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?