The data about average sales-team size in this post comes from our ongoing benchmarking analysis of hundreds of B2B SaaS companies. We will be releasing more benchmarks and key findings over the next few months.
It’s a word you hear a lot when you talk to startup executives and founders. Building a nimble, adaptable, scalable team necessarily means building a balanced team, and SaaS startup founders are always trying to achieve the perfect balance for their teams.
And, in this sense “balance” is really another way of talking about “proportion”. What proportion of my company should be engineers? How big should my marketing team be in proportion to my customer success team?
These are incredibly important questions, with serious consequences for your company’s success. And these questions are especially pertinent as your company grows and matures.
Dedicating the bulk of your headcount to engineering, for example, may help your company get off the ground in the early days, but it could hurt you when it’s time to go to market. Likewise, hiring a bevy of marketers before your product is ready to ship may result in a failure to launch.
But there’s one functional unit where the question of balance and proportion comes up more than any other: Sales.
Sales is the chief revenue driver of a company, so it’s important that you have the right number of reps to bring in enough deals to hit your number. However, closing reps are expensive (and they don’t help you market to new, or retain existing, customers), so it’s equally important not to have more than you need. This is a difficult needle to thread, so it’s no wonder that SaaS leaders struggle to find the right balance in terms of how big their sales team should be as a proportion of their company’s overall headcount.
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And it gets even more complicated.
Right-sizing your sales team is itself a balance ‒ between the general business philosophies about ideal company composition and the specific needs and goals of your particular company.
Typically, when SaaS businesses decide how many Account Executives (which we’re using here to refer to any quota-carrying sales rep) to bring on, they focus on the second part of this equation: They work backwards from their company’s specific growth goals to devise a suitable capacity model that takes into account quotas, employee attrition, time-to-ramp, etc. (For a full breakdown of this process, check out this comprehensive account from InsightSquared’s Business Analyst or this awesome post from Tomasz Tunguz on modeling your SaaS sales team based on marketing output.)
This process allows SaaS executives to ensure that they have the right number of AEs to hit their goals and work the leads marketing is producing, but it misses an important part of the equation: context.
How Does the Size of My Sales Team Compare to Similar Companies?
Context is especially important in this case because capacity planning is notoriously difficult and susceptible to poor goal-setting (especially for young, high-growth companies, for whom revenue projections are often inaccurate). For this reason, it is essential for young companies to gut-check their model with actual industry benchmarks about sales team size. Models are great in the sterile, theoretical world of capacity planning, but in the real world it’s important to have hard data about how actual companies look. Otherwise, a slightly misguided model could jeopardize your SaaS business for years to come.
But there’s a problem. There really aren’t any reliable industry benchmarks out there that provide meaningful information about how big a SaaS sales team should be relative to overall company size. And what information there is is typically outdated or overly general.
This information gap makes it almost impossible for SaaS executives to feel confident when building their companies. Too often, they rely on overly general data or their gut, which is a perfect recipe for an out-of-proportion company.
At InsightSquared, we don’t put too much faith in conventional wisdom or “close enough” strategies so we set out to answer this question for ourselves.
First we created a survey to poll startups about how their organization’s structure evolved as they grew. The results helped us gut check our own model to see if we were relatively in line with other successful SaaS startups.
But we wanted to go further.
We analyzed 70 SaaS companies to see how the size of sales teams (relative to overall headcount) relates to:
3 Ways to Benchmark the Size of Your Sales Team
My company just hit 100 employees, and almost 40 of those are sales reps. Is that too much?”
This is a common question among SaaS founders and, as we discussed, one that is notoriously tough to answer. The composition of your company depends on its age, go-to-market strategy, and target customer, so it’s hard to definitively answer the question of “what percentage of my company’s headcount should be in sales?”
But the truth is that there are some rough guidelines to help you think about answering this question for your own company.
In fact, when we crunched the numbers, we found an interesting story about how the relative size of a sales team changes as a company grows.
Here’s what we found:
What it tells us
The overall takeaway here is extremely clear: As companies grow, their sales teams shrink relative to overall headcount.
This isn’t too surprising. Small companies have ambitious growth goals, and it’s incredibly important for them to get initial traction in the market, so the sales department is one of the first functional units to see an early increase in headcount. (It’s worth noting that very, very small companies are more likely to include non-sales reps as opportunity owners in Salesforce , as everyone [even executives] sometimes to have to chip in to close early deals.)
But what is even more interesting is how the proportion of sales reps to overall headcount declines and then levels off as companies grow. Again, this rings true: once SaaS startups have gotten to a certain point of recurring revenue, other departments (like customer success and finance) tend to proportionally grow. This eats into sales’ headcount dominance, but it only goes so far: even huge companies dedicate about 20% of their headcount to AEs. You always need to sell your product after all.
