Boosting Sales Growth Efficiency

Matt Darrow Matt Darrow

Sales growth efficiency is an easy metric to track.  So why do sales leaders have such a hard time hitting their goals?  It’s because they’re consistently overlooking the main levers for efficient growth.    

Simply stated, sales growth efficiency is the amount it costs to acquire one dollar of annual contract value (ACV).  Take the sum of your sales and marketing expense for a period of time (ex. one quarter) and divide by how much annual contract value (ACV) you generated for the same period of time.

Growth Efficiency Formula

The goal is to minimize this metric.  Some of the most well known software as a service companies operate near 1.0.  For every dollar spent on sales and marketing they get a dollar of ACV in return.  This is extremely difficult to achieve.

The reason has to do with the supporting teams that accompany sales in lucrative enterprise sales engagements.  As reported in industry benchmarks, an enterprise account executive will carry an annual quota of approximately $1.2 Million.  Of which only 70% will be attained on average. Therefore, every account executive that is hired will bring in approximately $840k of ACV per fiscal year while demanding the following support model to ensure success:

Account executive supporting team

Illustration of a typical account executive supporting team member cast

A plethora of software as a service vendors have grown by focusing on one or many nodes in this picture, working to make the department as efficient as possible, so new account executives can be added into the organization.  For businesses that sell to businesses, account executives still remain the most effective source for generating large and predictable bookings.

As companies grow, the predictable mode of operation is to increase the marketing spend to develop better top of the funnel leads, while focusing on account executive enablement to ensure they can prioritize and focus on the right opportunities.  Creative software from consumer video style trainings to artificially intelligent lead scoring is designed to give account executives the highest array of quality opportunities.

But if that’s all you focus on then you’re missing two of the most overlooked opportunities to easily impact growth efficiency:  Product and Presales.

Opportunity #1:  Growth Efficiency Through Product

So much sales friction and inefficiency is due to poor product to opportunity fit.  As sales organizations grow, account executives have fewer opportunities to work, which lead to less than perfect solutions to customer challenges.  This may lead to lengthy demonstration cycles, requests for proposals, complex customizations, or multi-vendor solutions. The root cause is a disconnect between product and sales.  While the product organization may be planning development on a three to five year time horizon, chasing macro trends they see materializing; the sales organization is tasked to book revenue now, in the current quarter.  The difference in how each organization defines success, and the time frame this needs to be achieved, ultimately leads to slowly realized growth and a sales process that feels much harder and takes longer than it should.  

An effective solution to align both teams is to track sales opportunities in the context of product development opportunities.  Sales leadership is great at tracking opportunities in terms of forecast category and timeline, but there is rarely a breakdown by the required product functionality.  This strategy is commonly overlooked by product organizations as well, who are combing through bugs logged by the customer support team as well as “ideas” logged by previously acquired customers.  Useful for customer satisfaction but useless for revenue growth. Without data to drive the prioritization process sales will continue to struggle while product finds it increasingly difficult to prioritize delivery.  

The net result is the ability to build the right product at the right time by clearly understanding the revenue impact of product development.  For example, “how much more ACV can we grab if we do this?” You will also be able to become much more efficient by focusing on qualified opportunities based on initial engagement without sacrificing the perceived value of your product.

Opportunity #2:  Growth Efficiency Through Presales

Presales resources are not cheap.  Representing some of the most difficult roles in the company to hire, these are individuals who support the account executives by understanding the product and technology inside and out, while having the soft skills and presence to help sell the deal.  It is surprising that little is done to optimize the support ratio of presales to sales, the most costly support model a company will bear when bringing new quota carrying account executives on board.

If you are not already measuring your sales support ratios you should begin after you finish this article.  Hearing metrics like “1:1 in Named Accounts and 2:1 in Enterprise” are commonplace for highly efficient companies.  These ratios tell the story of how many account executives can be supported by a supporting presales team member — One?  Two? More?

A two account executive to one presales engineer (2:1) ratio is commonplace across the enterprise.  Now imagine having 100, 200, or 500 account executives in your organization. By following the 2:1 ratio you are limiting how much actual quota capacity you can put on the street by hiring more and more presales engineers.  

Highly efficient organizations are able to take a 2:1 ratio and move it to 4:1.  For every presales engineer they can hire four quota carrying account executives.  A huge boost for growth efficiency. To the chagrin of many sales leaders, you cannot double the support capacity of presales by simply assigning more account executives and hoping the presales team will absorb the workload.  Rigor and accountability need to be placed in the sales process to pull this off. Two of the most impactful strategies are: formalizing a presales request process and building a sales support engineering team.

What destroys the presales support ratio is the unstructured method in which presales resources are assigned to opportunities.  Traditionally assigned to named account executives, it is not uncommon in some organizations for the presales team to be involved too early in the sales process — in the initial opportunity qualification.  By tracking the outcome of opportunities touched by presales you can get a clear picture of how healthy your business is on this front. What you are likely to find is that 50% or more opportunities that are touched by presales are being qualified out or lost due to poor qualification earlier in the sales process.  Instituting a formal request process, tracking metrics to measure the results, and empowering presales leadership to approve or reject requests will have a major impact on your ability to support more account executives with the current staff while positively impacting growth efficiency.

If the presales team are some of the most expensive sales supporting resources, why are they spending so much time building demonstrations?  It is surprising how often companies overlook this question internally. What is often found is that presales is spending more than half of their time building and maintaining demonstrations.  To have an industry leading growth efficiency the presales team needs to be selling in front of prospects, not building and maintaining demonstrations.

A highly effective solution is to create a Demo Officer whose team is responsible for maintaining all standard demonstration environments while constantly including the most recent product releases.  This team also consists of junior Sales Support Engineers who support the demonstration build activities of the presales engineers working directly with prospects. It is not uncommon for a Sales Support Engineer to support over four presales engineers.  The team may even be located offshore to further reduce cost to positively impact growth efficiency.

The additional benefit of building a Sales Support Engineering team under presales is additional alignment between product and sales.  Presales is the team which bridges the gap between the product and sales organization, and having a named group responsible for closely working with product to ensure the latest product functionality is embedded in demonstration environments maintains a close working relationships and mutual benefit.  

Taking The First Step

We built Hero by Vivun based on our experience working with and building sales, presales, and product teams at companies of all stages of maturity.  Transforming the way product and sales work together is the single greatest key to igniting growth. Hero by Vivun was designed to help you operationalize the strategies outlined above and more.  Contact sales or request a demonstration to learn more.

Matt Darrow Matt Darrow April 5, 2020