Great article David, this is exactly how I setup my top performing "high growth" sales teams (model will be different for margin expansion sales versus a high Growth focus)!
Quick addition; I usually like to keep sales quota's for each AE in the same role at the same quota level (for example; each Senior AE has a quota of $1M, no matter where they are in the world). I adjust the territories to match the quota's. Reason for this is to create a "quota standard" and avoid internal discussions on quota's not been allocated fairly (sellers talk and share info).
In my experience the biggest pain with High Growth Sales organizations is usually caused by how commissions are paid; Are sellers paid on "Signings" (When the contract gets signed by the customers) or on the $ that are collected by the company in that year. For example; When a AE sells a 3 year, non-cancelable contract worth $300K ($100k/year, paid yearly), do you pay the AE 10% on the $300K ($30K) or do you pay them 10% of the yearly amount (10% x $100K) each year (10% in year one, 10% in year 2, etc.)? This problem usually occurs during the second stage of a start-up (Series B and beyond), when startup's start to focus on company profits / margin improvements. In my view, not paying AE's on the full contract amount at signing will kill the high growth culture of a company. Love to get your perspective on this David!
Churn is such an important KPI for SaaS that I'm curious about handing off the deal after 12 months, which is a normal contract length. I've watched a bunch of cool silicon valley SaaS companies blow up at $50-$100M on churn being too high, and when you look under the covers, the AEs sold stinky deals where the customer wasn't set up for success and the account churned a year later. The AE got paid and moved on, but the VCs weren't too happy with the fire sale to the PE firm a few years later when revenue plateau'd. You can easily identify these companies because they get sold as "our software is so easy to use, you don't need any services!". There is a reason IBM/Accenture/Deloitte are huge services companies. Salesforce isn't trying to kick them out by making their solution self-service, instead they're renting out a bunch of floors of the Salesforce tower to them.
Great read. In my experience, the vertical and specialization approaches are highly effective if the business has multiple products and solutions - it accelerates ramp-up and expertise.
Something to think about, if applicable, and to design early in my opinion.
The "Draw" is a must for recruiting quality talent
One correction I’d make is to the AE cost as a percent of deal size. It needs to be calculated based on ARR *times* the gross margin to account for COGS. Otherwise your payback period will be larger than 12 months.
You’re packing so much useful, educational/actionable info into your posts and are presenting it in a tight, refreshingly simple way that’s easy to understand. Thank you and keep it up (the length of articles, frequency of posts, topics, ...all perfect)!
I took over sales at $100m year company where the reps owned accounts in perpetuity. This created perverse incentives and blurred the lines between the company and its clients. Reps started the year in the black and without them hunting, sales growth slowed and the business atrophied. Getting sales comp right is so important on so many levels, thanks for writing this.
I agree with Uri's comment, and would caveat "That means you can spend about 50% of New ARR on Marketing CAC (lead gen) and still keep your payback under 12 months" with ", as long as your gross margin is in the high 80s or above" - which is pretty common in SaaS once you hit "initial scale".
Great article. One correcton: The second time you've mentioned MECE, it should not be "complete" but "collectively", as mentioned correctly on the first occurence of the acronym.
Hi David, Great article on Hacker News right now. I am on the SaaS team at DN Capital (dncapital.com) and was wondering if I could interview you about scaling sales teams/investing prior to/at early stages of a sales team. Please let me know! My email is josh [at] dncapital [.] com
Excellent article @DavidSacks, you wrote: after 12 months, the account becomes a renewal and mentioned a lower commission, what is new commission?
Great article David, this is exactly how I setup my top performing "high growth" sales teams (model will be different for margin expansion sales versus a high Growth focus)!
Quick addition; I usually like to keep sales quota's for each AE in the same role at the same quota level (for example; each Senior AE has a quota of $1M, no matter where they are in the world). I adjust the territories to match the quota's. Reason for this is to create a "quota standard" and avoid internal discussions on quota's not been allocated fairly (sellers talk and share info).
