Our quarterly conversation with a SaaS sales consultant

Bridge Group is a B2B SaaS sales consultancy, and we chat with them quarterly about the sales environment. Below is our latest conversation. They do strategic assessments, write playbooks, and can also do management training and coaching. Connect with Kyle Smith (ksmith@bridgegroupinc.com) if you need help building or re-building your sales processes.

What have you seen in the past quarter? “There are more positive signs that customers are buying software. We’re seeing hiring freezes thaw, enterprise focused software companies are hiring, and sales focused recruiters are seeing a resurgence in their business. Market conditions are improving.”

What changes are you seeing in the way sales teams are being built? “Interestingly, while SDR’s are being hired at a faster pace now, they’re being asked to support more account executives than was typical. Historically companies we were hiring 1 SDR for every 2.5 AE’s but we are seeing that number grow to 1 to 3 or 1 even to 4. To offset that loss in pipeline per AE that is generated by SDR’s, AE’s are being asked to generate more of their own pipeline. Resources on AE’s are also being scrutinized. For instance lower performing AE’s may not be getting as much SDR or marketing support, they may be getting fewer high quality leads, etc. Overall sales teams are being asked to be more efficient and bring down customer acquisition costs.”

Are companies just being cheap about sales team staffing? “No. When the market is tougher, the incremental uplift from SDR’s just isn’t as large. You’re simply not going to get as much production out of SDR’s. Some companies removed SDR’s during 2022 and 2023, but didn’t see a dramatic reduction in sales team performance. So while companies are adding to the SDR headcount, they’re not doing so aggressively.”

Is there a difference in lead quality when it’s generated by AE’s versus an SDR? “Yes, but it’s not for the reason you think. We actually don’t find a difference in call quality when it’s made by an SDR versus an AE. However, when AE’s self generate a lead and move it to ‘opportunity’ in the pipeline, they do it only when they really know it’s an opportunity. When an SDR adds an ‘opportunity’ to an AE’s pipeline, they do it right away as soon as they get off the call with the prospect. So it’s not that the lead is higher quality, rather it’s just more seasoned and has higher certainty because the AE did more to qualify it before adding it to the pipe.”

When you identify a new ICP, how do you know it’s working? “You cant simply compare success metrics from the former ICP to the new ICP, because if the goal is top line revenue you just don’t have another choice but to go after the new ICP. For instance if the new ICP close metrics are worse than the legacy ICP, what do you do? Shift to a new ICP? Now you’re just burning quarters. In real life, if you select a new ICP, you have to be certain about it and go win it, period. Otherwise you’re going to be out of cash and lose the confidence of the sales team, especially since you’ve asked the sales team to learn a new customer they’re not used to. If you identify a new ICP and lean into it, you absolutely must make sure it’s going to work and the strategy around GTM must be well thought out. Try not to put all the eggs in one basket on the new ICP; keep the old ICP alive in case you need to retrench, but generally speaking if you pick a new ICP and commit the resources, you’ve got no choice but to make it really work.”

Our conversation with Kyle from Q1 2024 is below

Experience of new hire AE’s is up. Over the past 2 years, because of the tighter environment, experience required at hire for account executives has gone up a full year at 3.6 years. Employers have become more picky about who they’re hiring. You’ll see 150 to 200 applications on good job postings, and we haven’t seen that in a long time.

AE efficiency came down, materially. Ramp time also has gone up by 1.5 months for a total of 5.7 months. More importantly, win rates are also down to 19%. 22% to 25% was always the expectation, but now we’re at 19% which is a big move. If you’re talking about pipeline coverage, a loss in close rate from 25% to 19% means you need 5x pipeline coverage instead of 4x.

Quotas are up. Quotas are now $800k on median, but have only increased 2% annually over 12 years. A rep that hits that quota can expect to make $190k a year. Kyle doesn’t believe in raising quota just to raise quota. There needs to be logic and reason behind it, otherwise you’re demotivating the AE’s. If quota does go up, you need to increase spend on marketing, release new product to sell, or give AE’s more tools to hit that higher quota. If you increase quota without providing the rep more ways to win, you’ll ultimately lose your best reps.

The ROI on AE’s is still good. The return on a rep measured as bookings achieved divided by total compensation stands at 4.1x. The 25th and 75th percentiles are 3.2x and 4.8x, respectively. These are still good numbers, but they are down.

