B2B Sales: How to Optimize Your Sales Team Structure
January 26, 2022
Welcome to the next instalment of our B2B series! In case you missed it, Part I on building out your top-of-the-funnel is linked here. We wrote this article in collaboration with our Operating Partners at Samaipata. It strives to be useful and actionable to early stage startup-founders, covering all the typical challenges. For our other articles, please find them here!
As we start this article, we would like to invite you to picture a future event within your startup journey. Having focused for an extended period of time on building your product, it is finally showing traction and you have secured the first few founder-led sales wins. If you are already aware of how to scale up the first sales funnel (if not, please refer to the article here), you are now ready to build out your sales team.
Our Operating Partner on B2B sales, Javier Llordéden is an expert on this topic. Having harnessed a wealth of experience in B2B sales by running large sales teams and advising startups, SMEs and corporate organisations in his area of expertise, we are proud to call him a treasured member of The Hive - Samaipata’s VC platform assisting our founders and guiding them on a successful trajectory. As a member of The Hive, Javier has been a critical contributor to efficiently scaling up the sales efforts of our portfolio companies.
Firstly, we would like to clarify that we’re focusing on acquisition sales teams here (i.e. new sales) and not expansion sales teams (i.e. upsells or cross-sells). Additionally, we note that there is no one-size-fits-all solution due to the differing and individual characteristics of each business. Nevertheless, we aim to provide you with a helpful framework that can assist you with your startup operations.
So, what is an ‘optimal’ sales team structure?
In a typical startup, sales teams are split into various profiles including MRs (Market Research), SDRs (Sales Development Reps), and AEs (Account Executives). In the same manner as a factory production line, inputs enter and outputs emerge. In a sales context, ‘input’ would be how market research defines your target market and ‘output’ would be your customers.
In your sales ‘production line’, there are two stages — the prospection and lead qualification stage (led by SDRs) and the sales process itself (led by AEs). SDRs typically generate meetings for AEs who carry the lead through the sales process to conversion into customers.
Generally, you want your sales team to maximise output, or customers. There are 2 issues that startups typically face when aiming for this, and avoiding them requires careful balance.
Overcrowding either the prospection or the sales stage, leading to bottlenecks and a less effective process e.g. SDRs generating too many meetings for AEs to handle.
Excess capacity in either the prospection or the sales stage, leading to inefficiencies.
This careful balance of capacity is what defines your optimal sales team structure, it boils down to a question of how many SDRs and how many AEs do you need?
Alas, there is no magic number (we wish!) The answer will depend on the size of companies you’re targeting and complexity of the product or service you’re selling and hence, how important will outbound sales be.
Do you target smaller companies (e.g. < 50 employees)?
Your sales cycle is typically short, ranging from days to 2 months between prospection and closing. Sales are low touch with minimal interactions with prospects before closing and only a handful of stakeholders involved.
Your pool of prospects will be huge and the market you’re addressing is large. However, your contracts are also typically small so your sales team should focus on growing volume.
This means you need to grow a high velocity sales team (short cycles, high volume) that focuses on inbound sales. Generally, outbound sales are not affordable since contract values are small and so payback for CAC would be too long.
As a rule of thumb, contract values smaller than €1k shouldn’t focus on outbound at all.
Do you target mid-sized companies (e.g. 50–250 employees)?
Your sales cycle is a little longer, ranging from 3–6 months between prospection and closing. Sales are mid touch with more interactions with prospects, although stakeholders are still limited to a handful.
Your contracts will generally be larger although your market will still be large in terms of number of prospects.
Thus, your sales will be a mix between inbound and outbound. Following the rule of thumb, if contracts are larger than €1k then you should think about setting up an outbound sales team.
We note that outbound sales will tend to have lower conversion and higher CAC than inbound, so remember to take this into account!
Do you target larger companies (e.g. 250+ employees)?
Your sales cycle is long, ranging from 6 to 12 months or more and often requiring length proof of concepts or trials. Sales are high touch with many interactions with many stakeholders across the company.
