This is a part of our Guide on Tripling Your Qualified Leads, on how to build your own world-class prospecting team, such as the one Salesforce.com built as described in our Predictable Revenue book. This part focuses on the ROI of building a team, to help your executive team buy into the numbers of building one, because you have to have their commitment for it to work.
PS – Are you new here or to the idea of creating a team of dedicated ‘prospecting reps’ separate from your salespeople? If so, first go read Why Salespeople Shouldn’t Prospect.
Unsurprisingly, CEOs & executives want to know about the ROI of building or improving an outbound prospecting team, such as:
- “I don’t have a sales team dedicated to outbound prospecting, but want to add one – how much revenue can it add, what are the costs?”
- “We already have a decent prospecting team, but I think we can do better. How much are we missing out on; what could we do if we were world-class?”
How Much Revenue Can A Dedicated Prospecting Team Add?
Assuming you are selling products (not services), directly to businesses, here’s my “60 second” rule-of-thumb to ballpark the new revenue you can add with a well-trained prospecting team, (assuming you are not targeting hard-to-be-profitable small deals or small businesses):
Incremental Revenue Per Year = (2 New Customers Per Month Per Prospecting Rep) * (12 Months) * (Average $Value of Top 20% Customers) * (# of Prospecting Reps)
Note 1: If you are targeting smaller businesses, where it’s easier to find the right (or only) person, your customers added per month could be much higher (perhaps adding 4-6 customers per month) – but the deal sizes will be a lot smaller. Make sure you analyze your profitability here; you can lose money fast closing lots of $50 deals that either aren’t profitable at all, or kill your cashflow.
Note 2: You should credit the revenue added from the first order of a new customer, plus anything else they purchase for six months.
Note 3: This would be purely for outbound-sourced revenue and is incremental to anything marketing does. These teams do not work marketing-generated or inbound leads.
Here’s a little more explanation:
- One well-trained prospecting rep can source 8-15 qualified opportunities per month (or “Sales Qualified Leads”), of which 15-20% close…equaling 2 new customers per month or 24 new customers per year.
- To get the “new revenue per prospecting rep per year”, multiply “24 new customers/year” by “the average value of a new outbound customer”.
- Your average outbound-sourced customer should be 3-10x larger than your overall average, because you specifically go after bigger opportunities and avoid smaller ones. For example, the average overall order at Salesforce.com was about $5000 in annual contract value; the average outbound order was $50,000 in annual contract value.
- A second way to estimate outbound customer value: take the top 20% largest customers you have (lop off the very top handful of humongous outliers), and average their value/revenue per year.
- Now multiply the revenue per rep by the size of your team, to get the total incremental revenue added per year.
- On average, you will have one prospector for every 1-3 closers. Prospectors need great working relationships with their closers, and so they should support only a few of them, at most.
Proficient Vs. World-Class Performance
It’s easy to start a prospecting team, and hard to make it awesome. How does your team match up here?
- New Reps Ramp: Proficient teams need 3-6 months to ramp new hires; world-class teams need 2-3.
- Monthly Opportunities: A rep on a proficient team generates 5-8 sales-qualified opportunities per month (again that means the outbound rep doesn’t get credit until after they have passed to an Account Executive ‘closer’ who re-qualified and ‘accepted’ it into their pipeline!) World class prospectors can generate 10-20 qualified opportunities per month. (Keep in mind there can be a lot of variability per market/business.)
- Win Rates: Proficient team = 10% close rates on qualified pipeline (10x pipeline needed). World-class teams = 20%+ close rates (5x or less pipeline needed).
- Team Satisfaction/Morale on proficient teams average 6-8 on a scale of 10; world-class teams’ morale is 9 out of 10.
- Turnover on proficient teams is 20%+; on world-class it is very low or negligible.
There are a small number of line items involved in building a prospecting team – mostly it’s the salaries…
- For each fully-loaded (including benefits & sales tools) prospecting rep: $60,000 (college grads) - $125,000 (seasoned reps)
> This cost includes Salesforce.com/SFA , webinar, data & list building tools, etc.
- Team manager: $150,000 (full-time, fully-loaded) or pro-rated by time involved
- Optional: Upfront list buildling purchase: $5,000-$10,000.
- Optional: Recruiting fees.
- Optional: External consultants & training: $3,000 -> $300,000+.
- Optional: Philippines/overseas reps doing research, emailing, data entry, etc., $1000-$1500 per quality person.
Online Revenue Calculator
You can use our online calculator to run some “Low – Medium – High” scenarios on building or improving an outbound team. Our friends at Visualize ROI created it for us (Aaron is an investor and friend of the CEO):
Note in the top left, you can enter in an “executive summary,” and then print out a report.
Which Kind Of Company Are You?
In these scenarios, we are taking the above calculations and adjusting them “under the hood” to account for hiring & ramp times, sales cycles, etc…but they give you a reasonable picture. The beginning’s the hardest, as any company building a new kind of sales team must work around the normal challenges such as hiring mistakes, technology confusion, unprepared collateral, executive changes etc.
In these scenarios, assume you are a software provider with an overall average new customer size of $25,000. You have one $300,000 customer, and excluding that one, the rest of your top 20% largest customers averaged spending $135,000 in their first year with you.
If you are in a Saas/subscription example, replace “revenues” below with your own numbers for “lifetime customer value”.
