When it comes to scaling a Venture-backed startup, figuring out staffing numbers isn’t an exact science. Founders are keen to increase marketing and sales team numbers since these directly contribute to revenue. Or at least, that is the idea.
Sadly and sometimes tragically, extra sales team members don’t always generate the revenue ambitious growth targets need to succeed. More input does not necessarily increase outputs.
Time and again, we have noticed that sales in one area that founders and managers don’t invest enough time in trying to quantify. We call this a revenue blindspot. Founders are so eager to generate revenue and hit target that anyone who claims to be good at selling is a potential hire, especially in a post-fundraising mindset when everything kicks up a gear.
Poor hiring choices are not the only factor creating this revenue blindspot. Weak reasoning, or not thinking enough about why you are taking a certain course of action - e.g. hiring a whole team of sales agents - contributes to many startup failures.
Before you hire an eager team of sales executives, stop and think about how many you actually need. This isn’t something that should take too long - we’ve already done the heavy lifting. Time to play the sales numbers game.
How Many Sales Execs Do We Need?
Firstly, let’s assume that you have a short-ish sales cycle, but you don’t need more than one or two demos/calls to encourage a prospect to signup to a free trial. For this numbers game, we are estimating that this is for a startup with 300 average-sized (SMB) clients and one sales exec. Now they are looking to recruit more, but don’t know how many.
Secondly, let’s also assume that each client needs at least one catch-up call every quarter, within an account management/customer success campaign. Potential up-sell opportunities exist.
Thirdly, we need to work out the sales campaign timescale. Most larger organisations plan this on a quarterly basis, which also makes it easier when reporting to a board/investors. One-quarter is twelve weeks. Within this timescale, a sales exec has time for five demos/calls every day. Each should take no more than one hour.
And finally, you need to factor in your sales targets. This is and isn’t in your control. It depends on what your investors want, what is achievable, current burn rate (and time until you run out of money), current monthly recurring revenue (MRR) and projected cost increase. Hiring more sales executives increase your costs, but also potentially - and that is a crucial but overlooked word when recruiting anyone in sales - will increase your revenue.
In the case of this fictional startup, they have 300 clients - all paying about the same - and they need to signup another 200 in one year, to break even and avoid exhausting investor funds. Now back to our quarterly planning, which in turn should solve the question:
How many sales execs do we need?
Campaign Timescale: 12 Weeks
Calls/Demos per week: 25 (300 every Quarter)
Now we need to remove a few days, to make this realistic:
6 holiday days (average) - 30 calls 4 days for admin, training, etc. - 20 calls Account management calls (if required?)
In this example, customers need one call every quarter. One sales agent - who would effectively become an account manager - could handle most of those. However, with a second sales exec, they could divide the calls between them: 150 account management calls per agent, every quarter.
With two sales execs, they would have 150 customer calls and 100 prospecting calls every quarter. On that basis, each agent needs to convert 25% of their prospecting demos/calls in one year (to hit target: 200 new customers). Maybe that is realistic, maybe not. It depends on your product, target customers, sales cycle, onboarding process, pricing, sales teams abilities and how many prospects come through the pipeline.
What is the formula we can use/adapt?
Annual (No. of accounts/value) Revenue Target - #
Existing Customers (No. of calls required per quarter - if any?) - #
= Number of sales calls/demos needed per quarter / How many agents can do every day - #
Holidays - # Training, admin days - # Existing customer (account management) calls - #
= Number of calls/demos sales executives can make every quarter - #
Now work out how many calls/demos convert, compared to those that don’t. With this data, you should have a much clearer idea how many sales executives you actually need. It is also easier to plan annual and quarterly sales targets, so you can identify those underperforming much sooner.