Thanks. Thanks, Steve. It's great to be here. And thank you for having me.
So clearly, we struck a nerve. I polled about 100 CEOs of small to medium sized businesses, and asked them what they wanted to know from somebody who's deeply experienced in SMB sales. And I got an overwhelming number of responses. And most of those responses revolved around two things, hiring and onboarding as topic number one, and sales compensation as topic number two. So those are the areas that I really want to focus on. And let's start with hiring. In my experience, as a CEO, one of the most critical hires that I made was my VP of sales. And I had to go through a few hires, actually, before I found the right fit. But once I found the right fit, it was an extremely powerful hire. So in your experience, what are some of the most common mistakes that you see CEOs make when hiring their VP of sales? And to clarify, it doesn't have to be a VP. When I say, VP, I'm talking about the person who's leading the sales organization, what are some of the most common mistakes that you see?
Sure, great question. And without a doubt, the head of sales, regardless of the organization, is one of the most important hires you're going to make. It sets the culture and the cadence in many cases for the entire organization, and specifically for your revenue organization. So you want to make sure it's the right hire. In my experience, what I've seen in many cases is that you can't hire too junior of a sales leader, you need to hire a VP or head of sales for the business that you want three to four years from now. So for example, if you have an SMB business that has a 50% CAGR, and you started at $10 million, suddenly, you're going to be at, you know, $25, $30, $40 million. And that $10 million, or $5 million, head of sales might not be the right person for the business down the line. So don't be afraid to pay up and level up to have a continued and successful growth rate. Because bringing in a new leader is always, not sometimes, it's always disruptive. I'd say the second thing is, you want to make sure you're hiring for leadership process and ingenuity. Industry is far less important. It can be taught.
So what you're saying is to essentially hire for the company that you're planning to be, not the company that you necessarily are right now. But, if you do this, how do you avoid an "over-hire" risk? Meaning if you hire someone that's too senior that is maybe too far removed from the day to day, perhaps somebody that's used to managing managers, instead of managing individual contributors, how do you take that first piece of first piece of advice that you gave, but also avoid that kind of over-hire risk?
So a good leader will rely on the process. And you're going to hear this same thing throughout this entire conversation today, is if you've got a good leader, they take the bodies out of the conversation, and you hire to the process. So if I'm looking at it, I don't care if I'm hiring managers, or managing managers or managing frontline salespeople, and I'm going to grow into backfilling for middle leadership, you want to build or you want to get somebody that knows how to do the process. And if you've got the right leader they're not going to be afraid to go back a little bit, they're not gonna be afraid, because they're going to see that there's a massive growth opportunity. If you've got the right leader, and they're bought into the organization, they're not going to worry about having to manage some individual contributors. Because guess what, they're going to see that this business is going to grow and that the value that they bring to the business is going to help it get there.
And so on your second point, you said industry is less important than process which which I agree with and is consistent with my experience. But you said that in the context of the leader, what about when that leader is hiring an individual contributor, let's say an account executive or an account manager? How important is it that individual reps have experience in the industry in which you're operating?
So that's a trickier question. And it really should be bifurcated based on the business size. So for example, if the business is very small, say in the kind of $1 to $5 million range, and you've got a couple of reps. And they don't have the infrastructure to train existing reps, there's no management, there's no dedicated sales training, then industry knowledge is a lot more important to ensure the success because you've got to have somebody that can be independent and running on day one. If you're a little bigger, where there's more structure in place, and a rep can come in with more training and support, it's more important to hire for attitude and ambition at that point in time. So smaller business, I would probably lean towards industry, bigger business, I would lean towards attitude and ambition.
So it sounds like on the smaller side, the rep is essentially thrown into the shark infested waters with no infrastructure around him or her. Therefore, industry context is more important. But if you throw somebody into a body of water that's got infrastructure, training, documents, personas, manuals, then it's less important. Is that an accurate way to summarize it?
Absolutely accurate. Let me give you a good example, I'm dealing with this right now, where I'm working with a small startup company who's got one really amazing industry specific salesperson. And they're running the sales organization and bringing in all the revenues today, essentially. How do you scale that business? You can't when you have a single point of failure, so you have to start creating, you know, maybe industry roles, and this person becomes an industry person, while you hire in the infrastructure of the business. And they become through osmosis, they attach themselves to sales cycles, and through osmosis, then give that knowledge to the rest of the organization that you hire into. You've got to take a path to scale that's going to ensure that each of your people can get to that same depth of knowledge as a subject matter expert and domain expertise.
So continuing on the topic of new hires, particularly for new reps. I often had the question, when should I expect a new rep to to pay for themselves? Because there's this kind of well understood mantra out there of hire slow and fire fast, right, we're all going to make hiring mistakes. So correct those hiring mistakes, as soon as you realize that you've made one. But on the sales side, particularly with long sales cycles, it's tough to know if a rep is doing the right things or not. So is it even a fair question to ask, When should a CEO expect a new rep to start paying for themselves? And if not, like, what should the CEO consider in trying to establish that timeframe?
Yeah, very tough question as well. Let's start with, much to support does a rep have to start? If there's a lot of existing infrastructure, your ramp time can be indexed lower, you have to take a look at what your average sales velocity for an average sale is. You're saying enterprise deals are much longer and prospects take a lot longer to close, sometimes in the 12 plus month, or two year timeframes. But where there's a high velocity, you know, sometimes an inside sales notion, sales cycles can be very short, measured in weeks. So you know, you can tack on a couple of weeks of solid training in a smaller business, and you can start to see some very fast IRR and positive IRR. But when you have a larger sale, it's going to take a lot longer to do that, and you're gonna have to manage that person, by their activity, you're gonna have to have strong inspection against what they're doing on a daily basis. There is no one shoe that fits all in this scenario, though, and it comes down to what kind of sales process you have in place, what kind of infrastructure you have around the reps. And that will help determine, you know, when you start seeing IRR from an individual Rep.
And so, if you've got, let's say, a reasonable degree of infrastructure, like you don't necessarily have the absolute best in the market onboarding and training process, but you use a CRM, you have a reasonably structured onboarding process, some materials that they can lean on, some personas that you've established. So maybe like a B, or a B+ in terms of infrastructure. It makes sense to me that the timeframe within which you evaluate a rep is correlated to the sales cycle. So, let's take the example of a long sales cycle. And you know with certainty that this person is not going to make a sale, let's say for over a year, what are the types of things that you look at to make sure, in the absence of sales data, if you're the sales leader, what are the types of things that you should be looking at, to at least answer the question, hey, is this rep doing the things now that will ultimately make her successful?
