In our last episode, we discussed this SaaStr post on moving slightly upstream from a single seat self-service product. Continuing along that path, Tomasz Tunguz just wrote an excellent post on the progression of many SaaS companies from SMB to enterprise. In today’s post we’ll create an example based on Tomasz’s numbers and give you a model you can use to experiment with your specific pricing and sales process. If you haven’t read his post, go read it first!
Spoiler: The same sales spend can generate $36M more revenue in year 5!
Want to jump right in and see how this looks for your business? Just click here for a live model and edit the plan items with numbers to fit your business. If you’re logged into an existing Opstarts account, a new plan will be created there. Otherwise you’ll see the plan in a guest account that you can save later.
Here’s how we built this simple model.
First we create two employee types. Inside Sales at a cost of $75k/year and Outside Sales at $250k/year. We start with 10 Inside Sales and 3 Outside Sales reps for $750k spend per year. We used the multivalue grid to increase these by 10 and 3 respectively each year to reflect a growing sales force with the same budget each year in both scenarios.
Next we create two products. An SMB plan with an average cost of $578/month and an Enterprise plan with a monthly cost of $13,888/month (we chose these numbers just to make the quota math work out nice and evenly). The SMB plan has a 5% monthly churn compared to only .75% for the Enterprise plan.
Finally we link sales resources to sales. We’ll create a simple link here, sales directly from these employees with no other constraints. For the Inside Sales rep, we take a $500k ARR quota, divide that by 12 for a $41,667 monthly new ARR quota, divide that by 12 again for new MRR quota = $3472 = 6 $578/mo subscriptions that each rep sells each month. We use the same math with a $2M ARR quota for the Outside Sales rep to come up with 1 $13,888 subscription sold per rep each month.
Of course a real plan will likely be quite a bit more involved with things like inbound leads, a conversion funnel, etc. You can add any of those on top of this model. And for even more sophisticated sales pipeline modeling, stay tuned for more details on our sales planning module. Here’s a sneak preview of what you’ll be able to do with that:
But now, onto the results!
To toggle between the two scenarios, just enable/disable either Inside Sales or Outside Sales in the plan items list.
Both scenarios have a nice revenue ramp as we scale up the salesforce:
Inside Sales/SMB Plan vs Outside Sales/Enterprise Plan
However, the difference in revenue growth is drastic:
We can see that as early as Year 1, the impact of higher churn in the SMB plan is already being felt.
These two scenarios show how drastic the compounding impact of churn can be to a company’s growth. Let’s take a look at the actual numbers in this 5-year model:
And there’s the story in a nutshell. Over a 5-year period, the SMB team sells 20x the number of accounts (10,800 vs 540) but ends up with only 10x the number of active customers (4654 vs 465) vs the enterprise team.
Want to see what this looks like with different numbers? Just click here for a live model and edit the plan items with numbers to fit your business. If you’re logged into an existing Opstarts account, a new plan will be created there. Otherwise you’ll see the plan in a guest account that you can save later.
Let us know if you have any more questions or specific topics you’d like us to cover in more detail. And follow us on Twitter for all the latest Opstarts updates!