Are you putting together an all-star SaaS S&M team? If so, that team needs to be well-rounded. No one function should overpower the others. Having the right headcount in each department helps your teams work harmoniously and efficiently.
What is a headcount? 🙆🏻 🙋♀️ 🙎🏽♂️
The number of employees a business delegates to a particular department.
A notorious area for headcount tension lies in the balance between sales and marketing employees.
Why is the balance between sales and marketing headcounts important? ⚖️
Remember: marketers generate leads, and salespeople turn those leads into customers. If there’s an imbalance between the two teams, you will encounter problems meeting your sales goals.
What kind of problems? It depends on which way your imbalance skews.
These problems can occur when you have too many sales reps:
- The marketing team cannot generate leads fast enough for your sales team.
- Antsy salespeople because of this lack of leads. Of course, commission-based employees need a steady flow of leads to make money. They won’t be happy when that flow is more like a trickle.
- These dissatisfied employees create high turnover.
- All this can earn you a reputation as a bad employer, which makes it very difficult to recruit top talent in the future.
On the other hand, other issues can occur when you have too many marketing reps:
- The team will generate too many leads, which will go stale before salespeople can get to them.
- If this overgeneration of leads occurs, your salespeople won’t be able to complete their work. This will cause feelings of stress and overwhelm.
- Acquiring leads costs money! It’s counterproductive to spend on acquiring leads that your sales team can’t even speak to.
Not to mention the financial ramifications of these problems: 💸 💰 💵
- Lack of work resulting from too few leads is a waste of capital. Paying team members who have no work is like throwing money down the drain!
- Your salespeople will need to take up cold calling and leadgen in order to close deals, which is financially inefficient.
- If the imbalance results in high turnover, you will pay for it in exit costs for the original employees, recruiting spend and time costs filling their now-open positions, and employee training costs when you find new workers to replace them.
- CAC rises significantly when you pour capital into leadgen. On top of the potential waste of funds, a high CAC won’t look good to investors when you’re ready to hit the market.
Accurate headcounts with accurate forecasting! 🎯
A good way to make sure you have enough salespeople is to create a sales capacity forecast.
Put simply, a sales capacity forecast is a prediction of revenue based on how much is generated by your average fully ramped-up salesperson.
In order to determine how much revenue your sales team can generate, you need to know how many sales reps you historically had, and how much new revenue they closed.
Specifically, average revenue by a ramped-up sales person is put through a headcount planning model. This is a mathematical model that accounts for headcount, ramp time and other variables. This process determines a quotient by which to multiply the average salesperson’s revenue, creating an overall revenue prediction.
Want to learn more about forecasting? We already wrote you an article!
How do I know what the appropriate headcount balance is for my business? 🤨
There’s no single answer, but here are some questions to consider:
What’s your ratio of inbound to outbound leadgen?
If you have more outbound leads than inbound, your sales headcount will be relatively high.
To manage these outbound leads, your sales team will need a greater number of sales reps.
In contrast, the more you rely on inbound leads, the more marketing employees you might need.
What’s your average deal size?
Smaller deals typically call for more salespeople with lower quotas and lower pay. Even if your customers are small, they still need attention from your sales team!
On average, how many deals must a sales rep close to make quota? You can calculate this number by dividing quota by average deal size.
The more deals your sales team must close, the more leads they will need. That means that higher quotas and smaller deal sizes call for more marketing effort, or more outbound lead generation efforts. On the other hand, lower quotas and high deal sizes require fewer leads
As a rule of thumb, we suggest you aim to have sales quotas around 4x OTE (on-target earnings). In other words, begin with the amount earned by your average ramped-up salesperson, and multiply that by 4 for a suggested quota.
What’s your lead-to-close rate? How many leads does it take to get a closed deal?
If this number is high, your marketing team will need to generate more leads. It could be that you need to invest more in existing channels, or you might need more marketers to execute on more campaigns. You might also get creative and try using different channels to generate leads. Lastly, you may have to re-evaluate the effectiveness of your sales reps’ strategies.
What are your best lead sources? Where do you get your best leads, and what kinds of activities will help you get more of those?
Here are some sources worth considering:
- Hiring an Ad Agency: Sometimes, you just need outside help. Hiring an ad agency can be more cost-effective than hiring more permanent employees.
- Emphasizing PLG: if you get a lot of leads from a trial/free version of your product, you might not need as many marketers or sales employees! After all, if prospective customers can try your awesome product for themselves, they shouldn’t have to be convinced by ads or a sales team.
As an added bonus, the reduced marketing and sales costs make for a much better LTV:CAC!
If you’re trying to improve your LTV:CAC (or any other SaaS metric!) Subscript can help. We take the headache out of tracking numbers with our convenient, intuitive software.
What is a “typical” headcount for sales and marketing teams? ⛹️
It varies quite a bit, and it’s largely based on business size, average deal size, and marketing activities.
Typically, businesses have more sales than marketing employees. Interestingly, this gap increases with the size of the business - in large part because marketing activities can scale better.
Remember, these are only illustrative examples. You don’t have to use this as a guide, but it can be a helpful start for ballpark numbers.
How do I know if I’ve found the right balance between Sales and Marketing headcounts? 👍
That usually requires some detective work to figure out. Ask yourself if you have…
If not, you’ll need more investment in marketing, which often (although not always) means more marketers.
Enough leads being converted to sales?
If you don’t, it might be that you don’t have enough salespeople. Perhaps those leads are going stale before they can reach them.
- If you’re running into a problem turning leads to sales, ask: Do your salespeople have the time to be attentive to your leads? If not, you probably need more salespeople.
- Alternatively, you might need better leads. That means more marketing investment, which, again, often means more marketers.
If you said yes to all of the above, congratulations 🎉 ! It’s likely that you’ve found your perfect S&M ratio.
Striking the right headcount balance is key to maintaining sales and marketing equilibrium. Don’t forget: your headcounts can also help you predict revenue via sales capacity forecasting. Finally, headcounts and beyond, Subscript takes the stress out of understanding your SaaS metrics. Join the beta today!