So that going back to the process, you've got to have an established process, and you have to have this person, if they're a strong sales rep, and they're, they're a senior sales rep. Or if they're just good at what they do, they're going to know that the activity plus execution equals results. So number one, you can't execute because the longer sales cycle, but you have activity and you can execute across the process. So you need to be doing inspection as a leader of the organization you have to be saying, hey, is this person making enough calls? Is this person following up on leads? Are we moving sales cycles forward? Are we moving it through the sales funnel from a qualification standpoints from the 10s, to the 25s, to 50s to 90s? And you have to be doing that on a consistent basis, a good sales rep will be taking the notes will be taking down the data and logging their activity. So you should be able to manage this activity and understand what they're doing to see if they're moving the ball forward. That's what I do typically, and it seems to work.
And one of the things that I think it's important to mention and Dave, we've worked together personally, and you helped illuminate this for me, in terms of other CEOs that I've seen, who asked this question: Are reps kind of doing enough? Unfortunately, they don't have an objective answer to what is enough, they look at the activity levels, and they make a subjective evaluation of whether or not the activities are sufficient. But one of the exercises that we went through is you go through all your percentage conversion rates for each layer in the sales funnel. And if you know how many let's say, new customers you need to acquire to hit your revenue goal by the end of the year, then you should know mathematically how many calls you need to be making at the very top of the funnel. So can you just talk a little bit about that process? And how CEOs can actually quantify like, how much is enough activity for a new rep?
Absolutely. So it comes down to, again back to the process. And what you're referring to is something I call the farming algorithm. And the farming algorithm is the ground up build of your revenue. So you start with literally, how many touch points do I need to get to a conversion. And then if I have, I need 10,000 touchpoints to get to 1000 conversions, which turned into the you know, 100 MQLs, which turned into 10 SQLs, which turn into one sale after going through the sales process. You can say my marketing activity and my outbound activities are going to give us X amount of SQLs. And when you drill it down, and the farming algorithm works out, you'll know based on your sales process, you know how many conversions you have, you know what your sales velocity is, you should know what your close ratios are. And then through that, you drill it down to say, Okay, I know now that I need to get X amount of touchpoints, to get X amount of MQLs to get X amount of SQLs to get X amount of deals. And then you can say to your sales rep, okay, marketing is going to supply 40 or 50%, you got to supply the other 40, or 50%, or whatever the expectations of your business are. But in the end, you've got a revenue target to hit. So you need to make up those touch points out in the field with your customers and prospects to get to that revenue objective.
Yeah, I always refer to it as, this is probably a clunky way to word it, but I call it reverse funnel math, which is you start at the bottom of the funnel with your revenue or customer acquisition target. And you work your way up the funnel using the percentage rates, the percentage conversion rates between each stage, and ultimately, that spits out kind of what you need, and the key point here is that you can't get any of that intelligence unless you have the data, right. And so when I took over my business in 2014, the company wasn't even using a CRM system. So if you ask me in 2014, how many leads do we need to generate to acquire a customer? I have no idea what the answer is, because I didn't have the data. And in my experience, I often say like, you know, build the foundation of the house before you start worrying about like what color shingles you're going to put on it. And in this case, the infrastructure that you need is a good CRM system that spits out this type of data, otherwise, you're flying blind.
Absolutely, you've got to have a process. If you don't have data, you cannot manage a business, you cannot manage sales. So I would encourage any SMB CEO out there, to rely on on a lot of great resources. Find a mentor. And I think we're going to talk about this in a bit. But finding somebody that's done it before, find an advisor, that knows what good looks like and what bad looks like. That you can say, okay, this is what we're going to do and this is how we're going to do it. It's gonna save you a lot of pain and effort from trying to recreate the wheel all by yourself. So I would encourage using a mentor I'd encourage using resources around you, but definitely you've got To make a process, and if you don't make a process, you're just going to fly blind
Exactly, and you can't hold your your salespeople to account. You can't say, hey, you know, did you make your 100 phone calls today? Because if you don't have some objective basis to explain why he or she needs to make 100 phone calls, then it will be it will seem arbitrary and it will lose its motivational characteristics.
You got it, salespeople are very realistic, they get it, they know that I've got to do this to be successful. And if I see that Johnny, beside me or Susie is doing her calls and she's hitting her numbers on a month, I'm going to go do that as well, because I know that's what makes success.
So let's stay on this topic of building because I mentioned that when I took over a sales team, it was almost non existent, there was no infrastructure, etc. And a lot of CEOs find themselves in that same spot. Either they're taking over a business, maybe they're newly hired, maybe they just acquire a business. Or maybe they have a sales team that they've made so many changes to, maybe there's been a lot of turnover, that it's almost as if they're kind of building it from scratch again. So in a situation like that, where you're building it from scratch, or you're kind of effectively rebuilding an organization. Do you hire the leader first or do you hire the reps? Because on one hand, you know, some people say we should hire the leader first, because that person is going to know how to hire the reps that you ultimately need to start making sales. On the other side, look, sales still have to come in through the door, and maybe it takes you six months or more to hire a leader. So you know, you need to generate revenue in those six months. In your experience, which of those hires do you make first when you're building or rebuilding a sales organization?
So if you're taking over business, likely there's some form of revenue and or some form of sales structure today, right? And maybe if it's a if you're a founder coming in, you bought a business, and there's nothing, there's no CRM, there's a couple of reps, they're doing what they do for the past five years. And you need to rebuild, I know it's hard, it's hard, you you immediately say I'm going to go hire a bunch of people, and we're going to ramp sales. But the thing is, if you don't have the structure, it's going to be very difficult to scale the organization. So I would always advocate, you've got to build the processes, you need to document and map out, you know, against the customer and product to ensure you're not burning marketing and sales cycles with bad process. You can burn up marketing dollars, because you don't know what you're doing with because you don't have the data because you're not managing your process.
So in this case, I would absolutely hire a sales leader first that knows how to do process, that knows how to map out an organization and a system. And then you staff up your team. Because then when you come in, you've got a professionalized process. And you can hire the types of reps now that match that sales cycle as well. Maybe it's a long sales cycle. Well, if you go hire a bunch of reps, that are shorter sales cycle, or medium sized businesses, maybe that's not the right hire, but their sales process will help tell you what type of rep is. It will also help you save money as a CEO from burning leads, burning opportunities, marketing dollars and time wasted. So I would always hire a leader first to build process and structure and then hire in sales reps.
