In order to scale every good startup will need a healthy dose of sales and marketing. As a startup, you need to understand this relationship to achieve your sales goals. A standard financial model won’t be able to take you there alone. You’ll need a model designed for SaaS sales and its decisions (business development headcount, close rate, annual contract mix). An Enterprise Sales Model is going to give your business the predictability it needs here. It will take the various inputs and map them for you to deliver a baseline you can use to monitor your success.
Part 1: The inputs
The most important input on the sales side is all around your lead generation. Do you have a team of business development representatives (BDRs)? If so are they generating introductory calls (a simple call with a prospect and an account executive to see if there is a good fit)? Or perhaps they are moving right into booking qualified meetings? Preparing your model will force you to think through your BDR output and its impact on the close rate. It will also force you to develop assumptions about typical rep productivity. This will impact your downstream sales performance. Remember, account executives like spending less time on bad deals.
After identifying how you’ll be using outbound and creating a benchmark around efficiency you’ll need to think through the BDR and account executive (AE) relationship. How many BDRs will be feeding your team of AEs? Most businesses will cap the number of deals an AE can have in the pipeline. Does that mean you’ll need 2 BDRs per AE? Or will a 1-1 ratio do the trick here?
Part 2: Contract mix
One of the main benefits of outbound sales has to do with cash flow. It is very common for these sales to get billed annually. This means that instead of getting one-twelfth of the contract’s annual value each month you get it all upfront and can immediately deploy that capital in the business. It also will reduce your churn risk from these clients in the mid-term because they do not get a benefit from canceling early. Note that this can possibly skew your churn data downwards artificially.
The contract mix is the percentage of deals that stay with a month to month plan instead of going annually. This will happen on occasion as prospects may have cash flow issues themselves and be unable to pay for the full year upfront. This ratio will give you an idea of how much early cash flow you can expect from your outbound sales team.
Part 3: Evaluating your outbound model
Having a monthly review with your sales leader is a great idea in the early going to see how you are tracking according to your plan. Key indicators to look at are:
- BDR output per month vs plan- are your reps getting enough conversations?
- Close rate- Are those conversations any good? A close rate below 15-20% usually means you’ll need better qualifying criteria (BANT)
- Deal size- What deals is the outbound team selling? In the early days, you will need to watch for reps pushing the small plan because they think it is an easier sell
Thankfully putting all of these pieces together and making a model you can use to review with your sales leader is pretty easy with our new Startup Sales Model- Outbound and Inbound. Hope it helps you spend less time in your spreadsheets and more time winning deals.