In this blueprint, we provide insights on how to structure your sales organization. The changes in SaaS require that we no longer look at salespeople as individual contributors, but rather a team that crosses disciplines, not just within sales but also across other parts of the organization such as marketing and product. The Winning By Design Blueprint Series provides practical advice for every part of a SaaS sales organization.
CASE IN POINT: Over the past decades, B2B sales people were referred to as individual contributors.
Reps were hired, trained and compensated to perform as an individual to hit a quota. This comes from a time when enterprise sales people left the office on a Monday to return to base on Friday with signed purchase orders, submit expenses, update the funnel, etc.
In today’s world, this may sound like something from a movie; however, most structures in the sales organizations never have been updated since these days.
Traditional vs Modern Sales Organizational Structure
Traditional Sales Organizations – Growth of headcount in sales was structured around revenue per individual contributor (IC). The model used a waterfall-like model that ramps up over the course of a year, in which an individual contributor brings in $2M/IC per year.
To hit $8M, a VP of Sales would hand out $10M in quota @ $2M/IC. This would mean five ICs were needed. Each IC would be assigned to a region. The regions were based on ZIP codes calculated to represent approximately to have the same amount of potential.
With the increase of quota, simply the amount of sales people were added to reflect the increase in quota.( e.g. $2M per person, and handing out ~20% more quota vs. what the real goal was.)
The root cause of today’s challenges can be traced back to the use of this outdated model based on low volume of deals at a higher price.
Modern Sales Organizations – Due to lower deal value (ACV), ongoing renewals are required to achieve the same profit. This may take >24 months.
Due to the lower price, it also requires a higher volume of deals to attain a similar kind of growth. What complicates this model is the high-velocity it operates on; many clients commit within 90 days or faster. This high-velocity creates a “manufacturing line” approach.
CASE IN POINT:
Acquisition needs: To grow revenue annually, SDRs need to find business for AEs who attain clients, commitment and help them on-board to the point they can use the service.
Recurring needs: Today it is obvious that a company no longer can just send in an annual renewal, but through the use of CSMs and AMs, they need to ensure clients are using this AND identifying new opportunities within the account.
- MDR: Market Development Rep – Follows up on inbound leads, setup a meeting w/ AE.
- SDR: Sales Development Rep – Starts a conversation with a client through outbound actions such as emails/calls.
- AE: Account Executive – Develops SQLs through a series of meetings.
- ONB: Onboarder – Onboards/Integrates a client and achieves first use.
- CSM: Customer Success Manager – Achieves recurring use of the service.
- AM: Account Manager – Creates increased profit developing upsell opportunities.
The Sales POD
By grouping specialized team members, a self–contained unit is created, also known as a POD. The self–contained unit can operate in a specialized area; such as a market, a region, or a segment. It can do so for the entire time, or rotate through a series of segments (we call these sprints), or address a specific event such as a trade show.
How a POD works:
A 2×2 POD is depicted in which a MDR/SDR is partnered with 2 AEs.
The MDR/SDR combo sets up 40-60 meetings for the AEs each month.
From these meetings, the AEs close 6-8 deals per month with an ACV of $18,000.
Historically, the efficiency of these PODs were not considered an issue due to the extreme focus on winning logos.
However starting in 2014, the tides turned as the number of SQLs/SDR dropped from 20-30 to low 10s.
The annual on target earning (OTE) of this POD should not exceed 40% of annual revenue.
Scaling of the revenue now occurs by scaling the PODs. In the example below, you will notice how at first our teams operate unstructured.
A group of SDRs creates SQLs and they are randomly assigned to a group of AEs.
To grow, the company needs to structure its resources into two initiatives; SMB and MidMarket, each requiring a different approach.
As the business grows, new markets are discovered, and new PODs are launched to call on these markets.
A few metrics to keep in mind for most B2B Sales organizations:
- It takes three months to ramp a POD to 100%.
- PODs should operate between 80-120% of quota. Do not keep raising quota – it is designed for a number.
- Once a POD operates efficiently, do not add AEs to it. This messes up the balance.
Use of PODs To Identify Markets
One of the key advantages of PODs is the realization that you can focus the resources. This is very important during the early days of scaling revenue.
In the example below, you will notice the specialization of Government vs. Commercial. You will also see each POD then going through sub-segments to heat-check markets. This allows each POD to train only on the needed use-cases/value proposition for each sprint. The sprints can vary in length, anywhere from 30 to 90 days.
- Week 1: Train the team on use-cases and role play a variety of scenarios.
- Week 2: Pursue B-leads first.
- Week 3: Market and organize an event, pursue your A-leads.
- Week 4: Pursue A-leads.
- Week 5: Wrap-up and start next sprints.
Use of PODs with Different Business Models
You can apply PODs for different business models. The most common application is to land Platform sales, in which the team closes a deal for a CRM/ERP system, etc.
When the deal closes there is not a lot of upsell. Think of a workflow platform; in the initial sales it may be sold for eight users in business unit X.
A year later, there are 10 users in business unit X and maybe another two seats in a new business unit.
In this model, CSMs identify those who have high consumption potential, the ADR develops the leads and the AM upsells. In this model, you may see 2000% growth in an account.
Scale the Recruiting
We have found that PODs also allow you to scale your recruiting. A new POD can be launched by promoting the top performer of an existing POD (AE of POD 1) to become the new POD leader of POD2. The team leader of POD 1 can backfill the position within the POD and hire a new MDR.
Also published on Medium.