Startup Lessons: Setting Quotas for SaaS Salespeople

Sales cartoon - Dilbert

Image: Dilbert

Here at Dasheroo, 2016 is the year of sales! We launched our business dashboards mid-year 2015 and spent much of the
balance of the year adding more data sources, reports and other cool features. We’ve also been knee-deep, or maybe ‘ear-deep’ in listening to what our target users need in order to derive value from us. Because where value lies, sales happen.

And for sure, we earned some great customers in 2015. But now we have tons of learnings to leverage and an entire year to rock the sales machine.

So the next logical challenge is: how the hell to set aggressive, yet achievable, goals for my growing sales team that both challenges and fairly rewards them in our software-as-a-service (SaaS) model?

First you have to match your offering, complexity of sale and price (Annual Contract Value) to the appropriate level of sales person and their compensation. Meaning, don’t hire a 15-year enterprise sales veteran to sell a $3,000 per year SaaS deal. The math just won’t work. But typically that’s not an issue, as any enterprise sales person worth a damn wouldn’t take that job. The reverse can sometimes bite you though – don’t cheap out and hire a junior salesperson hoping they’ll land $1MM deals.

Here’s some top considerations:

  • Market segment(s) you are selling to. For instance, we sell to a lot of agencies, so we have a salesperson who has experience speaking to and selling into that unique market.
  • Type of sell. Is it a “1 call to close” or more of a traditional sale that goes thru the lead-qualify-demo-nurture-negotiate-close process. We’re hiring an SDR (Sales Development Rep) at a relatively low compensation package to handle the former type of sale, and our more experienced folks for the more process-driven sales.
  • Annual Contract Value (ACV). Typically the higher the ACV, the higher the quota and the higher the compensation you’ll pay a salesperson to generate those sales. And if you’re selling in to several segments (agencies, mid-size teams and enterprise) each will have its own ACV.
  • On Target Earnings (OTE). This is the total compensation (salary + commission) you’ll pay at each level. You may have to do some competitive research or speak with some industry colleagues. I’m lucky to have Rob Brewster, a kick-ass sales executive as an advisor. Bottom line, you have to have at least a ballpark on what sales folks are making at the low through high levels.

Once you have that baseline information nailed, it’s time to generate some quotas (your SaaS quotas should be on Annual Recurring Revenue). For SaaS businesses, the general guideline is to apply a multiplier of 3-4X to OTE. Here’s a quick example:

example of software as a service sales rep quota

Here, we began with estimated OTE for each level of sales, and applied a 3.5X OTE multiplier to arrive at the annual sales quota. Then you need a reality check based on average deal size (Target ACV). You have to balance that against the number of deals they’d have to close in a month or quarter to achieve that goal.

If it seems realistic, you’re onto something! If not, you need to take another look at one of your drivers: your pricing and ACV, your compensation plan or how you can accelerate the number of deals that can be closed in each month.

That’s why setting quotas for your SaaS salespeople is both a science and an art, as you can use some industry benchmarks as a framework for your plan, but it’s typical to nudge them a bit to create a reasonably aggressive plan that fits your business.

There’s a lot of other smart advice out there on this topic. Venture guy Jason Lemkin has written several excellent articles, and I learned a lot from him while establishing our plan.

What’s your experience, challenges and success creating your SaaS sales plan and setting quotas for your sales team? Let me know!

Leave a Reply