Does an Indian SaaS co have an advantage over one totally based in the US?

{Moneyball (2011)}. What is your SaaS’s ACV/OTE?

Over the last few days, the following two posts - one on Saastr by Jason Lemkin and the other by Tomasz Tunguz from Redpoint — caught my attention.

Both are excellent posts that I highly recommend you read. They both talk about the viability of a SaaS business supported by an Inside Sales team. The conclusions are almost the same.

The least viable price for an Inside Sales team supported SaaS product is about $300/month! Or an ACV of $3600.

 

and



By taking the average US sales rep's OTE (On Target Earnings) as a basis, both Jason and Tomasz have precised the business model for SaaS companies, nicely.

But, there is a small glitch when taking this theory, worldwide. Both Jason Lemkin and Tomasz Tunguz the posts take the OTE or On Target Earnings of a sales person at around $100–140K, for the purpose of this calculation. That may be true for the US.

However, OTE of a good Inside Sales rep based in a country like India is just $22K–30K. That’s a 4x or 5x difference in ‘cost of sales’. 

   

So the math which pegs the lowest price, at which a SaaS product is viable to do business while being supported by an Inside Sales team, turns on its head.

Even after accounting for a relatively lower ACV per salesperson— selling from a non-US country, especially mainly to the US| presuming the worst case scenario — for every dollar spent, the Indian Inside Sales team could generate twice the ACV than its US counterpart.   

Indicative scenario: 

(Total ACV booked / total OTE of the sales team is an interesting metric.)

{Brad Pitt in Moneyball(2011)} I think Mr. Pitt’s character would have agreed if he was looking at SaaS today :) The data is there to show that the agreement is purely academic.
Yes! Because every thing else being the same, the better RoI that the India inside sales team supported SaaS business gets, gives it an advantage. 

India, yes. But also north Europe?  

This obviously holds true for all places, in addition to India, which have a high ACV/OTE ratio.  There are dozens of examples. Pipedrive is one of the leaders in entry level sales CRM and they are from Estonia, another high ACV/OTE ratio location. They have a fantastic product — make no mistake — but location advantages will(do) ultimately show.  

It is natural to expect SaaS businesses, especially the sub $300/mo segment, to be dominated by teams with a high ACV/OTE ratio. Or leading SaaS companies to establish a global presence in order to offset this cost difference. Industry trends and forecasts seem to underline the same.  

Coming back briefly to Tomasz Tunguz’ post: 

Image from Tomasz’ post.

You must read his post.

A number of publicly traded companies have an ACV below $3600, which has been calculated as the viability threshold for US inside sales team supported SaaS via these posts. Image from Tomasz’ post.

In the above image, one can see quite a few of the publicly traded SaaS companies having an ACV below $3600($300/mo), the ‘price viability boundary’. 

    

Two final points:

ONE:  

I took the liberty of extending Tomasz’s table. 1. I added the recognizable  business names on the left side and 2. Locations that the company has offices in, on the right. The companies above the red line are the ones with ACV of less than $3600.

Out of this list of 7 publicly traded SaaS companies, with ACV <$3600, just 1 is based only in the US.

TWO:  

Radhika Nair in this post on YourStory quotes the Google Accel report, which estimates cumulative (ARR) revenues from Indian SaaS companies to be $10 billion by 2025. Some highlights:

India has 500 SaaS companies already doing $600 million ARR today.
This will rise to $10 billion by 2025. In 9 years.
How many Inside Sales people are needed to achieve this?  (That will be a challenge.)

There are already some 500+ Indian(based) SaaS companies doing a total of $600m in ARR today. 

Namaskar! Stay focused on your ACV/OTE metric!         

Similar topic posts:

1.

2.   Eventually. Everyone Has a Sales Team.

Highlighting excerpts: