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Go to Market Plan SaaS Distribution Models

An Image Depicting Go to Market Plan SaaS Distribution Model By Price Point

Go to Market Plan SaaS Distribution Models highlights the importance of the appropriate distribution model.

Regardless of whether a company sells a SaaS or On-Premise solution, the goal is the same: maximize revenue and minimize the cost of acquiring customers.  SaaS is about 30% of application spend today as noted by IDC, Worldwide Enterprise Application Spend by SaaS and On-Premise, 2013-2018.  The study also notes that the 2013-2018 CAGR for SaaS is 17.6% while On-Premise is 2.8% per year.  Further, IDC expects that 50% of 2016 CRM sales are SaaS, and will escalate to almost two-thirds by 2018.  In short, B2B marketers need to recognize this and build and execute a go to market plan for SaaS B2B companies differently than they did for on-premise enterprise applications.

Go to Market Plan For SaaS – Distribution

B2B SaaS companies typically rely on four primary distribution channels to generate revenue:

  • Field Sales
  • Inside Sales
  • Channel Sales
  • eCommerce

While the infrastructure and cost of sale varies for each company, usually the primary drivers that determine the most appropriate distribution channel are price point, complexity of sale and coverage.

Pacific Crest Private SaaS Company Survey ResultsAn Image Depicting Go to Market Plan SaaS Distribution Model By Price Point shows,  by contract value, that Field Sales Reps (FSRs) are the main distribution channel for SaaS B2B companies with median deals over $50K (over 50% of distribution is through FSRs). When the median deal size is below $15K, the distribution through Field Sales reps is used less than 15% of the time. This is because it is simply too expensive.

Inside Sales Reps (ISRs) are ideal when the median deal size is between $5K to $50K. This is because the cost of an ISR is significantly less than an FSR, the deals are less complex and the sales cycle is usually only a month or two.

When the average selling price is $1K or less, eCommerce is the ideal distribution channel. However, eCommerce requires investing in a truly automated selling and onboarding process.

The go to market plan for a SaaS offering needs embrace a distribution model that makes economic sense.  In general, the math on the back of a napkin can most often determine the appropriate direction for the most appropriate distribution model.

Go to Market Plan For SaaS – Spend on Customer Acquisition

Customer Acquisition Cost (CAC) is a key metric for SaaS firms as it impacts expenses and revenues and that in turn will either help or hinder the go to market plan.

An Image Depicting Go to Market Plan SaaS CAC by Distribution ChannelIn general, most companies combine the cost of sales and marketing to establish a true estimate for the CAC. The median cost to acquire $1 of Annual Contract Value (ACV) typically ranges from $1 to $1.25 for best-in-class companies. However, worst-in-class companies may spend up to $3 while the best may spend as little as $0.25.

It’s important to remember a few things here. First, CAC should not be viewed as a “one and done” model. Ideally, a customer is acquired as quickly and inexpensively as possible and then grown over a period of years through adding users, functionality or ancillary products and services. This idea of “land and expand” or Lifetime Value (LTV) of the customer needs to be incorporated as well as calculations for renewals and upsells. For example, CAC could be well above industry average if renewals and upsells are relatively inexpensive.

In general, Customer Acquisition Costs are greater when more expensive resources are used in a 1:1 manner. Here is a snapshot of averages of customer acquisition costs by distribution channel:

  • Field Sales Rep (FSR) $1.15
  • Inside Sales Rep (ISR) $.90
  • Channel Sales Rep (CSR) $.65
  • eCommerce (Internet) $.40

Go to Market Plan For SaaS – CAC Composition: Sales vs. Marketing

Overall, the median company devotes approximately 30% of their CAC to marketing expenses, and 70% to sales costs.

A Field Sales model is the most expensive sales model. On average, 25% of CAC costs for companies with an FSR distribution model are spent on marketing and the balance on sales. However, Inside Sales and eCommerce distribution models force companies to have a much greater reliance on marketing. Specifically, companies selling primarily through an ISR model spend 40% of CAC on marketing and 60% on sales.

Go to Market Plan For SaaS – Distribution Options

Because quota-carrying Field Sales Reps sell subscriptions and focus on exceeding quota, their variable compensation is paid based upon accelerators. Many B2B organizations divide the field sales function into hunters (new business) versus farmers (existing business).

Hunting is geared towards the acquisition of a company that is not currently an existing customer- i.e. a new logo. Farming on the other hand concentrates on expanding business in an existing account by ensuring that the account renews, increases the number of users and/or purchases additional products and services. Note that the compensation for hunters is usually higher as their contribution is “net-new.”