1) Bootstrapping / Slow Case: As a cashflow-funded company, you would rather take longer and figure things out on your own and save cash. You hire one recent college grad to do this full time in a “sink or swim” role. They struggle the first six or nine months to figure it out before hitting their stride (they don’t give up!) Over two years, they find 10 deals that close, worth $135,000 on average. Total new revenue over two years = $1.35M. Total costs over two years = $150,000.
2) “Proficient” Average Case: As a company that has gotten to a few million in revenue with relatively passive investors, you want to move forward and are willing to invest money, yet spend your cash carefully. You first hire two dedicated prospecting reps, then grow the team to six reps by the end of the first year (average size of the team is four for the year). You have a full- or most-time manager for them, acting as point-person to make it work. You budget for and hire outside consultants for some onsite trainings and ongoing mentoring of sales manager and team. Your reps generates 10 qualified opportunities per month, of which 15% close. In the first year, ramping, the team sources 40 new customers with an average revenue of $135,000 = $5.40M. In the second year, the team of six sources 81 new customers at an average value of $135,000, for a total of $10.95M in revenue. Total new revenue over two years = $16.35M. Total costs over two years = $1.5M.
3) “All-In” Fast Case: You’re a venture-funded company with several million+ in revenue, lots of cash, and have a very demanding board pushing for fast growth and who want world-class results and to “get it right the first time”. You have a full-time sales manager in place or find an interim executive, and hire six prospecting reps right away, then grow the team to twelve in the second year (total people costs over two years = >$2m) . You invest heavily ($500k+) in technology, consultants, remote teams, recruiters and list-building. The average rep generates 12-15 qualified opportunities per month, of which 20% close. In the first year, ramping, the team sources 81 new software customers, averaging $135,000 = $10.95M. In the second year, the team of 12 sources 216 new customers at $135,000 each, or $19.16M in revenue. Total annual revenue added over two years = $30.11M. Two-year costs = $2.75M.
Again, if you’re at a subscription company, the numbers will usually look much smaller if you use “first year revenue” numbers (such as Annual Contract Value or Monthly Recurring Revenues), but should be similar if you run the numbers with the “lifetime customer value”, which is usually 3-5 times your Annual Contract Value. For example, the calculations above will be the same as if your average outbound customer is worth $45,000 in ACV and they stay with you for an average of 3 years (= $135,000 in lifetime value).
The above calculations are ideal for companies with $1m+ in revenue, selling products directly to businesses. Having said that, actual results can vary wildly from company to company…especially if you are selling services. Someday we may have benchmarks for different industries, but until then here are a few points to consider:
- Your product and business should be far enough along so that if you get more appointments, you will get more sales. If your product and sales process is still immature, a prospecting person/team will still help you grow, but the above results will take longer to achieve, since you’re still refining your sales model.
- You can use an outbound prospecting team to acquire channel partners/resellers as well; but you would have to do your own ‘revenue per partner’ calculations to estimate how much revenue would come in.
- You can use the process selling services, but the results will be slower and more variable (it’s harder to sell consulting services in general). For example, I spoke with a company that sold $300k-$500k+ custom service projects. I had thought the would be happy to land one new customer per quarter (rather than say, 4-6 as a product company might do), but that would still be a great investment, because their project sizes are so large.
- Hiring recent college grads versus reps with prior sales or market experience can add six-12+ extra months to the time your team ramps up…but cost half as much.
- Selling to professional services firms (lawyers, doctors, accountants, architects, etc.) tends to be harder, as well as many other ‘specialty markets’ that have their own unique dynamics. In these cases your startup time can take longer while you ‘crack the code’ of that particular market.
- If you sell in a truly relationship-based market (like ad agencies and government lobbying), or you already know all of your prospects such as in a limited market, these metrics won’t apply, and the process may not be worth it for you (hire sales assistants instead for your salespeople, such as from Prialto).
Want To Convince Your CEO Or VP Sales To Do This?
Do you have executives who still believe salespeople should do all their own prospecting?
- First have them read David Skok’s excellent overview of the book, Why Salespeople Shouldn’t Prospect.
- Buy them a copy of Predictable Revenue (we suggest paperback, since they will want to mark it up, but you can also download a PDF of the first few chapters here for free).
- Run an ROI / Revenue analysis, using either our online calculator or just take the calculations from this post to do your own version. (Need help or want us to check your numbers? Contact us)
- Feel free to borrow (with attribution) from a collection of our sketches & slides: Predictable Revenue slides and sketches_v3.
- Interview: From NASA Nerd To $100 Million Revenue Stream (Video 30min)
- Aaron Ross talk at Coloft: “Create Predictable, Scalable Revenue” (Video 80min)
Getting Started Building Your Team
A) Want to try to building a prospecting team on your own? Here are some public resources -
- Go through the above education info, and share your favorite info pieces and the book with your key people (they need to buy in).
- After you read the book, go check out the detailed information in our Triple Your Pipeline Guide. That’s your bible, which includes all kinds of articles on recruiting, territories, calling, case studies and more.
- Go subscribe to our newsletter on PredictableRevenue.com or in the top-right of this page, to get more free training videos and tools.
B) Do you want help building your team, or want to take a current team to world-class?
We have a variety of options to help you. Contact us for more details, pricing and availability.