That's consistent with my thoughts. I mean, in a domain like sales or candidly, more broadly, in a domain like business where it's not a perfect science, there's there's often not an objective, universal truth. So I say that through this lens. But that notwithstanding, that's pretty consistent with my experience. Like I said, I went through a few false starts, and my VP of Sales ultimately found a good the right one a number of years ago. But when I hired new reps before I hired that VP of sales, honestly, I kind of felt bad for the reps because I was throwing them into chaos. And only in retrospect, do I now realize that the probability of success was very, very low, because they were going into an environment where they didn't have all of the things that a good VP of Sales should establish at the outset. The process, the targets, the infrastructure, the training. And also I found that his ability to hire high performing salespeople far exceeded my ability to hire high performing salespeople because he'd been doing that for the past 20 years.
Yeah, without a doubt, and often they'll come with a bench of great people that want to work for him or her. If they're a great leader, and they're a strong leader. People want to follow a strong leader. And you could probably get some really great reps that follow that person's aura, which is also going to benefit your business.
So we've talked about kind of getting ramps, or pardon me getting reps ramped as quickly as possible. In my experience, you know, rightly so, people put a lot of emphasis on the hiring process. But unfortunately, kind of stop paying attention when it comes to onboarding and onboarding is incredibly important, in my experience, just as important as the hiring process, but I think a lot of people kind of think their work is done once the hire has been made. So when we talk about ramping reps, what are some of the best practices that you've seen with regards to trying to get these new reps productive as soon as possible?
Hiring is one of the hardest things in the world for sales. And I've heard many statistics, 50% of all new sales hires won't work out. And I've heard 70 or 80% that will work and you have to, you have to cycle through a bunch. But in the end, it all starts with the people, self motivated, driven sales reps can walk into a new role with little support and self train, get up to speed and excel regardless. And you know, those are the those are the very rare, that's the needle in the haystack. But the best of the best can do that. Typical journeyman salespeople, and we all have them, and we all need them. They need more structure from an onboarding perspective. So with that said, I like to do formal in class trainings, I like to do certification processes to ensure that the base knowledge of the process, industry and product are there. From there, I like to move to shadowing exercises, where they're sitting in on sales calls demos, and sending new resources or sending new resources into the field for week long shadow exercises. Seeing top reps do their job very well is something that's hard to replace. Nuance and vernacular are very important. And after shadowing, I like to pair new reps with A-players for continued mentoring a person to call for questions and answers other than management, so they don't feel like they're being judged. But inspection is always critical. And even more so for new reps. So if they learn fast, you know what a new, and necessary cadence is to be successful, and with clear activities and goals, these reps can be very successful with that kind of structure. It's classroom, it's infield, and it's follow on support from the team. The fact is, it's not just the leaders job, but a good team will help each other rep to rap as well.
Yeah, one of the things that I learned from my experience is the power of getting the other sales reps involved in the onboarding process. Originally, when we made that a formal part of our onboarding process, I was actually quite worried because I was thinking, hey, my existing reps are busy as it is, they're trying their darndest to get to hit their targets. And they're maniacally focused on hitting their numbers, they're not going to want to take time out of their day to help people. That's what I thought would happen. And to my surprise, actually, the exact opposite happened. Our existing sales reps were actually very excited about the idea of helping new reps ramp. Obviously, they didn't spend eight hours a day helping their new colleagues ramp. But they were really excited. And they they felt really pleased with the idea of kind of helping other people and their level of buy-in was very high. Is that is that consistent with your experience, too?
Absolutely. I've never seen a situation where I've asked somebody that, hey, can you help this rep out, they need help? If I've ever heard "no", that's not a team player in my books. And that's probably not somebody I want on my team in the first place. Anybody that's really, really good is gonna say, yes, this is an opportunity for me to show upper management that, hey, I've got the capacity, I've got the knowledge and I've got the team spirit to become a leader in this organization. So they see it often as a path and a venue to move up in the organization by being a mentor being a coach for somebody else. And that new rep's success is a reflection on their success and their ability to move up in the organization. So without a doubt, it's a great opportunity for you to suss out who your next leaders are in the organization. And it will actually tell you who the you know, the true team players in your team are as well.
Yeah. Yeah, that's great. Okay, let's move on to compensation because like I mentioned, this is topic number two that clearly CEOs have questions about and in my experience, my God, I gained my share of gray hair trying to put together sales comp plans. It's a really interesting exercise and something that I learned a lot from over the years. So just starting at a high level. Dave, what are some of the biggest mistakes or the most frequent mistakes that you see leaders make when crafting a comp plan?
I call this the the biggest deadly sin of compensation plans. And this, it's the one I see almost. But far too many CEOs make and heads of finance, making a compensation plan that is too complicated. Number one by a long shot, a sales rep should be able to, in their head understand what a new opportunity means to them and commission dollars, the moment they get off the phone, or WebEx. This is an amazing motivator for a sales rep. They go, bang, I know this is going to be 10,000 bucks in my pocket. I'm super excited about this. So they've got to be able to quickly calculate and say, I know this is going to be it. Whether it's a gross margin analysis in their head, whether it's a pure dollars per unit perspective, but making your compensation plan simple enough that a rep can understand what any single activity he's doing is in dollars is going to drive positive results. The second thing, a big mistake is I see capping of earnings is a big mistake. It's a great way to create a culture of mediocrity. And you don't want that, you want reps. If a guy goes out and kills it. And yes, there's ways to sculpt sales plans, that you're not having big whales that offset an entire year.
And you can do that. But if you build a sales comp plan, that claws back commissions from accelerated levels at 200%, to normal levels that were already passed by, it's just a way to ensure deals and activities slip from one quarter to the next. There's ways I say to craft commission plans that ensure consistent reproducible revenue for the company while keeping commission payments in budget. But the best salespeople do not get into this profession to be capped. They quickly will find a new home if they feel they can't reach their true earning potential. So, I would I'm very hesitant to cap earnings, I want to make sure that every sales rep knows that they can make a lot of money by doing the right things and closing business, and that they want to be aggressive to go out and close that business to make that money. And you start capping earnings, you start to see people gaming the system.
Is there some sort of like rule of thumb or heuristic, that a CEO or VP of Sales can apply to a given comp plan to tell them if it's simple enough? So for example, it shouldn't exceed two pages, or a salesperson should be able to read it and calculate in less than 10 minutes what their incentive comp should be, if they hit their target. Is there any just kind of rules of thumb that you apply that a CEO can say, okay, my comp plan is now simple enough?