In a SaaS model, quota-carrying sales reps (field, inside and channel) are typically measured on Annual Recurring Revenue or ARR. To build a qualified sales pipeline for each quota-carrying sales person, some B2B organizations have a demand creation function (the marketing area responsible for generating marketing qualified leads (MQLs), plus a sales development function (for follow-up on MQLs as well as performing outbound prospecting to set up meetings).  If organizations do not have either function, they will require a quota carrying sales person to do it all. This is problematic because:

  • It is expensive and inefficient because salespeople are a more expensive than demand creation or demand management resources
  • It is virtually impossible for a salesperson to be competent in all aspects of demand generation, sales development and sales

Go to Market Plan For SaaS – FSRs Quota

Quota for FSRs can range from $1M to several million, depending upon the price of the solution, the size of the market opportunity and the stage of the market relative to technology adoption. An average for sub-$100M companies is approximately $1.5M. On Target Earnings (OTE) is usually comprised of 50% paid out in base pay and 50% available through the attainment of quota (note that if sales reps exceed quota, accelerators kick in to pay reps at a higher factor). Compensation for FSRs typically ranges between $200K – $300K per year based on experience, the market and the solution — a guestimate here is about $250K per year.

Ideally, subscriptions continue into perpetuity but the compensation paid to Field Sales Reps does not. In general, 100% of the standard commission rate is paid in year one, 60% of the standard commission rate is paid in year two and 40% of the standard commission rate is paid in year three.

The number of accounts a Field Sales Rep should close each year or quarter can be estimated by dividing quota by the average sales price (ASP). However, closed deals will usually follow a bell curve with a few deals that are really large, a few that are very small and the majority that fall on either side of the average. While each situation is different, an average for companies with revenues between $10M and $100M is about four deals a quarter or 16 for the year.   Considering the amount of time required for a sales rep to close a deal and factoring the close rate, closing four per quarter is pretty optimistic — but again, it depends upon the complexity of the offering, contracts, procurement and the price point.

Go to Market Plan For SaaS – ISRs Quota

The quota for Inside Sales Reps is approximately $130K, broken down equally between base and bonus. Like FSRs, ISRs are eligible for accelerators for bookings over the quota target for each quarter and year.

On average, ISRs ramp in about three months, assuming there is a proven onboarding program. More often than not ISRs are promoted from within (with their prior role as an SDR) or from the outside as a Sales Development Rep or an ISR. Quota for ISRs varies from company to company based on a number of factors but a ballpark annual quota is approximately $600K – $800K.

Go to Market Plan For SaaS – SDRs Quota

Sales Development Reps (SDRs) are typically the first voice a prospect hears from a B2B company. SDRs normally follow-up on marketing qualified leads (MQLs) with the goal of confirming that an MQL is really an MQL. SDRs also gather qualification information that is not practical to obtain from a web form. The end goal for an SDR is to set up a meeting with the prospect and an ISR or FSR.

In addition, SDRs should continually collaborate with the ISR or FSR they support to develop a plan to set meetings into specific targeted accounts at predetermined levels in the organization (titles/roles). This is because marketing can’t control who responds to a campaign. But a proactive plan to target a specific individual in a company can be coordinated and successfully executed by the SDR and sales rep.

The gold standard for an SDR is a meeting that converts to a qualified sales opportunity (QSO). A QSO is a meeting that has been held by a sales rep. Once the sales rep qualifies the opportunity as real, the information is entered in the sales automation system. Roughly, one SDR can support two to three sales reps.

In general, SDRs:

  • Perform 50-60 activities (phone calls and emails) per day
  • Split their day (on average) by spending 60% of the day following up on MQLs and 40% on outbound prospecting
  • Schedule 20 meetings per month
  • Receive a $100 bonus per meeting scheduled
  • Receive a $250 bonus per each qualified sales opportunity verified by a salesperson
  • On-target-earnings $80K; $48K (60% base) + $32K (40% variable)
  • Often benefit from SPIFFS which are often used to drive short-term behavior, number of activities, number of meetings, meetings with executives at targeted accounts, etc.

Go to Market Plan For SaaS – Implications of Sales & Marketing Spend vs. Growth Rate

It should not be surprising to any B2B marketers that companies spending more on sales and marketing (as a percentage of revenue) usually grow faster than those that spend less. When building a go to market plan for SaaS, it’s important to model out the distribution channels, cost of sale and customer acquisition costs to ensure success.


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