7 things SaaS founders should do to improve sales operations before gearing up for scale
The Series A is generally raised to scale the business. As Point 9 puts it, you should raise an A when you have moved from PMF to GTM Fit.
Nailing as many of the steps I’ve outlined below makes raising an A from a Tier 1 VC far easier. If you’ve raised your A these are the must haves for scaling sustainable growth. Many startups try to scale prior to getting some of the basics in place and it’s the most frequent reason for startup failure (Forbes article) and ensures startups fall short of the growth goals the best Series A investors expect (more on that on Point 9’s SaaS funding napkin).
Through my previous role as VP of Sales at Framer but also after advising many B2B SaaS Startups on building scalable sales engines, I’ve come up with a framework that SaaS founders can follow. Having seen it work successfully over and over, I thought it would be useful to share with the broader startup community. It includes 7 parts in no particular order and equally important:
- Define your best customer
- Use the CRM correctly
- Understand the steps in your marketing funnel all the way through your sales funnel
- Know your sales funnel numbers
- Set clear goals and define your first compensation plan around those goals
- Build a solid hiring plan and a playbook
- Understand what investors expect
I’ll explain the rationale behind each part in this post while making sure to provide a bunch of practical tips I’ve learned from my experiences with Framer, Revinate, cargo.one, xChange and ScreenCloud.
Let’s get started!
1. Define Your Best Customer — this is your “Right Now TAM”
There’s the Total Addressable Market that you hope to eventually sell to and there’s the Total Addressable Market you should be selling to right now. The Right Now TAM is a subset of your TAM and it’s the niche that you need to focus sales efforts on before you try to scale. Aaron Ross of Predictable Revenue calls it “Nailing your Niche” and it’s often referred to as the Ideal Customer Profile (ICP). Many founders assume it’s obvious, but if you ask two customer-facing team members to describe “the best fit customer profile” and the qualities that make up that prospect/customer, the answers often vary a lot… this needs to be aligned ASAP.
Ideally, the “Right Now TAM” is found at the intersection of i) the highest LTV customer, ii) the customer who has the strongest Product Market fit and iii) the customer with the shortest sales cycle. Triangulate these and it’s often in between. The hard part is getting everyone on the same page as to what this is exactly. But you can start by making a list of qualifications that either qualify in or disqualify out a prospective company on whether they would be an ideal customer. To get this started, start by writing a list of qualification criteria that compel customers to use more of your product as well as a list of qualification criteria that cause customers to fail/churn.
We did this exercise with the Point 9 portfolio company xChange and while the organization and teams were already very much on the same page with the “Right Now TAM” by going through this exercise we found further details around qualifying prospects IN or OUT of the sales funnel. We then had the SDR team qualify prospects using this more thorough criteria to ensure prospects who did not meet the Right Now TAM definition would never end up in the sales funnel. This ultimately resulted in less wasted time for the sales reps, helped accelerate throughput in the sales funnel while increasing conversion rates and revenue growth.
The qualification criteria around the Right Now TAM helps lay the groundwork for much of the sales engine/funnel/goals. At Framer, we sold our enterprise offering to teams of designers and we initially set criteria around the minimum number of designers working at a prospect company. As we couldn’t buy or scrape this data, we had our SDR team go to LinkedIn and manually count the designers. If the company didn’t meet the minimum threshold they didn’t meet our Right Now TAM criteria and the sales team wouldn’t push them into our sales funnel. At Revinate, we sold software to hotels. We used star class and number of rooms as our initial Right Now TAM criteria and while this was easier to scrape and automatically categorize we would also layer in qualitative data we gathered manually around whether a hotel was active on social media or whether they responded to online reviews. These simple qualifications increased conversation rates and ensured only prospects who would have a high likelihood of becoming happy customers entered the sales funnel.
I call the “Right Now TAM” the RIGHT NOW TAM because you can and will expand beyond this definition, but it’s far easier to start with a narrow sales system/process and expand the target market than it is to start with a spray and pray approach and try to narrow it down.
2. Using the CRM correctly — don’t skip this section
Yes, this is obvious… and maybe boring. But many (maybe most) startups are using their CRMs incorrectly. Shame on the CS teams of these CRM companies. When I started advising I was shocked that startups could get the core workflow tool for their sales team wrong. Now, I’m pleasantly surprised when they get it right ;-) Often CRM (like the rest of sales operations) grows organically out of the early days with the commercial folks that are busy hunting for Product Market Fit… but then the CRM isn’t overhauled and breaks down under the strain of scaling. This section probably deserves a longer post, but a few basics to use as a guide to know if you need a CRM overhaul:
Workflow first, reporting second: The CRM is a sales/CS workflow tool first and a reporting tool second. Focus on getting the CRM setup to help enable sales/CS to do their jobs efficiently. Only once it’s working smoothly should you worry about reporting.
- Set precise stages in your funnel: The sales stages (if you’ve set that up) are not a Trello board or a reminder of things to work on. Sales stages should be clearly and very strictly defined and managed with a level of discipline where deals move through the stages in a given amount of time or are “Closed Lost.”
- Use the “Closed Lost” stage diligently: “Closed Lost” just means “Not Now”. It’s far better to “Closed Lost” a deal and set a reminder task to follow up in the future than leave a deal open. This way you prevent letting yourself or the sales rep be deluded that the deal will close any time soon and you also avoid destroying your forecast accuracy.
- Use “Tasks” as a reminder for everything: You can set a date for a reminder Task and using Tasks becomes a habit. The important part is being disciplined that if your “present self” sets a task for your “future self”, then “present self” can trust that “future self” will carry out the task. Trust the process.
3. Understand the steps in your marketing funnel all the way through your sales funnel
If you can i) understand how to find the Right Now TAM, ii) get that into the sales funnel and iii) track the events/stages/actions that those prospects take to become a client, then you can iv) know where to invest resources and unplug bottlenecks in the system. Aligning Sales and Marketing at the top of the funnel is such a powerful part of building the engine.
Where are your leads coming from? Where are the Right Now TAM leads coming from? Often many inbound leads don’t fit the Right Now TAM profile and should be discarded. Startups can fall short of their growth goals because they are chasing inbound leads that don’t meet their Right Now TAM criteria. There are always exceptions that can be made when letting leads into your sales funnel, but too many exceptions become the rule.
If you have Right Now TAM leads entering the funnel ensure that your marketing/growth team has what they need to generate more of those inbound leads and/or sales has the list they need to go hunt these ideal prospects.
Having the marketing/growth team build the lead lists for the SDR team supercharges the lead generation process and bonds the teams together while increasing alignment across the whole funnel.
Understanding your conversion rates at each of these funnel stages becomes critical to know how to scale your business. At every point in the funnel, you have prospects that drop out of the funnel. You can look at these waterfall numbers and see the difference between one stage and another. This all rolls into end of funnel forecasting and pipeline health which is too complex to cover here, but is deeply important and deserves another post. Accurate forecasting (your ability to predict future pipeline and revenue numbers) is a telltale sign that you have a strong grasp on your sales funnel.
Remember it’s OK to start manually tracking and reporting and then build more sophisticated and accurate reporting over time.
4. Know your sales funnel numbers
As David Skok writes in this post, the beauty of a SaaS business is that, at a high level, it’s governed by very simple math: a lead flow and a conversion rate in the funnel.
Now that you understand and have aligned your funnel, you can monitor its health and improve the conversion rates at each step of the funnel:
- How many Right Now TAM leads are generated per month?
- How much do your Right Now TAM leads cost your Marketing/Growth team?
- How many sales meetings/demos are your sales/SDR team booking per month per rep?
- What is your average sales cycle’s length?
- What’s the average deal size? How does it evolve on a per cohort basis?
- What’s the quota attainment per AE? How long does it take to ramp a new rep to full quota attainment?
- What is the Life Time Value of your customers?
- What is your Cost of Acquisition of a Customer
More details on that in these three posts:
- David Skok’s presentation from a recent edition of SaaStr.
- Christoph’s “A better way to visualize pipeline development”
- Louis’ Monitoring a Seed stage SaaS Business (video here too)
5. Set goals and define your first compensation plan
If you’ve calculated some of the above numbers, you can start to calculate the goals and KPIs for each employee on the team. Giving every employee guidance, tools and a clear direction on what they need to achieve to be successful is obvious, but not easy. In sales, it often means giving numerical goals to the individual sales team members. This may include demos booked as well as quotas that roll up to team revenue goals and ultimately company-wide goals. These numbers can and will correlate with conversion rates and the work capacity of team members who interact with prospects throughout the marketing and sales funnels. They need to be a balance between what the company needs to achieve to be successful and the realities of what is possible. I love the process of putting these goals in place. It becomes a waterfall of calculations and a reality check between top line company goals and individual contributors’ goals.
- Goals: You should track SDR goals around meeting/demos booked. If those goals aren’t being met you can go one level below measuring calls and emails sent.
- Compensation: I prefer to set clear goals and use commission to really reward overachievement and penalize underachievement in terms of meeting/demos booked. I prefer using the calls/email KPIs as a benchmark to show reps what needs to be done to achieve the goals, but not compensate reps based on these inputs.
For Sales Reps
- Goals: Setting quotas for sales reps is an art and a science and knowing your numbers is key. While setting quota and compensation should be a much longer post (more on that soon), I’ll give an overview below.
- Compensation: Total compensation and variable compensation percentage are often dictated by the market your hiring in. There’s a base salary that ranges from 50–70% of the total compensation. The important point I want to emphasize is that in the early days you should always pay the same % commission per deal for every rep or pay the same bonus per KPI for every rep. As a guide, I try to pay a commission equal to one month MRR (8.33% of ARR) for all of my quota carrying reps. While you can change the % payout rate as necessary (to get to the variable portion of the On Target Earnings), aiming for the one month MRR payout rate keeps things simple. This means that a junior rep may have a quota of $2k MRR and a Senior Rep may have a $4k MRR quota, but I’d pay them the same commission rate on closed business. But, as the Senior Rep has a higher quota, I’d pay them a higher salary. You can also add an accelerator for over quota achievement or a penalty for underachievement, but keeping the unit payout the same helps with scaling as you can be transparent and everyone on the team is on the same page.
I worked with the Point 9 portfolio company ScreenCloud on that particular topic. Because of the growth and timing of early hires, we realized that while effective to motivate the team in the early days, the commission was not normalized across the company. By normalizing compensation and making things very simple, we could be more transparent with the teams and set clear goals and compensation for new hires (and career progression). This made compensation clearer for everyone, especially the finance team (who you obviously want to keep happy when they are the ones signing commission checks for the sales team).
Harmonize as much of the compensation as possible from base salary and commission. You know you’re doing it right if you can share salary bands and commission rates with everyone openly on the team.
Coupling quotas and revenue goals with compensation gives you a clear understanding of payback period per new hire. This helps clarify funding requirements which justifies raising money to invest in sales.
6. Build a solid hiring plan and a playbook
Hiring is scaling and it’s far easier to scale a well-oiled machine. If the above is sorted and you have the basics in place you can then model and plan revenue growth. Then the missing ingredient is only adding sales headcount.
While the hiring plan is mostly a financial model with a schedule of start dates, costs, ramp to quota estimates and payback period, ultimately the role of sales leadership evolves from building a sales engine to recruiting and onboarding. You can worry a lot less about onboarding when you’re trying to build the sales engine, but when you ramp up hiring, getting the onboarding process built out is essential. Making reps productive is about documenting all the pieces of the sales engine and then teaching the why and how to all new sales hires. This is often referred to as the playbook (or playbooks) and will be critical to training new hires and coaching existing team members. You can literally write out the workflow steps in a doc or map out the flow in a decision tree. The key is to make clear at every step in the sales funnel the next step that needs to be taken by the team member. These playbooks can get as granular as you want with peeling back each layer of call scripts, demo plans, objection handling docs, email templates etc.
cargo.one is one of the most data-driven companies I’ve seen and we spent a lot of time getting deep into the numbers looking at historical data and best practices to help model out goals and ultimately a hiring plan for the sales team. Having these numbers flowing across the sales organization made it easy to understand i) the expected capabilities of each team member (and new hire) and ii) the ROI and payback period on each hire. Having clear goals ultimately helped us understand the scalability of our sales engine. Layering in the playbooks into their rigorous and regimented onboarding processes ensures reps were ramped and producing quickly.
Coming back to the model for hiring a moment, it’s always interesting to look at a company’s annual revenue goals and then look at the current production of the sales teams. You can easily understand how many sales reps you need to hire (assuming you have reasonably predictable revenue production per rep) to achieve the revenue goals and work backward to how many reps you need to hire and how fast that needs to occur. Startup growth goals are always ambitious and there’s usually a moment where the CEO realizes that you’re already behind on hiring if you want to make the math work to get to your next annual goal.
The Hiring Plan is also linked to the international expansion plans. Many VCs want to know how you plan to conquer the world… literally. Having a plan on how you will logistically expand sales into different geographies and the corresponding hiring plan for the first few markets shows you’ve done your homework. It is key to think through this deeply as many VCs expect this and all too many startups pour cash into expansion without having a clear understanding of the ROI they should expect.
7. Understand what investors expect
Ultimately most Series A investors want to invest in scaling. They want to know if you can take the money and turn it into revenue growth and do this with a reasonable amount of predictability. This is obvious, but having gone through this a few times myself it’s far easier to convince others that you can scale when you believe that you can scale. Nailing the basics of building a sales engine is the first phase and then pouring more resources into the engine becomes an incredible driver of revenue growth.. And then on to your Series B.
Good luck and don’t hesitate to reach out if you think I or the broader Point 9 team can help you oil your sales engine, raise a (big) A (and beat the odds!) 👊