Yeah, I've got one I've actually used in the past, I actually give prospective comp plans to reps in the field. And I'll say take a look at this and read through it. And they'll say I get it, and I understand it, and I can see what I can make. And you tell them you if you have the right relationship with your frontline people, they'll tell you the truth. And you know, truth and honesty and respect are incredibly important, from management to report and report to management. So if you give the commission might say, look, take a look at this, and let me know what your thoughts are. If they come back with five questions, you've probably got it wrong. You probably got it wrong, because they're going okay, I don't get this. But if they go, okay, I get 6% of the of the ARR in year one. Okay, well, you know what, in my head, I know that each of my deals is worth, you know, average deal size is 10,000. And I sold three a month, that means I'm going to get X dollars, very quick math, and they can do it. If you've got four levels of abstraction with five different buckets that you have to hit. bucket one, bucket two, bucket three, bucket four to get to accelerators. Everyone just start to go I don't understand this and how do I make money? Yeah, it's pretty easy to find out by putting it in front of the reps, and they'll say I get it or I don't very quickly.
It's interesting. This might sound like a bit of a tangent, but I'll bring it home eventually. Warren Buffett is famous for his shareholder letters, obviously one of the smartest investors of all time. One of the reasons why his shareholder letters are so famous is because he writes them at a level that almost anybody can understand. And one of the tricks that he uses is, as he's writing the shareholder letter, before he starts, he addresses it to Edna and Mabel. So he's pretending that he's writing it to kind of two old ladies and I think his intent in doing so is basically this premise that if you can explain this to your Aunt Edna and Mabel and she understands it, then you've written it at the proper level of simplicity. And I wonder if a similar spirit can be applied to a comp plan.
I agree. I mean, I think it should be for most business language. And whether you're talking to your customers through marketing or communications, or to your reps and their commission plans, it's make sure it's clear obfuscation confusion, they just build distrust and, and the inability to relate to your customer or your individual sales reps or employees. So clear, concise, and simple communication is key to establishing the right goals and motivations with your organization.
So I've had to in the middle of a given year, because of some major changes that we made in our company, I've had to completely restructure a comp plan mid year. And that was really challenging. So have you ever had to do that? And if so, what did you learn going through that experience?
Yeah, I've had to do it. And it's a painful. It's a painful discussion. It's not an easy discussion. No rep wants, what they've been doing halfway through to be changed, because they've got these goals in their head, and they're working towards them. In these cases, it's worth it to take the time, and to meet individually, you know, whether you or your leadership team to go over why the changes were made with each rep. Why the company has made the decision to do so you know, what decisions are logically made and their sound, you'll be surprised how on board a sales team will become doing a blanket announcement on a team call. Right. And it is a great way to disenfranchise your team quickly and get them to go. I don't get it. People are logical. And if it's a good reason, they will understand. If your sales teams are even on Aesop programs, their shareholders and they will jump on board even further. But communication is key, sit down, take the time meet with each one individually, talk them through why the business decision was made. They're smart people, they're vested into the company. And if it was made with logical and reasonable reasons, they'll get on board and they'll understand.
So in my situation, we had to change our comp plan, because we changed the revenue model the company, we went from a one time license purchase to a subscription based purchase. And so the revenue profile, the company completely changed. Therefore, the comp plans had to change. What situation caused you to change your comp plan? Because CEOs might, let's say they halfway through the year, they're either way above or way below their projections. And they might say, okay, well, I got to change my projections. Therefore, it's time to change comp plans. But but that can be a dangerous line of thinking. So how should CEOs think about when they need to change a comp plan mid year versus when to just leave it alone?
Hmm, that's a tough one. For me. It was introduction of new product. That skewed results, and it came in earlier than what the comp plan was actually ready for. That's a great question.
I mean, the as we know, business is nothing, if not dynamic, right? I mean, things are changing every day, the projections that you made in November of last year, once you get into February, or March of this year, I mean, those projections, could be out the window, because the world could have fundamentally changed. I mean, for me that the lens that I put on it is you don't necessarily hold your reps accountable for the bad forecasting that you made personally. But if there's a fundamental change to the business that fundamentally impacted their ability to hit their number, then that was the time to do it. I wonder, do you have any? Is that consistent with your perspective? Or is it Do you have a different way of looking at it?
No, you need to you need to make the decision that you need to make as a business. But this goes back to the individual conversations. When you broadcast this in a group. It the reasons get lost when you sit down and you actually dig into the numbers. And don't be afraid to open the books and say, Look, guys, here's what's happened to our business. And here's what we've done. And here's why we've had to do this. You'd be surprised how how accepting to these difficult decisions many reps will be when they understand the health of the overall business is at risk. And this needs to be changed. It comes down to strong an honest and open communication and making them part of the decision process and making them part of the circle of understanding when you keep them in the dark. They get angry when you tell them openly and honestly. They understand they'll say okay, this makes sense. And for the goal for the good is not the company, I can suck it up for six months till we get to the next comp plan.
Yeah, some once told me, you don't burn bridges by what you do you burn bridges by how you do it. And I thought that was really really insightful. The how you do it, I think, to your point is much more important than the what. I mean, obviously, you don't want to be changing comp plans four times a year every year. But if you kind of treat people as mature adults explain to them on a one on one basis, what happened, why that necessitated the decision? Look, they might not be absolutely thrilled with it, but at least they'll understand why you made the decision. And I think if you go about it in a respectful way, that the risk of alienating people or burning bridges is low, but it's all about the why you did it and how you did it. So let's stick with this idea of comp plans changing, right? So moving from changing comp plans within a year to changing comp plans year over year, generally, I mean, there's some change revenue targets change, business goals change a number of things change year over year. But at a general level, like how do you think about making changes to your comp plans year over year? I mean, how much change are you making from like a magnitude standpoint? versus how important is it to stay consistent?
Yeah, I'veseen multiple I've seen large organizations that make massive radical changes year over year, I've seen competent compensation changes that are minimal. And I've done a lot of research myself, there are different schools of thought on both sides of this, you know, one where radical change yearly is a good thing. And one more steadfast, steadfastness is failure. That my personal and this is my personal opinion, through experience is that consistency is a better path. There's always companies new financial goals, product launches, or deletions out of product sets, there's going to always be situations where compensation needs to be, there's gonna be situations or situations where compensation needs to be radically changed to avoid massive disruptions at the end of the year. But overall, I like to keep my compensation plans fairly consistent year over year with the necessary tweaks that the business needs, either product deletions, or maybe there was too much commission being paid on a certain product. And it's affecting the profitability of that product. So I don't like to make too massive changes, because then rep spend the next three months figuring out how they're going to gain the system every year, as opposed to getting down to business and selling for the first three months of the year. And in a SaaS business specifically, you don't want reps for the first three months, we're just trying to figure out their compensation plans, you need them crushing their numbers for the first quarter, because that represents 42% a year yearly revenue. So I like to keep them fairly static specifically in SAS businesses, massive changes are needed, or wherever possible.