Your contracts will be large but you will have a limited number of prospects in the market. Your sales team should treat every prospect like the only opportunity as there aren’t many out there!
Your sales will be almost entirely outbound and may also involve Account Based Marketing (ABM), when marketing and sales work together to close the sale.
We note that even though you’re not targeting larger companies specifically, the more complex the product or service you sell, the more your sales team would behave like they’re targeting larger companies i.e. lean more towards outbound.
Got it! Now, how do I calculate my optimal sales team?
Easy — work backwards from a given sales target! Here are the steps and a worked example below.
1. Determine your sales target for a given period (e.g. a month)
2. Calculate the € value of new opportunities needed to achieve this
First, it is imperative to calculate your average sales cycle length. This will inform you of when you need to create new opportunities that will close during the month you are analysing.
The second stage to solve this would be by dividing your target by the conversion rate from recently closed opportunities. This will tell you the € amount of new opportunities you need in the starting month (defined above using your average sales cycle length)
If you don’t have any previous numbers that will form your basic calculation, identify an assumptive number and tweak it as you progress.
3. Calculate the number of AEs you need
To calculate the number of new opportunities required, divide the required € value pipeline of new opportunities by the average opportunity size. Then, divide by the number of new opportunities an AE can handle at a time (please be mindful that an AE is also handling opportunities from previous months in the pipeline). Whether you utilise your experience or make an assumption, this should be adjusted to be more accurate throughout the year.
If you are also planning to hire, please be advised that you should also account for a ramp-up period for AEs (and SDRs) which can be as long as 6 months or complex products and services (SDRs for 3 months).
4. Calculate the number of SDRs you need
In order to calculate the number of new opportunities required, divide the required € value pipeline of new opportunities by the average opportunity size (as above in AE). After this, you can use the following benchmark (an outbound benchmark) to determine how many meetings an SDR can set up (depending on the target company size) to solve for the number of SDRs you need:
For mid or tier 2 sized companies: 15–25 meetings per month → Total pipeline size of 40–60 companies per SDR
For large or tier 1 sized companies: 10–15 meetings per month → Total pipeline size of 15–20 companies per SDR
We note that conversion rates from lead to meeting vary depending on inbound or outbound so you should account for this.
There you have it! Your optimal sales team structure. Is that all though? Absolutely not! Don’t forget what comes afterward — the onboarding process after the AE closes a sale is critical and should be performed by a separate Customer Success team rather than the sales team, as the skill set and audience is very different. The optimal size of a Customer Success team will (again!) depend on the length of your onboarding process, how automated it is and the number of touch points required to transform the new customer into a happy user!
As your business scales, it is important to keep growing your sales team while keeping it ‘optimal’. The first phase of this would consist of splitting your sales team into small groups i.e. pods or squads. These ‘pods’ or ‘squads’ would include each of their own MMRs, SDRs and AEs, and are typically split so that they can specialise in particular market segments e.g. different sized customers, industries or geographies.
Once a squad hits the optimal structure, it is important to maintain this. One example of doing this would include scaling your business by adding more squads rather than adding more members to existing ones. This allows balance to be maintained within each squad so that they remain manageable and less complex.
Another lesson that Samaipata would like to impart is to watch for unwanted turnover - especially with AEs when they leave. When this occurs, the sales they were responsible for will decrease to zero and it is possible that you may spend up to 6 months hiring replacements and ramping up operations once again. This will lead to losing 6 months of sales per AE leaving the company. Therefore, it is imperative to account for this possible expense when planning ahead.
At Samaipata, we are always looking for ways to improve. Do not hesitate to send us your thoughts. We strive to partner with early-stage founders and to support them in taking their business to the next level. Check out more ways in which we can help here or for all our other content here.
And as always, if you’re a European digital business founder looking for Seed funding, please send us your deck here or subscribe to our Quarterly updates here.
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