SaaS Formula: Scientific Approach to Setting Sales Objectives for Your Sales Development Team

In this article, I’ll teach you how to understand SaaS costs basics. You will also learn about setting sales goals and metrics that are important for your team’s success.

We’ll also review how to determine if your team structure is working or not. If you don’t have the right people in place, it’s going to impact revenue goals.


SaaS Formula: 8 Step Checklist For Setting SDR Scientific Goals

  • Understand how CAC works and how to calculate individual sales goals
  • Marketing and Sales are both costly, but Marketing tends to be more expensive than sales.
  • Marketing attribution is a hot topic, but it’s time to stop chasing the “holy grail” of marketing.
  • This approach is to get sales and marketing working together.
  • When you start a new sales position, it’s important to set revenue goals for them and know how to fix sales target.
  • Figure out how much you want to spend on marketing with your new CAC.
  • Make sure you set goals and use the proper sales target formula for your sales development department.
  • Find out how many opportunities SDRs are getting per month.

As a VP of Sales, Here’s Why You Should Care about the SaaS Formula

So you’re a VP of Sales, but the CFO probably has no idea how to calculate SaaS metrics or costs. You are in charge of this.

This exercise is important because Sales Development can sometimes be seen as a cost center, and it’s often easier to minimize costs when possible.

1) Know how CAC works and how to calculate individual sales goals

Imagine I give you this deal. If you give me $15,000 today, I’ll pay back your investment in the next year with just monthly payments of over a thousand dollars for 36 months.

I understand how SaaS works. To get a client, you need to invest in them for three years and pay about $1,000 per month for 36 months or so.

SaaS metrics show that the cost of acquiring $1 in ARR is now more than ever before.

In order to get the above client, you would have to charge about $13,800 for a monthly retainer. They will pay this fee as long as they stay with your company.

Companies are starting to see the value in diversity, with many initiatives being put into place. So we’ll go ahead and say that $15,000 is a good average for now.

2) Costs of Marketing and Sales

Back to your company.

Sales VPs know that their AE’s quota should be three to five times what they earn in a year, so let’s take four as an average. That means $0.25 for every dollar of ARR.

Then we can add tools, data, benefits, and insurance to the offer. We might end up at $0.40 per dollar of ARR.

It’s not just sales who are at risk for low pay. Marketing costs also play a huge role in the company’s bottom line.

Marketing has a lot of money for advertising, from online ads to trade shows and events.

For every $1 of ARR, the cost to sponsor a show is about 75 cents.

The problem with their solution is that it’s not scalable. 2 booths at Dreamforce don’t get you twice as many deals closed, marketing isn’t concerned about costs.

The following are some of the goals for diversity: -Encourage more women to enter STEM fields -Increase representation from different ethnicities and backgrounds

saas formula

3) Put an End to Marketing Attribution Chasing

Great CEOs and CFOs are now looking at the entire customer funnel, from trade show scans to closed-won opportunities, in order to determine what kind of investment is best for lead sourcing.

It’s hard to assign a percentage of influence for each lead touchpoint, but if you can get close it would be very helpful.

Even with the best marketing strategy, there is always an element of uncertainty. It may be 3 or it could be 20.

4) Integrate Sales and Marketing Objectives with Sales Development

“The most valuable activity in the sales process is a set appointment.” – Jeb Blount

Imagine you’re at a company that needs to grow by taking more outbound calls.

You’re going to have to call people who don’t know you and ask for their business.

These leads are not being sourced by Marketing.

How do you set goals?

Simple.

saas formula

Your sales development team should be able to replace the old cost of marketing and lead qualification.

If the graph shows that you spend twice as much on SDRs than AEs, does this mean that you should hire more SDRs? Not exactly.

But if you don’t have any marketing and your AEs refuse to do cold calling or sourcing deals themselves, then for every AE there should be 2 SDRs.

If your AEs are willing to spend half their time sourcing deals, maybe a 1:1 SDR-to-AE ratio is fine. But then again, when you consider the salary of that AE and how much goes into Sales Development expenses (because they’re self-sourcing 40% of the pipeline), it’s not worth hiring an additional salesperson who will be paid in full for sales costs.

5) Make sure you set goals and use the proper sales target formula for your sales development department.

To make this scenario easier to understand, let’s assume that your AEs are 100% focused on closing deals and don’t find any new leads.

Your SDRs are 100% outbound without any assistance from marketing.

How do you set goals?

It’s easy to solve for this.

{{Benchmarked Cost of Outbound Sales Dev}} = {{ARR Generated}}

0.75 X = Y

X = 1.33 Y

Your Sales Development team’s contribution to total revenue is equal to 1.33x your spend on the team, which includes salaries, commissions and benefits

Here’s an example.

Let’s say you have two sales development reps, one SDR ManagerSales Operations person, and you spend $50K on tools. Let’s also assume that the salary for all three people is about $80k plus bonuses.

I want to show you the calculations below.

The salary is $290,000.

Salaries are $87K, with benefits and other costs totaling to about 0.3 of the salary.

Tools and data = $50K

Total cost = $427K

Required revenue = 1.33 * cost

When I did the math, it turns out that $427K is two times more than what we need to reach our goal of 1.33 million dollars in revenue.

6) Work Out Your New CAC with This SDR Scentific Revenue Goal

Now, if we assume your Cost of Sales is $0.40 per dollar for ARR, then from the 570K in revenue you got it would be as follows:

The cost of sales is $228,000.

The cost of sales development = $427K from the previous example

The total cost of acquiring customers is $228,000 + $427,000 = 657,000.

Revenue from the company was $570K.

My CAC payback is a ratio of the cost to acquire customers and revenue from those same customers. It’s 1:1, 115%.

The numbers show that if your sales development team can find one more lead for every 1.33x the cost (or even more!), then you are running a successful organization.

This was a team that only did outbound sales. If you have any inbound leads, your goals will be much higher and I can help you figure those out.

7) Break Down Revenue Goals into Sales Development Goals by knowing 

how to calculate individual sales goals2

Continuing with the example above, you have two SDRs who need to be able to get $570K in revenue. That’s 2x their salary each. If they can make 3x that much money on average, then it seems like a good quota for them.

When I run in-house sales teams, my SDRs need to close 3x their quota. Otherwise they won’t be sustainable.

If you’re hiring experienced SDRs, make sure they have time to ramp and understand the company before evaluating their success. New hires will need 1-2 months for this.

8) Calculate Opportunities/SDR/Month

Assuming you already have an SLA and a good SDR to AE handoff, we can estimate that 10% of deals will be closed. Let’s pick 10%.

If you are much lower than this when it comes to outbound, then either your SLA is not good or the person doing the demos just doesn’t know how they work.

Now we need to figure out how many opportunities each SDR needs in order for this model to be sustainable. Let’s say you have an ACV of $30,000.

With a $30K ACV, your SDRs need 10 demos closed per year to hit their monthly goals. Since you win only 10% of opportunities, they need 8 demo’s done in order for the SLA criteria to be met each month.

It’s not uncommon for 20% of demos to be no-shows, so your SDRs need to get 10 meetings scheduled per week. That means one meeting every two days.

Conclusion:

You can calculate this yourself based on the ACV and close rate. In the long term, we recommend measuring effectiveness by tying it to revenue.

If your SDRs are building enough pipeline to close, you know that they have a chance of being successful.


 

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Editors Note:

Want to help contribute to future articles? Have data-backed and tactical advice to share? I’d love to hear from you!

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Justin McGill
About Author: Justin McGill
Justin McGill is the Founder of LeadFuze - a lead generation platform that discovers new leads for you automatically. Get 25 leads free.