If a company is following a calendar year, so their calendar and fiscal year beginning January 1, when should the sales reps have that year's comp plan done and in their hands?
Yeah, they should have it in the quarter before they must have it and should have it before the year starts. And let me tell you having been through many, many iterations of this in many, many situations, it's difficult to do that, sometimes you can't get your yearly budget as an organization finalized. And budgets get set, and then, you know, then compensation gets set. And it sometimes bleeds over it. And it it's too confusing. It's too painful. And I've been on that side of it. I hate doing it. But I like to get them in the quarter before and then they understand what's going to go on for next year. Yeah, not not not at the first of the quarter, but like kind of two, three weeks before. We don't want them maybe figuring out that there's going to be a change in compensation. And now they're going to slag a deal at the end of the year, because they're going to get paid more. We want them closing rate up to the end, but they should get it before the quarter ends and get it before they get into the new quarter.
So let's let's go back to the people side. I mean, businesses are nothing if not a collection of people working towards a common goal. And a reality of any business and any sales organization is attrition, and turnover. So let's talk about that for a little bit. So have you ever dealt with a high performing rep who's you know, smashing his or her quota, but is a net negative from a cultural standpoint? If so, if you have dealt with that, I mean, how do you how do you deal with a situation like that?
Yeah, man, not just once Steve many, many times I've ran into this. I've done a lot of acquisitions of companies and we do a cultural check on organizations, when we get them in, you can quickly find out who the the net negatives are. But this is always a tough one for SMBs. Sometimes one single rep, in a smaller SMB business can account for a sizable amount of the company's overall revenues. And in those cases, I'd encourage management to use it as a coaching point, you can't disrupt your revenues so much by getting rid of this Rep. So, let's coach them, and let's try to get them to make the necessary changes to the contributors attitude to become a team member, successful team member. I believe people can change, and I've seen this by changing these individuals and to top contributors, leaders, it's better off for the overall organization. But if the overall if the person's attitude doesn't improve, you need to start taking steps to backfill ahead of time, because that caustic and wrong behavior is really bad for your organization.
It infects the rest of the team, that negative attitude or the over competitiveness or the finger pointing or, or the politics. And in those cases, where an organization has more redundancy, though, you know, I would still have the conversation, I'd say to them, look, you know, what this is happening, and I'm seeing this as an issue. And these are the tough conversations leaders have to have. But if there's no change, at least, when you have a little bit more beef on and redundancy and organization, you can make that change faster. And you can reduce the collateral damage that caustic individual causes. So without a doubt, smaller organization, try and have the conversation, try and make a change, people do change, large organization, have the conversation, but don't, don't spend as much time on it and move the person out. But in the end, you should move the person out if they don't change their attitude.
Yeah, in our company, we used to have a saying that it's not original. We used to say change the people or change the people or change the people. Yeah. I love that one to change their attitude. And if you know, that doesn't change then change the person. So how about the VP level? So have you ever had to deal with a situation where you've had like an otherwise quite successful VP of sales, or whoever's leading your sales organization, and let's say that they've had a couple bad quarters in a row, or they're otherwise just on a bit of a cold streak. So on one hand, as a CEO, you want to run a high performance organization and hold people to high standards and make sure that you are a high performing company? On the other hand, you've got this person has some track record of success. How do you deal with a successful leader of a sales organization who has maybe missed their number, a couple quarters in a row?
So I consider myself sometimes too lenient, in this world. But everyone does run into a cold streak. As leadership, it's our job to understand the managing metrics of the business, just as well as our sales leadership does. So if you have a properly developed sales process, then you've got a foundation to understand what's going on from a prospecting, a loss reporting and a funnel development standpoint. From there, you can work with your sales leader to pinpoint what's really going on, low prospecting, and net new funnel activity. Well, is it product related? What do we need to do there? Is there not enough stories to tell our customers and our prospects? Maybe it's time to run a spiff to tell a new product is coming out. So until you have new stories to tell. Close ratio is dropping. Well, what's going on in loss reporting? What are we going to do about that? How do we fix that? are we losing to competition and functionality? Has has marketing market pricing changed? Well, how do we feed that data back into the product management lifecycle?
In each of these cases of underperformance, we need to dig in as leaders into the sales process and the metrics and have your leadership work with ops product, enter Dev, to help breach the chasm and make sure that the short term steps to ensure your revenue streams are solid. Now, through this exercise, you will see if your leaders doing their job. And if you do find that there's a lack of adherence to process, lack of leadership of the team or lack of understanding, you can tackle those with the sales leader and if needed, make a difficult decision to get that business back onto a successful path by making a change. But overall, as leader, you've got to dig into the numbers. You got to dig a little process, you've got to dig into the people to do it. Changing leaders abruptly can be very disruptive, and it can cause you to lose sales reps if these well loved or if that person's well loved. And that could really have detrimental issues to your revenue streams. So I would encourage any sales leader to dig in and know the numbers of the business and know the reasons of what's going on and why they're losing. They will help you make the decision of what you need to do.
How about if we go a little more junior in the sales organization, one of the roles that we cycled through pretty often is the BDR, or the SDR business or sales development Rep. Folks who generally fulfill the lead generation role that was one of our highest turnover roles in the entire company. And that's pretty consistent across a number of businesses that I have first or second degree knowledge of so in your experience, do CEOs just have to accept that BDR is a high turn role and just kind of make peace with it? Or are there ways to kind of minimize churn that you've seen that are particularly effective?
In this rap, you know, and I love the BDR role, I love the BDR SDR role, but it's a cauldron. That's the whole point of it. You're going to it's a cauldron that helps distill, you know, who has the mental fortitude to be successful in sales. Who has the skills who has the, the drive the ambition, it's not for everyone. Some people think they might have it. And but this is a great way to check and to test that out. So I do think that attrition is part of the process. And I believe apo route is, is pretty fair for the for the SDR BDR role. But that's why it's really important to have great training and an onboarding process for the BDR role, because it limits the risk, and it lowers the high attrition, or lowers your attrition by speeding up time to epitaxy and keeping your funnel fat. So yes, you're going to get attrition in the BDR role. But the way you lower that is ensuring that you have good great training and a great onboarding process for this BDRs and SDRs. And then attitude and perseverance will take over from there.
