David Cummings on Startups

How to Decide if Inside Sales Makes Sense

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David Cummings

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With all the talk about sales and cold calling, it’s important to step back and run some simple math to see if inside sales even makes sense. Most entrepreneurs fail with their first sales rep for a variety of reasons and really should just hire a sales assistant. Assuming the sales assistant is already in place, let’s run through some logic to see if it makes sense to hire an inside sales rep:

  • Take the average gross margin in the business (e.g. 30-80% based on the type of company — let’s say 70% for a Software-as-a-Service business)
  • Grab the average deal size in the first year (e.g. $1,000)
  • Evaluate the cost of salary and commission to hire the caliber person required to be successful (e.g. $35k base and $75k on target earnings)
  • Figure out how many deals are required for the gross margin to match the fully loaded costs of the sales rep
  • If the gross margin of the first year is greater than or equal to the expected output of the sales rep, hiring a sales rep makes sense
  • Here’s the math for the example above:
    $75,000 + taxes for the sales rep = $85,000
    70% gross margin times $1,000 per deal times X number of deals = $85,000
    121 deals at $1,000 per deal = $121,000 times 70% gross margin = $85,000
    121 deals are required for the sales rep to make sense.

So, run the numbers based on educated guesses and see if it makes sense to hire an inside sales rep. Generally, as the average customer value goes up and the sales cycle goes down, inside sales makes more sense.

What else? What are some other thoughts on how to decide if inside sales makes sense?

Comments

3 responses to “How to Decide if Inside Sales Makes Sense”

  1. Inspire A world Avatar
    Inspire A world

    Nice, however, my personal thoughts regarding 121 deals vary. If your startup still has under 500 deals, the founder should be directly involved with sales. How can you hire a sales rep until you know your customer and your product like the back of your hand. Sales reps so early on are misguided and sometimes unmotivated.

    Reply
  2. daleflipsfilm Avatar
    daleflipsfilm

    Great practical advice! Thanks for the hands on info you provide!

    Reply
  3. Sebastiaan Barlo Avatar
    Sebastiaan Barlo

    Hi David,
    I’ve been reading your blog for a while and this is the first article I think I have a sensible reaction to…:-)
    I’m not really sure if you’re mixing up two different roles here or I don’t understand the article enough.
    My thought on sales reps and inside sales/sales assistents in general is the following.
    When growing a company you need sales reps who you know are good at selling your products or services by being good at building relationships with your leads, prospects and customers.
    We all know that true sales reps aren’t good at the administrative tasks that come with the sales cycle…:-)
    In the background you need an inside sales person who is supporting the sales rep in the sales cycle with planning, registration and other administrative tasks.

    So for example if you’re in a startup and you’re a good sales rep find yourself a good external inside sales person or company that offers these kind of services to help you with the administrative tasks of your sales process.

    Reply

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