Hitting quota is harder. The percentage of the team hitting quota is 51%, down from 65%. Back when the teams were hitting 65%, the overachievers were far outperforming the underachievers, so the team overall was still hitting quota. At 51% however, teams as an aggregate are no longer hitting quota.

Make your reps do prospecting. Account executives have become less dismissive about prospecting and are doing more of it. AE’s need more active deals because they’re not closing as many as they used to, so they’re being more pro-active. Kyle believes every rep, no matter the tier, should be doing some outbounding. Sitting around waiting for an SDR or marketing to funnel you a lead means you’re highly likely to miss or have volatile quota attainment. Sales leaders want consistency and repeatability in rep performance, so doing some level of prospecting does improve rep consistency. Individuals that can self-generate some level of pipeline always have more value than those that don’t.

Bridge is an outstanding firm for righting or building the enterprise sales engine. Reach out to them. We’ll continue to interview Kyle quarterly and share data they release.

Our conversation with Kyle from Q4 2023 is below

What is happening in the market? “There is a ferocious obsession with AI. Executives are asking Bridge how they should leverage AI as part of the go-to-market motion. Sales reps are trying to figure out how to be more efficient and take away the tasks they hate doing. AI is working well for researching prospects and getting starting point suggestions of what the intro message should be, using the data AI discovered. The output from AI is not perfect so it still needs human review, but it’s adding massive value. Reps are editing the AI output, versus researching, thinking and writing. Productivity is way up.

The second topic of conversation is tension around SDR’s and AE’s. AE’s are complaining that the lead quality of SDR’s is declining. The real reason is businesses are scrutinizing budgets, deal sizes are smaller, and sales processes are elongating. AE’s think it’s the fault of the SDR not uncovering high quality leads, but it’s really a function of the market. In the last 6 weeks things have improved, but there overall theme of 2023 is a tighter sales environment that has created extra pressure on all sales professionals.”

If the budget of your clients are tightening, how do you respond to that? Kyle actually isn’t seeing smaller budgets. Budgets haven’t shrunk and they grown, but the scrutiny of the budget is higher. There are far more individuals involved in the sales process now and the number of approvals needed are much higher. Executives beyond the budget holder want to hear the business case whereas in the past they allowed the budget holder to make the decision. Overall approval processes have gotten crazy, and that has added complexity to the sales cycle.

If more stakeholders are being added to the sales process, what can you do? “You have to figure out who all the stakeholders are, and then engage them early. Figure out anyone who can touch or kill your deal and get in front of them. Find out what they will ask about to potentially kill your deal, and start to mitigate that risk. You’ll still have an elongated sales cycle, but you’ll get deal risk down. This is a classic enterprise sales rules that now applies to all deals, even smaller ones.”

“Another thing reps can do is to start the client with a smaller contract size. For instance instead of selling your product to 5 of a client’s factories, sell to 1 factory and then land and expand. Don’t go bigger out of the gate. Post a win, even if it means the ACV is lower on day one.”

Who should own the expand motion? A year ago, Kyle would have said he likes role specialization whereby you keep AE’s sourcing new business and then you have a dedicated rep doing the upsell. But this is a different environment today. Because we’ve had to do a land and expand strategy, in Kyle’s view you need to allow the AE continue to expand his deal they just landed. If you want to incentivize them to be ok with landing a smaller deal, you’ve got to give the AE a chance to grow it. Perhaps you let the AE own the upsell motion for 6 to 9 months before you hand it off to a dedicated upselling rep. This is how you get your AE’s to be ok with closing smaller deals on day one. But Kyle could go either way here and it really does depend on the company they’re consulting with.

There are a lot of SDR’s and AE’s looking for a role. How do you hire the right AE and SDR? For SDRs, Kyle doesn’t put much emphasis on past experience. SDRs by their nature are very early in their careers and don’t have a ton of experience (otherwise they’d be AE’s). So, for Kyle it’s all about the interview process. Does the SDR candidate know the company and all the public info out there? Are they well prepared? What does their writing sample look like (always get writing samples of prospecting emails)? For SDRs it’s all about the interview.

On the sales rep side, there is experience you can evaluate, so what Kyle recommends is getting back door references. These are not references from the candidate themselves. B2B SaaS is a small world so surely you can find someone who knows the candidate. Also in this environment, you can ask the AE to actually do work before and after the interview to prove themselves. Make them do a case study of how they would handle a complex sales process with a prospect. In 2021, you could never ask for this, but in this environment, you can ask the AE to do some work that proves themselves.