What about sales more broadly, because relatively relative to other departments in any given organization, there is, perhaps it's a stereotype perhaps it's reality that sales is a higher turnover department relative to others. So does that have to be true in your experience? If not, are there any retention practices or tools that you've seen that are particularly effective?
Yeah. So again, many, many conversations that I've had. Absolutely not sales does not need to be a high turnover area. Now, the I had many long winded conversations with CEOs and CEO colleagues of mine about this. And for the most part, sales reps that have more time and see, and have the constituent attitude are far higher performers. It's because they've taken time to hone their skills, they get really deep understanding of the product solutions and the industries that they're selling into. That's what makes them amazing resources for the company. So if you keep your compensation plans in check, while ensuring a strong funnel of new product and marketing activity, your salespeople will not [inaudible], if you keep them fit with new product, a fair compensation, they're going to stay, and they're going to do their job, they're gonna do it really well, regardless of being approached for attractive roles by the outside.
But as you start your sales process and your sales practice, you're going to have higher turnover as an SMB, because you still got to, you've got to learn a lot about your sales people your process and who your customers are, who you're selling to. There's a lot of tools out there. I've used some called predictive index, and it's a benchmarking tool for reps that you can onboard. And it gives you an idea you find, essentially find what say, a pro or the best people and you make them the benchmark, and then you benchmark everyone else against that. And it's been a tool that's worked very, very well for me. But overall, if you are compensated well, and you've got a strong funnel of activity from a product perspective, and you treat your reps with respect, it does not have to be tied turnover, at least in involuntary turnover. There's always going to be voluntary turnover where you want them gone. But from an involuntary standpoint. It doesn't have to be.
So what advice would you give to let's say there's a VP of Sales who's running what's call it four to 10 reps? Yeah. The reps are free, because of the reps are frustrated because of things outside of the leaders control. So let's say they're saying we're not getting the leads that we depend on for marketing or we haven't had a new product release in x months, so we have nothing new to sell. So more broadly, their reps are frustrated because of things outside of the control of the sales leader, what advice would you have for that sales leader?
Stay close to your reps, make sure you're communicating a lot with them. It's during these times that they want a venue to to to vent their frustrations about what's going on. And if they don't have a spot to vent or, and have a leader that understands. And as a leader, you've got to bridge the gap between A, being an advocate for your team, but also B, being an advocate and as a leader for the overall organization. So you got to thread the needle here, which is reps as well ops is not doing the job in marketing is not giving them their leads. Yes, Rep. I understand. And marketing has been a little behind. But you know, I've seen this program coming down the line that's going to help provide a lot more leads. Yes, operations I know they had x and maybe we've had some issues here. But B, we've taken these immediate steps to fix it. Again, it comes down to communication, to let them know that, hey, things aren't just being things aren't just happening and things aren't being left out to dry, or they're not being fixed. They're being addressed. We're working on it, and we'll get through it. It's when reps are not heard. And they feel that they're not being communicated to is when they do feel they become alienated. And that's when you'll get involuntary turnover.
That's actually a pretty good segue into the next group of questions that our CEOs wanted answers. And it's about supporting functions. So not necessarily sales reps, but functions that kind of support the sales team more broadly. And the first one that comes to mind is marketing, right, for obvious reasons. In my experience, when we had a strong link it was extremely powerful. And when we didn't have a strong link, it was extremely detrimental. So can you talk about that link between sales and marketing? And in your experience, are there some best practices to making this link as seamless as possible?
Yeah. So I think that a lot of CEOs are finally getting this. And this bifurcation of millennial head of marketing and head of sales. I think that's, I think that's an old way of thinking. And we're seeing this manifest itself in the increase of CR role CR o roles, or chief Commercial Officer roles out there that are being implemented across many industries. Sales and marketing needs to be working in concert, with the end goal being customer delight and profitable revenue. When you both groups under one functional head, you get a much better alignment of programs, activities, no outcomes. And it's not to say that a CEO couldn't do this with their constituent marketing and sales leaders. But when you have a CR o or head of sales and marketing, I believe you see better team cohesion of effort and direction, CEOs are often far too busy doing CEO activities. And on the flip side, I've seen it where sales leadership is expecting say an increase in qualified MQLs, but the head of marketing thinks it's time to build the brand, and not focus on shorter term goals. Now both activities ultimately result in more revenues, but not necessarily the same timeframe that they both wish. So this creates friction and finger pointing that can be avoided by you know, driving deeper understanding of the team's goals by having one single leader. I'm a strong advocate of a CRO role that has sales and marketing underneath it. It decreases confusion, it increases communication, and ensures everyone's driving towards the same goals as a team.
What about for companies that are smaller on the scale, and let's say are resource constrained, and they have the capital to afford a VP of sales and a VP of Marketing, but they're unsure whether or not they can afford to bring in a layer on top of them as a CIO? What advice would you have to CEOs who might say to that, hey, that's great for big companies, but I can't afford a CRO what what counsel would you give to the CEO who says that?
I might get my head bit off for this. But I would say that the marketing, for SMBs you're never going to have an SMB that is marketing driven. They're just not big enough to have the presence of brand. That marketing is this all consuming function. They're not an Apple. They're not a Microsoft, they're not a Tesla. In that case, I would actually have marketing into a sales leader, or I call it a convert commercial leader or a revenue leader. Because that way you're going in the same direction. And look, it's revenue, we're trying to do revenue, we're trying to get revenue. And we want to make sure everyone's aligned. And then you've got one throat to choke as a CEO. And you say, look, we've got a head of marketing that is underneath sales, but sales is responsible for the overall health of the business from a revenue perspective. Well, they're going to make sure that that's that everyone's working in concert that the programs, the campaigning that's going on is driving the right level activity and the right level of conversions and leads into the sales reps hands. If you have two sides of this, then you're going to get fingerpointing. At least when you have one group, there's no finger pointing. Marketing, saying, I'm handing over great leads and sales saying you're not handing over great leads, you're handing over the you know, the crappy leads, I want the Glengarry leads. But in the end, if you have them under one group, they're going to work more as a team as opposed to working against each other. And so for smaller I subsume one or the other.
Speaking of leads, one thing that we experimented with, and candidly, we didn't really do a good job of it is external lead generation, whether it's onshore or offshore, these are, you know, people outside of the company that we engage for lead gen purposes. So in your experience, I guess two part question, can external lead gen, as a function can that work? And more broadly, as a sales leader? How do you think about outsourcing certain sales functions versus keeping them in house?
