Jason M. Lemkin breaks down why sales efficiency tanks right when a SaaS company hits its stride. Hiring a VP of Sales adds 25-30% to cost of sales, SDRs and support add another 15-20%, and hiring reps ahead of revenue adds 20-30% more. Together, these three moves can roughly double your cost of sales as you scale.
We did a really important post on Saster recently, walking through your math of why sales efficiency tends to plummet just when it's getting good, just after you get a couple of sales reps finally hitting quota. And we'll link to the post below this video. But since it's so important, let me run through the three things that almost always happen to SaaS companies I work with, including my own. When you start to scale. So finally you figure out how to get two reps working for you that are good. They've got the script, the leads are coming in, they know how to close. Plus you as the CEO, well, you cost nothing in this model because you're the acting VP of sales. And those two reps, it's just the two of them, so they're not all that expensive either. And then finally you find that great VP of sales and what happens? Well, three things that drive your cost of sales way up, even if you sell and grow much more quickly. First of all, at least in the beginning, the VP of sales is going to be a cost center. No matter how much she drives up new leads and new efficiencies, her own computer is a cost center. And so that's going to drive up your cost of sales 25 to 30% to start, and you've probably sort of budgeted it. But the next two things most founders haven't. The second one is as the team grows beyond two or three reps, they're going to need help. They're going to need SDRs and BDRs. They're going to need folks to go out and help get them more leads and qualify those leads more efficiently. Whatever sort of help you get for the sales team is going to add another 20% to 15%, your cost of sales. And then lastly, and the part we all kind of get wrong is how many sales reps we need to add ahead of sales to RAM quickly. So those first two sales reps will feel great. And maybe you add one a quarter in the beginning, but if you really want to grow, you're going to start having to add 2, 3, 4, 5 sales reps ahead of your revenue so you can keep up. And that lack of efficiency is going to cost you another 20 to 30%. So add those three together and your cost of sales generally plummets. It falls by half just as it's getting good. So plan for it.
