Yesterday, we released How To Monitor The Core Elements Of Your SaaS Business Part 1 and today we’re doing part 2 with a focus on the sales process.
To bring you up to speed, we’re working with the belief that a SaaS company can be defined as a simple funnel:
Marketing → Sales → Customer Success → Revenue
When you’re in the early stages of your SaaS business, it’s crucial that you understand how these components work together and understand what to measure and what to pay attention to.
Yesterday, we introduced this topic and worked through the marketing stage. Today, we’ll move on to the sales metrics.
When potential customers are in the marketing stage, we’re talking about leads. But once we manage to bring those people along our journey and they show us an intent to buy, they move into the sales-qualified leads (SQL) part of our funnel and become our prospects.
Stage 2 = Sales
Although it will vary, a typical sales pipeline will look like this:
Prospect → Demo or Trial → Proposal → Negotiation → Win or Lose
You want to make this process as easy as possible for people to flow through. You want to monitor your pipeline’s size and velocity, as well as the conversion rate. Ultimately, you should aim to close 25-30% of your prospects.
It’s important to understand and plan for the sales cycle of your customers. If it’s a smaller purchase, you can expect to close within 30 days. For bigger decisions, it can take 2-3 months. But for monumental decisions, expect a 6-9 month sales cycle.
When calculating how many people you need to drive into your pipeline, plan for 3-4x your revenue targets and work backward to achieve your goals.
The all important sales team
Your sales team is going to be instrumental to your success, so you want to do everything you can to help them succeed. But, you can’t improve what you don’t track.
You need to invest in your sales people and give them the appropriate amount of time to become successful. On average, it takes new sales people 3-6 months to ramp up to their full potential, so account for that in your forecasting. Once they’re reached their full potential, you should expect them to realistically achieve 85% of their quota.
You will want to calculate and track your average productivity per rep (PPR), as this will be the foundation for much of your sales forecasting and calculations.
A straightforward formula to follow is:
Revenue = # of sales people x average PPR
If you know the productivity you will likely get from your team, you can use that to figure out how many sales people you need to make your revenue targets.
Forecast Lead Velocity
Another major sales element you want to forecast is your lead velocity. Lead velocity refers to the metric that quantifies business growth in terms of qualified leads. Some argue that this is the single most important indicator of your current and future success.
If you’re measuring qualified leads and maintaining a consistent conversion rate, you can use this formula to yield a percentage growth rate for your leads, month over month.
At the end of the day, sales is simply a people and numbers game. With the right calculations and forecasting, you should be able to predict how many sales people you need, what they are capable of producing, and have a clear view of your company’s growth.
Remember that hiring will be your biggest bottleneck, and ensure you give new team members enough time and support to reach their full potential. Use your current PPR as a benchmark, but work on continuously improving it.
Tomorrow, we’ll finish off this series with the customer success portion and tie the core elements of marketing, sales, and customer success together.