Yeah, I've seen a lot of this before. And I've done it myself, as well, in some cases, quite successful, in some cases, not so successfully. But I do believe in in house resourcing, there's a level of commitment and understanding and understanding the voice of the customer, and the trust that you'll get as an end product. It's what you need to be successful, not to mention the level of effort and liaising with outside vendors and the broken telephone of specs and floor turnaround times. For simple activities, I've seen just far too much that. SMBs don't have the luxury of having all the needed skill sets in house to accomplish these goals in many cases. Let's take example. I say this, because you know, this is the the other side of it where you might need it. Let's take example of standing a website or a landing page, in this case, marketing might not have the necessary skills to do so. Well, maybe that's a perfect opportunity to vendor, but I like to be self sufficient. I like to have the people in house trained to be part of the team. I don't like the broken telephone. I don't like to do that. So I've had some success, but I prefer in house. And I've sometimes might be I might be swimming against the crowd on this one. But I've just always had better success with with my own resources.
Does the complexity of the product matter? So for example, the software that we sold was pretty complicated enterprise software, even to explain it to a customer. You really needed to know what you were talking about. And as a result, we really fumbled the external lead gen. It just it just those folks, no matter how much we train them, because they weren't under our roof, they weren't sufficiently knowledgeable to pitch the benefits or candidly like, are they smart enough to answer a hard question? But if you're selling, I don't know, gutter cleaning services, that's pretty easy to understand. Does the complexity of the product dictate the probability of success in an external lead gen context?
Yeah, that's a that's a fantastic point, Steve. And I can tell you examples where, you know, I've worked with companies like market star before we've done major rollouts of products, very simple products, handsets or phones and things like that, and people that very simply to understand products. In those cases, when you need to get scale, go third party, it's a really great idea. And it makes a lot of sense to do the gutter cleaning another one, I clean your gutters, and we can do this. And we know how to do lead gen here. But when it comes to enterprise software, and that's where most of these SMBs we talk about, you know, in my world, at least enterprise software, SaaS businesses, the value proposition, the software, the solution is complex, but it's compelling. And to tell that story properly, you've got to understand it. You've got to understand the pains of the customer. You've got to understand the industry. You've got to understand the product and how it applies to the pains, to derive that ROI in every single conversation you have. And you're just not going to get that with the outside resources. And that's why I like inside resources.
Yeah, I remember, as a CEO, it's very tempting the external lead gen, because a lot of them have a pay per lead model. So their value prop to you is, hey, you're only going to pay us for the leads that we actually generate for you. And that's ultimately in part, I think, what sucked us in. But I think what we fail to realize is this, in my experience, very tight correlation between probability of success and the correlated. Let's move on to another supporting function, if I can call it that this rule of sales ops or revenue Ops, we made a sales up there. And thankfully, it was a fantastic hire, it was hugely impactful for us. Can you talk about what role does sales ops play in a sales organization? And like, how does the CEO know whether they need it or not?
Yeah, I'm a huge believer in sales operations. Sales operations, is in many cases the glue that keeps things together in an organization, it's an easy touch point for frustrated remote reps. That allows them to get back to selling and not resolving various issues sales ops is, is the center of sales reporting as well, and should be the order of sales process augmentation and upkeep. I think far too many sales leaders wait too long before they bring on sales operations. And if you think about it, from a true ROI standpoint, it only takes one effort a year by sales operations to earn their keep, either by saving a customer, adding a customer or finding efficiencies and process to pay for ourselves. And I've seen this played out many times before. And I'm a huge supporter of strong sales operations early on in companies, because it will help with strong growth trajectories.
How about more broadly, right? So there's a lot of kind of support functions, you could add. It could be sales ups, it could be pre sales engineers, it could be BDRs and SDRs. Yeah, I guess, at a broad level, how do you think about like when is the time as an organization is scaling to bring these, quote, support functions into the fold?
Yeah, this is when you have to start to have a level of discipline as a leader, as leaders of the organization. Because these are business case based decisions. These are not like gut decisions, hey, let's go hire some SDRs. Let's go hire an SE. And but you've got to start making business case based decisions, you have to ask yourself each rule, will that body provide normally more in return than they cost? It sounds simple. Because, you know, quantifying soft returns from an admin early is complicated. And it's why many SMEs wait far too long to do. And the case of sales operations, person masks, okay, due to a failed process or lost orders, what was the impact to the business? Did I lose one order in this year? Did they lose five orders? Did five get delayed because of processing issues? Are we improperly allocating losses to do due to old processes? You know, what's the cost of that? The same internal conversation could be had for BDRs, you know, what's my current CAC on leads for my reps? am I paying 80k base and they're spending 80k base reps 30% of their time to do cold calling versus a BDR at 40k. Can I increase my revenue, if I hire say, two BDRs but give back time selling to my AEEs, that will but I can increase their targets by 40%. Know also, also these are all business cases, you got to do this same exercise for each of the rules. And a CEO sometimes can be shocked and we can all be shocked to understand that these issues go on accounted for and by adding operations or overlay rules, you can actually increase your effectiveness, reduce your CAC and help the growth trajectory organization much faster if you make the decision earlier. But again, back to a business case based decision. As leadership, we've got to dig in and understand the processes the people and the the outcomes to make these decisions. And I would encourage every senior to do that.
This is something that actually you and I kind of talked through a little bit when we were working directly with each other, which is this idea of when do you know it's time to truly scale a sales team. So for example, when companies raise let's say growth equity, I mean the point of growth equity is to spend it right otherwise is not really for you. And so investors, like CEOs are always looking for how do I find a company where all I need to do is hire a bunch more sales people. And simply by doing so we can grow the business. So some some things that, you know, I've seen that they look for is if the lifetime value of your customer exceeds the cost of acquiring that customer by some number, let's say two X, three X or more. Then, you pour more salespeople on that fire, or if you know, on average, all of your sales people are paying for themselves by you know, two X or three X, or whatever, then you throw more salespeople at it. Broadly speaking, how do you know when it's time to truly scale a team and add headcount in pursuit of that growth?
Yeah, I wish it was just as simple as every investor wants it to be? Well, look, you're doing great, let's just add more money into the product into it and hire more reps and double or triple sales. It's never, never that easy. In many cases, it's a question of capacity. And much of this is managed by good sales process back to making sure you have a good sales process. If you do, you'll be able to understand these metrics. Let me give you some examples. If say, for example, you have a sales team, and they're easily consuming all of their leads. And prospecting number of new local deals and revenues continues to grow, while your loss reporting remains constant or down, then you may still be in a good spot. I like to dig into loss reporting and understand what's going on, for example, if I have a sales rep that is consuming leads, but the leads are sitting in the process for too long, and your sales velocities dropping? What does that mean? They don't have enough time. But this rep is actually hitting their numbers, still, maybe this reps not spending enough time on these sales opportunities, and they're they're going stagnant? Well, maybe that's the time that you want to hire somebody new. Are your MQLs sitting in the amkco stage too long, are they not being followed up?
