Should You Relocate Your Sales Team?
TL;DR: In pursuit of rapid growth many companies experience the limits of an inside sales organization. The heads of many sales leaders are spinning as the combination of price and availability of sales people vs. results are spiraling out of control. There are a variety of other options such as changing Go To Market model and/or pricing.
To remedy you can relocate a sales teams across the country where the salaries are lower and/or to move upstream and win bigger deals. But are these the only options? This article shares insights how to make such an important decision.
STEP 1: SEGMENT THE BUSINESS
First we have to segment your business. A way of doing this is by deal size and volume. Define what is SMB, Mid Market and Enterprise. In the diagram below I started with millions of freemium ($0) users and ended with million dollar enterprise deals.
STEP 2: DEFINE GO TO MARKET (GTM) MODELS
Next lets pick the right marketing and sales approach, known as the Go To Market plan. Below Winning By Design’s definition:
A Go To Market strategy (GTM) is a plan that specifies how a company will reach customers and achieve competitive advantage effectively and efficiently.
Depicted below a variety of GTM models based on ACV and deal volume.
Case in point: If you are selling a $5/month Chrome plugin to a Freemium user it is foolish to expect the sales person to knock on the door and perform an in-person demo. Creepy! Likewise no one expects an Enterprise user to sign up for a $100,000 solution by surfing to a web-site and entering the corporate credit card information.
STEP 3: APPLY THE RIGHT PROCESS TO THE GTM
GTM models are not just names, they consist of a series of marketing and sales processes. Below an overview of just the prospecting processes.
- Inbound by Search
- Inbound Word of Mouth
- Inbound from Content
- Targeted Outbound (1–1)
- Targeted Outbound using an Event
- Volume Outbound (1-Many)
- Targeting Accounts (Account Based Prospecting)
- Targeting Strategic Accounts (Account Based Marketing)
- Alert/Trigger Based
- Social Selling
Marketing and sales processes are no longer static, they are constantly modified with new ones created.
MAP PROCESS TO GTM
By mapping the most effective and efficient process to each GTM you start to get an idea of the difference between GTM models.
STEP 4: OVERLAY SEGMENTS ON GTM MODEL
Next we overlay the Process/GTM model on the market segments — this tells us which prospecting processes needs to be mastered in which GTM. I only demonstrate this with the prospecting process. This also needs to be done for the Marketing, Winning and Growing processes.
Case in point: In this case, going into the SMB market uses an inbound sales team with a volume outbound approach.
IMPACT OF EFFECTIVENESS AND EFFICIENCY
The previous diagram showed the standard use of an inside sales model to address the SMB market using an volume based outreach approach. However the key to applying the right process is effectiveness and efficiency:
- Effectiveness: Quality and Volume of SQLs generated
- Efficiency: Effort and Expenses needed to generate an SQL
The efficiency and effectiveness are based on criteria such as; Number SQLs/SDR, Compensation per SDR, Number of SDRs per AE, Close ratio, sales cycle, Contract Value and Life Time Value.
Efficiency and Effectiveness of Prospecting Processes
In the diagram below see the prospecting processes mapped to effectiveness and efficiency (artistic impressions — NOT data driven)
Case in point: Volume Outbound programs have lost some of their effectiveness as prospects have become less responsive to repetitive inquiries.
We see a steady drop from 20 SQL/SDR/mo to 10 SQL/SDR/mo in leading SaaS markets.
This drop in effectiveness of Volume Outbound means more SDRs are needed to get to the same result. Your cost of acquiring the customer is now increasing impacting your efficiency.
How to solve for a drop in effectiveness and efficiency
SOLUTION 1:Lower SDR compensation. This means moving the team to PHX or even offshore. Although this makes a steady improvement, for some companies the efficiency lost being remote from the sales team reduced effectiveness.
SOLUTION 2: Apply a different prospecting process. It is remarkable how few companies pursue an alternative process.
SOLUTION 3: Increase the “price”. This is often a product of industry factors. It doesn’t have to be just year 1 price, it can also refer to an increased Life Time Value. E.g. if your LTV goes from 2 to 3 years or if you have a reasonable upsell/cross sell along the road (like in AdTech).
Case-in point: In case a sales team has to generate $720k in ARR/year, we generally recommend you should not spend over 50% or $360k in sales cost to acquire it. This maps to 1 SDR, 2 AEs and 1 Onboarder (CSM). This team has to secure $720k/12=$60k in deals/month. Say each AE to work ~10 deals per month with a 3:1 conversion rate this equates to 3 deals/mo x 2 AEs = 6 deals/mo’s. If they win 6 deals they operate right at 50% however if the efficiency drops and they win 1 deal each a month, they only generate $240k in ARR. Oops!
SOLUTION 4: Move UpStream. Companies with an offer that appeals to Mid Market and Enterprise can decide to Move Upstream, not just by increasing the price but also increasing the offer and the advanced needs these markets have. See more in this recent post Moving Upstream.
Conclusion
SaaS sales runs on thin margins, your GTM model is likely the biggest expense so you need to understand in efficiency and effectives of acquiring a client/GTM, and understand how market movements impact the profits generated/losses incurred so you can choose the right GTM.
The days of just hiring sales people to hit a number are over. The days of just having one GTM model is over. And the days of just pursuing one segment is over.
Markets are no longer static — Sales organizations can no longer be static either.
If you are interested to learn more I am working on the Science and Technology of Growth. I would love to hear your experiences either via the comments or by reaching me on LinkedIn.
