David Cummings on Startups

Modeling Sales Rep Ramp in SaaS Startups

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David Cummings

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Most Software-as-a-Service (SaaS) financial models focus on the standard areas like new customers acquired, customer churn, expenses, cash flow, etc. In the section that models out labor there are the standard categories like sales, marketing, engineering, operations, administrative, etc. Only, the sales rep section is often too simplistic with a model that shows the hiring of two new sales reps every month/quarter (always hire sales reps in pairs) and simply leaves it at that.

Here are a few items to model in the sales rep ramp for a SaaS startup:

  • Time to quota attainment (most sales reps take 60 – 120 days before they’re productive)
  • Sales rep churn (often 50% of reps hired won’t work out and some percentage of the successful reps will leave each year)
  • Productivity increases (reps often get 10-20% better each year)
  • Quota increases (often coincides with productivity increases and market dynamics)

Sales reps, as a percentage of total employees, is almost always higher than most entrepreneurs realize (check out Salesforce.com which is said to have more than 50% of the employees in a sales capacity). Ramping up a large sales team in a SaaS startup is much more complicated than most financial models dictate.

What else? What are some other thoughts on modeling sales rep ramp in SaaS startups?

Comments

3 responses to “Modeling Sales Rep Ramp in SaaS Startups”

  1. Damien Stevens Avatar
    Damien Stevens

    David,
    I agree. The best starting point in terms of learning and a real speedsheet is SaaS Economics by David Skok:

    http://www.forentrepreneurs.com/saas-economics-1/

    This is something we continue to evolve and improve. Is there any modeling you would share or recommend?

    Reply
  2. Dave Kellogg Avatar
    Dave Kellogg

    David,

    I love your blog but your posts are getting stubbier and less informative. Based on the title I was expecting at least a page of interesting stuff and, call me an optimist, perhaps an Excel model to boot.

    Now to the answer your question …

    – Ramping by quarter to terminal productivity as you note
    – Turnover/attrition as you note and as few do. This is the #1 error imho.
    – Deal mix: ARR, services, multi-year if applicable. Very important.
    – Product mix if applicable: often the driver for assumed productivity increases- Hot vs. cold territory: they can ramp very differently.
    – New vs. promoted reps: a brand new field hire will ramp very different than an inside rep who was promoted from SDR
    – Quota vs. productivity at the rep level, plus any mgmt cushion as you create layers
    – Commissions, if you’re good. The payout for 100% of your reps doing 80% is very different from what actually happens with most comp plans
    – Supporting resources: personally, I model the whole sales org because most of it is ratio driven off the number of QCRs — QCR/SE ratio, QCR/SDR ratio, QCR/mgr ratio, and bam you’ve got not just the bookings and revenue ramp but the whole organizational cost structure

    Best,
    Dave

    #dontbecomeafredwilsonesquestubber

    Reply
  3. BH Avatar
    BH

    to Dave Kellogg — hey Dave, since you read David’s blog, I imagine you’re familiar w/ just who he is; for those not, here’s what David Cummings has accomplished by the age of 32 (he’s 34 now):

    1) founded & co-founded & built the other — not just 1 Inc 500 company, yet TWO (2)
    * 1 Hannon Hill Corp, & Pardot (where he wrote code full-time for the 1st year)
    >>> in only 5 yrs time, self-financed Pardot, sold for $95M

    2) David is definitively the ‘new Ted Turner’ here in ATL

    3) honestly, Dave Kellogg, … none of us has justification to write, as you did, “David, your posts are getting stubbier and less informative”
    *Cummings can do what he wants, when he wants, & how he wants; if he wants to spend less time writing extensive, detailed Blog posts, so be it … all the rest of us would just be hanging out on our Yacht, or traveling the world … so we shld all be thankful for all the Blogs David has been so kind to write over the years … he shld be applauded, not mocked.

    Hey Kellogg, don’t be jealous — attempt to create 2 Inc 500 Co’s within only a 8 yr span … then you can say all you want about what Cummings, shld, or shld not be doing w/ his time.

    Reply

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