objection handling, and competitive advantages.
As a SaaS startup begins to hire salespeople, it’s also critical to remember that salespeople alone do not constitute a go to market organization. To be successful, they require sales development representatives, marketing support, and customer success/post sales. Each of these units is called the fundamental unit of growth and modeling their costs is critical to ensuring the success of the sales investment too.