Limitations of a 2-Stage Sales Organization

2 Stages sales organizations consist of SDRs who set up meetings for AEs who close clients, as outlined in the book Predictable Revenue. This approach has been found to have its limitations due its nature of being based on volume outbound. Volume based outbound is relying on sending thousands of Emails and making thousands of Phone calls every day. Below you notice how the ACV of SMB deals of this example company no longer allow the use of volume based 2 – stage sales cycles. If an SDR/AE organization would only close 3 deals @ ACV of $6,000 = 36 x $6,000 = $216,000 in ARR per year. If we would need 1 SDR (generating 15 SQLs/month) and 1 AE (converting 1 in 5) to close this amount of business we would need $80,000 in SDR salaries and $150,000 in AE salaries = $230,000. The more business you’d win the more money you’d lose in year 1. You normally would say you’d recoup that in year 2, but the cost of customer success also kick-in, churn to existing accounts, etc.

 

Figure 34. ACV of $6,000 has become too low for a GTM using a 2-stage sales model

SOLUTION 1:  Lower SDR/AE compensation. This means moving the team to cheaper locations. Although this improves it a bit, for most companies the efficiency lost being remote from the sales team results in reduced effectiveness (lower amount of meetings) nullifying the impact or worse.

Figure 35. Shifting the GTM model to a content based outbound model

SOLUTION 2: Apply a different prospecting process. It is remarkable how few companies pursue an alternative process.

Figure 36. Increasing the Annual Contract Value makes the Inside Sales Organization work again

 

SOLUTION 3:  Increase the “price”. This is often a product of industry factors. It doesn’t have to be just year 1 price, it can also refer to an increased Lifetime Value. E.g. if your LTV goes from 2 to 3 years or if you have a reasonable upsell/cross sell along the road (like in AdTech).

 

Figure 37. Move upstream and retrain the inside sales team to work on bigger deals

SOLUTION 4: Move UpStream. Companies with an offer that appeals to Mid Market and Enterprise can decide to Move Upstream, not just by increasing the price but also increasing the offer and the advanced needs these markets have. See more in this recent post Moving Upstream.