If your ICP has deteriorated, what do you do and how do you rediscover the ICP? “You have to figure out why the ICP is deteriorating. For instance, did you even have the ICP nailed or were you just the beneficiary of a good macro environment in 2020 and 2021? Everyone was able to sell in a good environment so there are some companies with deteriorating ICPs that really never had the ICP nailed. Now that we’re in a challenging environment, whoever you’re closing deals with now is the real ICP. Who you sold to during better times may not have been the ICP. You may have just been getting lucky. Also within your current customer base, look at who is straining the support function. Whoever is straining the support function may not be the ideal customer.”

Our conversation with Kyle from Q3 2023 is below

What are the generally trends in enterprise SaaS sales that you’re seeing? “We are seeing a drastic difference in the hiring market. It used to be a candidate favorable market and now it’s an employer favorable market. Voluntary attrition is down. The number of candidates applying for a job is up, so candidate-company fit has really improved. Companies no longer have to settle for a particular hire, rather they can hire the best-fit candidate and don’t have to bring on iffy clients. If you’re hiring, now is the time when you can get pickier.“

If the sales cycle blows out, what can be done? “When sales cycles blow out, you have to really focus on the ideal customer profile. Focusing on the ICP becomes critical. When the market is buoyant and everyone is buying product, you can get loose on the ICP but in this environment, you need to optimize for ICP so your sales efforts yield bookings. It may not exactly reduce the sales cycle, but worst case it should improve churn, increase close rates, keep average contract values where they should be, and yield all the other benefits of hitting the ICP.”

What is the return on an AE? “The metric to look at is bookings/on-target earnings of the rep. Historically the target was 5x. In other words, if you have an account executive that is making $200k all-in (set up as 50/50 salary/commission), that AE needs to achieve $1mm in bookings. While you don’t want the ratio to fall to 4x or 3x, what really matters is looking at each AE relative to their peer group. All AE’s should be benchmarked to each other and if possible, other AE’s in the industry that are not at your organization. So, if your current reps are doing 4x generally keeps those that are doing 4x, however if you have someone fall to 3x, they need to improve or else be replaced. There is no need to settle for an account executive that is underperforming their peers.”

When is the right time to start an outbound SDR program? “Assuming an average deal size greater than $15k annually, Bridge recommends starting an SDR program as soon as you hire your first account executive. That may sound aggressive, but good AE’s don’t join organizations unless there is an SDR program sourcing opportunities for them, so SDR’s are important not only to generate pipeline but also to attract talented AE;s. Your SDR program is also hopefully a farm system which provides you future AE’s. Finally, your goal is not just hiring AE’s, rather you’re building a sales organization.”

When is the right time to hire a VP of Sales? “It depends on the profile of the CEO or person currently managing the sales team, but usually once you’re at $5mm+ ARR and spending $1.5mm+ on sales annually, then that’s the time to bring on a VP of Sales. The size of the budget and the number of AE’s and SDR’s managed will warrant a dedicated sales leader. In regards to number of employees managed, once a CEO has 8 direct reports related to sales reporting to them, you really need to bring in a VP.”

How do you not hire the wrong VP of Sales? “The person that takes you from $5mm to $20mm of ARR isn’t the same person that takes you from $20mm to $50mm ARR. And those two individuals aren’t interchangeable. In other words you cannot hire a CRO that is used to managing a large Fortune 1000 sales team to take you from $5mm to $20mm ARR. They’ll fail. You truly need to find VP’s that have consistently run sales organizations at your stage and need.”

When is the right time to hire the next AE? “You don’t bring on a new AE unless your current AE’s are at capacity. Make sure your existing team is at full productivity, and that if you hired another AE, you know exactly what you’re going to get from them. Bridge does like to hire in pairs as you’ll get more data quickly not only on the reps but also on your sales process.”

Where should the upsell motion live? “It really depends on the company. There is no right answer here and it really depends on the size/complexity of the accounts, length of sales cycle, number of decision makers, etc. For instance, if a sales cycle is complex and 18 months long, it doesn’t make sense to bring in an account manager after the account executive who closed the deal has spent so much time developing and winning that client. That AE has real client-level knowledge that took 18 months to replicate and likely cant be transferred easily. However, if you’ve won an account and there are other distinct divisions within the account that can be sold, it makes a lot of sense to have an account manager take over the cross and upsell.”

Bridge Group is a fantastic resource for sales data (visit their website at bridgegroupinc.com) and if you need help building or re-structuring your sales org, reach out to Kyle.

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