Slowing Down Sales Hiring
When you hire a new salesperson, it’s not just their base salary and any commission that you’ll be paying every month. There is an entire infrastructure that supports each member of your team to ensure they get leads and then close deals successfully. If you are hiring a new account executive, then they become part of a group of people and departments moving the customer from prospect to success. They need:
- Marketing, to develop leads.
- Sales Development Reps, to qualify leads.
- Customer Success, to make their sale successful.
- Consultancy, to upsell and provide post-sales services.
Each AE might only take up a fraction of the resources from these team members, but when everything is totaled, this investment could come to close to $1M per AE. In his presentation on The Key Drivers for SaaS Success at SaaStr 2016, David Skok showed this point excellently. As they are still ramping up, new sales hires are highly cash flow negative in their first few months. You are investing more in them than they are returning in sales. This leads to a cash trough:
Based on The Key Drivers To SaaS Success, slide 51B
Eventually AEs will pay that money back and start to become profitable for the business, but the length of the trough means that you’re spending a significant amount of time in the red. It could take 3 to 6 months for them to ramp up fully, then another 10 months to pass the payback point and be net-positive contributors to the company. During that initial period, you’re continuously losing money.
If you’re well-funded and flush with cash, then this shorter-term loss is acceptable for the long-term gains. But in leaner times, when cash flow is tighter, it can be difficult to sustain this type of loss for this period of time.
The problem just compounds with more hires. Though the payback period will be the same, the cash trough would be twice as deep with another hire:
Based on The Key Drivers To SaaS Success, slide 52
The long term gains of 2 new hires per month would usually make this an economic no-brainer. But if you can’t afford to get through that cash trough, then you’re not going to get to enjoy the increased gains on the other side of the payback period.
This is why it’s important to consider slowing sales hiring during economic downturns. The more sales reps you hire, the deeper that trough gets. You might not be able to survive the initial outlay of capital before you get to the profit.
3 Ways To Get More With Less In Your Sales Process
Experimenting with email services such as Customer.io for personalized acquisition campaigns can easily increase this number. This is a quick win, and there is still plenty of room for growth.
Reduce The Length of Your Sales Cycle
By reducing the length of the sales cycle, you can bring more customers in more quickly, leading to a jump in revenue.
In this case, if your sales cycle is usually 4 months long, and your average deal size is $100K, then you’ll be making $300K per year per cycle. If you can shorten the cycle by just 1 month, to a 3-month cycle, you’ll make an extra $100k per year per cycle. This is a matter of increasing efficiency to cut costs.
All it requires is the ability to dive deep into your sales process, analyzing it from many angles:
- Slice it up: Your sales cycle isn’t one big number — it’s made up of a variety of different metrics. You need to split it up by stages, reps, and lead sources to determine exactly where the bottlenecks are in your cycle.
- Tweak it: Once you know the where, what and who of your slow cycle you can start to take action. Run experiments to see if you can improve individual aspects of your sales process. For instance, if sales demos are causing slowness, you could:
- Schedule demos earlier in the process
- Improve training to enhance demo presentation
- Automate some of the demo phase to free reps for other sales tasks
- Lose deals faster: A great way to increase the efficiency of your sales cycle is to weed out the non-buyers early in the game. The fewer drop-offs you have later in your funnel, the more time your sales reps can spend with the prospects that really matter—the ones that are going to become customers.
- Calculate your loss cycle: Instead of analyzing how long it takes to make a deal, look for how long it takes to lose a deal. If you then compare it to the cycle for deals you won, you can look for differences in the two, and nail down those leading indicators of non-buyers. Non-buyers spend longer in the funnel as they drag their heels and string along sales reps. If you can identify these early, you can look for ways to either move these prospects faster, or move them on.
Slowing down your sales hiring doesn’t necessarily mean stopping. Depending on your cash flow you might still have the money to push through that cash trough to profitability. But by taking pause and looking at your financial situation you can find out exactly where you can optimize your process, where you can find efficiencies, and build a stronger, more resilient process.