In my experience the biggest pain with High Growth Sales organizations is usually caused by how commissions are paid; Are sellers paid on "Signings" (When the contract gets signed by the customers) or on the $ that are collected by the company in that year. For example; When a AE sells a 3 year, non-cancelable contract worth $300K ($100k/year, paid yearly), do you pay the AE 10% on the $300K ($30K) or do you pay them 10% of the yearly amount (10% x $100K) each year (10% in year one, 10% in year 2, etc.)? This problem usually occurs during the second stage of a start-up (Series B and beyond), when startup's start to focus on company profits / margin improvements. In my view, not paying AE's on the full contract amount at signing will kill the high growth culture of a company. Love to get your perspective on this David!
Churn is such an important KPI for SaaS that I'm curious about handing off the deal after 12 months, which is a normal contract length. I've watched a bunch of cool silicon valley SaaS companies blow up at $50-$100M on churn being too high, and when you look under the covers, the AEs sold stinky deals where the customer wasn't set up for success and the account churned a year later. The AE got paid and moved on, but the VCs weren't too happy with the fire sale to the PE firm a few years later when revenue plateau'd. You can easily identify these companies because they get sold as "our software is so easy to use, you don't need any services!". There is a reason IBM/Accenture/Deloitte are huge services companies. Salesforce isn't trying to kick them out by making their solution self-service, instead they're renting out a bunch of floors of the Salesforce tower to them.
David,
Good comp breakdown, yr 1 sales team ramp up breakdown.
my .02 after 25yrs working, delivering, managing across the client /sales lifecycle
think you also forget to mention
team selling model
sales methodology
value/relationship selling model
prizes (references, business impact use cases, etc..)
industry/vertical/segment strategy
linking of ABB to sales model OKR
setting up global sales office
mentoring, training, last mile support model
sales ops & execution team
HIPPO relationship model/OKRs/executive targets
sales engineering support ops
Day +1 customer success approach
yr 1 - yr 3 commision structure
strategic account selling v. core account model (mix, sales timeline, quota % etc..)
SGA/COGS % by product margin
Aaron
Awesome article. How will a sales rep's salary be affected if he doesn't reach his quota?
Great read. In my experience, the vertical and specialization approaches are highly effective if the business has multiple products and solutions - it accelerates ramp-up and expertise.
Something to think about, if applicable, and to design early in my opinion.
The "Draw" is a must for recruiting quality talent
This is great - is there a similar formula for equity?
Great summary of many important concepts.
One correction I’d make is to the AE cost as a percent of deal size. It needs to be calculated based on ARR *times* the gross margin to account for COGS. Otherwise your payback period will be larger than 12 months.
Hey David. Great article. What's your view on splitting the commission over the life time of the contract? e.g. 10% on a 3 year 700k contract?
You’re packing so much useful, educational/actionable info into your posts and are presenting it in a tight, refreshingly simple way that’s easy to understand. Thank you and keep it up (the length of articles, frequency of posts, topics, ...all perfect)!
I took over sales at $100m year company where the reps owned accounts in perpetuity. This created perverse incentives and blurred the lines between the company and its clients. Reps started the year in the black and without them hunting, sales growth slowed and the business atrophied. Getting sales comp right is so important on so many levels, thanks for writing this.
all time best salespeople are very happy customers
I agree with Uri's comment, and would caveat "That means you can spend about 50% of New ARR on Marketing CAC (lead gen) and still keep your payback under 12 months" with ", as long as your gross margin is in the high 80s or above" - which is pretty common in SaaS once you hit "initial scale".
Great article. One correcton: The second time you've mentioned MECE, it should not be "complete" but "collectively", as mentioned correctly on the first occurence of the acronym.
G.O.A.T
Hi David, Great article on Hacker News right now. I am on the SaaS team at DN Capital (dncapital.com) and was wondering if I could interview you about scaling sales teams/investing prior to/at early stages of a sales team. Please let me know! My email is josh [at] dncapital [.] com