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Updated August 22, 2022You’re reading an excerpt of Founding Sales: The Early-Stage Go-To-Market Handbook, a book by Pete Kazanjy. The most in-depth, tactical handbook ever written for early-stage B2B sales, it distills early sales first principles and teaches the skills required, from being a founder selling to being an early salesperson and a sales leader. Purchase the book to support the author and the ad-free Holloway reading experience. You get instant digital access, commentary and future updates, and a high-quality PDF download.
So if this is indeed a Goldilocks situation where we don’t want to scale too soon, and don’t want to wait too long, then how do you know when you’re ready to go?
First, it’s less of a binary “now you’re not ready, poof, now you are” situation, but instead it’s typically better to treat this like making your way into a hot jacuzzi, a bit at a time, validating that things are working as you go, but always making constant progress.
How do you know the time is right for you to take that first step of bringing on another sales rep, or two, to prove that someone other than you can sell the solution? Usually the answer can be found in the math of your sales metrics. A good B2B sales win rate is typically anywhere between 15% and 30%. Of all demos or first meetings you do, eventually 15–30% turn into closed-won deals (while the others either closed-lost or fizzle out into nothingness). If you find yourself in this range reliably, then it’s probably time to bring on other reps and prove that you can get them to close at a similar pace. If your win rate is substantially above that—well maybe consider raising your pricing, but certainly get a move on on abstracting and scaling your sales function! If your win rate is below that, then it probably makes more sense for you to figure out why only, say, 10% of your initial engagements are turning into customers before you turn to scale up customer engagements. Whether it’s the result of your messaging, product feature deficit, or pricing, sort that out first before scaling up.
The motivation behind these efficiency metrics is that to have an efficient sales organIzation, the total cost of your AE and SDR and sales engineer costs ( if you have a very technical sale and have sales engineers) should not add up to more than 20% or 25% of the amount of revenue they close, as a rule of thumb. So if your sales motion seems to require a single sales reps who set his own appointments, does demos, and closes deals, and he costs ~$100K a year, you’ll want to see him booking around ~$500K of revenue a year—because after you pay him out of that kitty, you want there to be plenty of other money leftover to pay for engineering, customer success, and so on. This is what is known as cost of sales, and you want it to be 20–30% (at the highest.) As a result, that rep needs to be able to close deals reliably, based on a good win rate, or else that ~$100K rep might only be able to bring in ~$300K of bookings, resulting in a really inefficient sales motion and difficulty scaling up.
exampleImagine that a rep can do five new prospect demos a week, and 10 other follow-up meetings in a week. That’s 20 new potential deals a month (5/week times 4 weeks in a month), and if he can win four of those deals (20%), and each deal is worth ~$10K, that’s ~$480K in a year—not a bad clip. But now imagine that the win rate is 10%—even still doing 5 new demos a week, with 10 follow-up meetings, and the same average contract value of ~$10K, that rep will only be able to do ~$240K in revenue per year. If he costs you ~$100K all in with base salary and commission, that’s a 40% cost of sales—only ~$140K is left over for marketing expenses, customer success costs, paying for engineering salaries, and so forth. No good.
This is why having a good win rate, coupled with a good average contract value and a reliable and consistent deal cycle is a good leading indicator of being ready to scale up to that first step. Otherwise, you’ll be hitting the accelerator on a car that leaks most of the gas out of the engine.
We talked about the basics of role specialization earlier when discussing how hiring an SDR rep early on can be a force multiplier when you’re running through your first few dozen sales cycles. Whereas that goal was to help you free up your time to do more selling meetings (demos and follow-up meetings) and do customer success activities, now the business of specialization is about preparing your sales team for scale up—we are proving that AEs other than you can successfully sell the solution, and that CS staff, again, other than you, can successfully implement, monitor, and drive success of customers. Doing so prepares you for hiring and managing many of these successfully, which allows you to ramp your organization’s revenue.
importantEven as you abstract the selling behavior into other staff, you’ll also be working on specialization of those staff as well. This will likely happen in a stepwise fashion, as discussed in the maturity model to follow, but ultimately specialization of sales and success staff is a very powerful modern way of selling.