To summarize: More than 40% of the headcount at very small SaaS startups is dedicated to AEs, but this proportion shrinks as companies grow and devote a larger share of their headcount to other, more steady-state functions.
But overall company size isn’t the only way of measuring your company’s maturity level. Your company’s age is another useful way to think about how your company’s composition changes over time.
My company is now 5 years old ‒ how large, relatively speaking, should my sales team be at this point?”
Just like the first question we answered, this is an extremely common line of inquiry. As your company ages, it also changes shape. In the early days, a nimble crew of engineers and sales reps was enough to keep the lights on. But a year or two down the road you’re likely to need a more diverse set of employees, regardless of your company’s headcount.
That’s why it’s important to compare your company to others that were launched in a similar time frame. It’s also important to look ahead: 5 years from now, what percentage of your company should be closing deals?
Here’s what the data revealed:
What it tells us
Like company headcount, your company’s age is likely to have a big impact on the proportion of employees closing deals. In fact, the story is very much the same: young companies have upwards of 30% of their team closing deals, while older companies dip to 20% and below.
This is very much in line with the findings from the previous section, and for good reason. As companies age, they tend to become more complicated and functionally diverse. They add more non-closing salespeople (like Business Development Reps, Sales Managers, and Sales Ops professionals) as well as more employees completely outside the sales function (like customer service reps, account managers, and accountants).
The speed of this change, though, is fairly impressive. Even across a sample size of nearly 70 companies, it’s easy to see how every year counts. For each year of a company’s lifespan (within the first 10-15 years at least) you can expect a non-negligible decline in the number of sales reps proportional to total headcount.
To summarize: Like overall headcount (although not quite as extreme), your company’s age has a big impact on the size of your sales team relative to overall headcount.
At this point you might be asking “Ok, I understand how my sales team size should evolve as my company ages and adds employees, but what about the most important factor: money?”
Thanks hypothetical reader, this is a great question! How much money your company is bringing in is even more indicative of its maturity than either its size or age. Therefore, if we want a real answer to the question of “how big should my sales team be?” we need to look at overall bookings.
So we did.
My company is bringing in $5 million a year in bookings ‒ is my sales team big enough to keep up with that growth?”
Nothing dictates the decisions your company makes as much as revenue. That’s why, if you’re trying to determine whether your sales team is the right size, you need to look at how much money it’s bringing in.
When we analyzed company composition based on annual bookings, the data supported the trend we had identified in the other analyses.
Here’s what we found:
What it tells us
In short, analyzing sales team size by annual bookings tells the same story as the other analyses: as companies mature, the relative size of their sales team drops. In fact, the trend is even more stark when analyzing by annual bookings. Companies that have really arrived at scale (bringing in more than $10m in annual bookings) have the smallest relative sales team of all, at just under 17%. (For reference, this is in line with the oldest companies [those founded before 2000] and a tad lower than even the largest companies [with more than 150 employees]).
It’s also worth noting that most companies hope to achieve an economy of scale as they grow. The hope is that their sales team becomes more efficient at bringing in deals over time and, therefore, doesn’t need to grow linearly with bookings growth.
The Final Takeaway
The trends that emerged from our analysis of relative sales team size are quite clear: Smaller, younger companies have proportionally larger sales teams. The percentage of AEs begins at around 35-30%, then drops gradually before leveling off at 18-20% for larger, more mature companies.
In all of the age and size cohorts we measured, the proportion of AEs to total employees never dropped below 17%, even for the largest, oldest companies with the most revenue. When analyzed in aggregate, the trend tells a fascinating story: Sales headcount is particularly important early in the game, as companies devote a lot of energy and resources to securing their first customers. As they mature, however, these companies tend to emphasize adding headcount in other (not necessarily revenue-generating) business units like customer success and finance.
Or, relatedly, they tend to flesh out their sales team with non-closers, like Business Development Reps and Sales Ops roles, who are not actively closing deals or owning opportunities.
This information may not change the way you determine how many AEs you need, but it can be a great way to gut-check your model and help fill in any gaps it may have. This is especially important for fast-growing startups, where revenue modeling is especially inexact. Using this information as a general guideline for modeling operating expenses, however, is a good way to start planning for future growth.
InsightSquared’s 2016 Tech Benchmarking Report
The benchmarks on this page come from our ongoing analysis of hundreds of tech companies. We will be releasing more great content just like this over the next few months.
What’s on tap?
- Benchmarking the SaaS Quick Ratio
- Anatomy of a growth-stage tech startup
- Brand new industry benchmarks for LeadGen, Rep Performance, SaaS KPIs and more!
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