Maybe your reps are fully tasked, well, then that's another indication are smaller deals sitting idle, you know, maybe you've got a hot 1000 bucks as opposed to the $100,000 deal. Well, does your sales rep sales reps now cherry picking the deals, and they're only taking the big ones, because that will make the quarter better? Doesn't mean the $5,000 revenue deals not a good deal. But still 5000 revenue and a new logo customer and you want it picked up? Well, in that case, you know, your bread and butter deals are just as important. And you need to have those adjudicated and move through the sales cycle. So you have to look at your metrics and your metrics will tell the story is you're going back to the is your sales velocity slowing down our deals going untouched? What are your success metrics for moving deals through the funnel, and those have to be established. And when you establish them, and you know them, you can tell when your reps are either or they're losing too much. They're spending too much time on or not enough time on sales cycles that are quality. And then you can figure out when it's time to increase your sales and increase your marketing.
How so moving on to perhaps the more general questions, I got this question a few times this concept of like how involved should a CEO be in sales in a small to medium sized business? I mean, presumably they're not picking up the phone and cold calling doing lead generation. But they certainly on the opposite side of the spectrum can't be completely blind to it. So I guess one of the types of things that CEOs should know intimately the types of things that they should be intimately involved with, versus the things that don't necessarily and shouldn't fall under their purview?
A CEO is always the number one salesperson in organization, especially early on, you're the strongeest advocate. Many times the founder, who's better to close a deal who's better than an in person to get intimately involved with every aspect of the. So let me go back for a second. Who knows the business better than a CEO, who knows the value to the customer better than the CEO. Pay prospective customers that do businesses with smaller organizations want to know that they're going to get taken care of, they want to know that they're going to get special treatment from this smaller businesses, why they're doing business with a smaller business. What better way to get and show a white glove approach than to say have your CEO personally invested in the success of that organization and being involved in that sales cycle. So I can't undersell or under tell how important it is for CEOs to be part of sales cycles that are important to the business. Nobody has the vigor for a founder, CEO or a CEO, in relating to a customer what this product or what this solution can do for your business. So I would tell every CEO, get out from behind your desk and get in front of customers, you'll learn a lot, you'll add value from a revenue perspective, you'll understand what your sales reps doing, you'll listen to your customers. And they should be involved early on in many sales cycles.
One thing that we struggled with actually quite a bit, particularly when we were building our sales group from effectively scratch is this concept of when and how to specialize. So I remember a number of years ago, I read this book called Predictable Revenue was by Karen Ross and Mary Lou Tyler. And is a great book and the crux of the argument is that they make Is there a high returns to specializing between account executives, which are folks that go after new business and account managers, which are folks that kind of farm existing customers? What we struggled with is, if you have a team of three, you know, do you specialize? It's easy to specialize if you have a team of 10 or 15. But how do you think about kind of dedicated hunters versus dedicated farmers? Particularly if you've got a small team? Do you specialize, how do you think about that?
Yeah, it's a tough question. And I've been asked it many, many times. And it's dependent on a lot of factors, for example, do you do direct or channel sales? Are your typical customers very large? Or is this a high velocity business? Are you regions global, or regionally dispersed? Is this an inside sales team, all of these factors will add into the discussion of, you know, when to bifurcate your team. I'd say early on, though, that you need to focus on new logos. And because they're the lifeblood of lifeblood of a global growth organization, you need to focus less on am with a smaller amount of accounts, an existing eight year rep can handle existing accounts. And he was marketing's help, they can communicate effectively with existing customers. So early on, I'd say stick with a single rule. But I do believe in splitting roles at a certain time. And it's comes at a different inflection point for each company, based on the criteria we were just talking about, it's early on single point, as you get a little bigger bifurcate. But you have to really weigh in candle, customer type, how many customers, time spent, and ensuring you've got enough net new activity coming in.
That makes total sense. One of the things that we did reasonably early that was pretty powerful was this concept of dashboarding. And it's very kind of intuitive. But what we came to realize, which sounds very obvious in retrospect is different players need different types of dashboards. So the dashboard that maybe a sales rep looks at every day is probably different from the dashboard that the VP of Sales looks at every day, which may in turn be different than the dashboard that the CEO looks at every day. So if I'm a CEO of small, medium sized business, and I've got a dashboard that I like to look at, and I'm going to make this extra hard on you, and I can only have five or 10 metrics on it, no more than that. And in your experience, what should those metrics be? And of course, different businesses, different revenue models kind of necessitate different metrics, but maybe at as general level as you can, you're only allowed to put less than a dozen metrics, what are the ones that you're putting on yours?
Alright, I'll try and do this in a genericized version, because everyone uses different nomenclature and terminology. So I'll try and make this generic going down the list. If you forced me, I'd say number one is new sales qualified funnel activity by time slice. So how much new activities coming in on a same monthly basis? I'd say new marketing qualified sales activity by time slice again, how much new marketing activity is coming in on a monthly basis? I want conversion rate between sales to marketing and then there's multiple levels in that, it can be one level, but you know, what are your conversion rates? Why are they converting higher? Why are they converting more? sales velocity and close ratios? I want sales velocity to understand, you know, what if deals are sitting stagnant? Why are they sitting stagnant? If they're closing fast? Why are they closing fast? And close ratios? What am I close ratios on deals that become for lack of a better term and SQL? Why are they closing higher? Why are they closing more?
As time goes on your close ratios may go up and they may go down, you get better and your sales reps get more experienced close ratios will go down as your for example, there's new competition and new pricing out there, you can experience it, your close ratios will go up, you know, 10 to 11 to one as opposed to three to one or four to one. I want to make sure I'm looking at churn rate for SaaS businesses. Number one, you can't have it coming in the front door, and leaving out the back door two days later. So set churn is super, super important. And the kind of the getting down to a couple of smaller ones CAC cost of acquisition for marketing spend on closed revenue. Are you spending effectively are you spending on things that are bringing value to the organization? Depending on company size, and that's SMB wise, is it a $1 million company is a $10 million company, new versus existing business? Are your reps just going out and farming your existing customers? Or you making sure that you've got new logos coming in on a monthly basis?
And that can actually be linked to your new sales activity? You want to know how much is new versus how much is existing? And of course, close revenue by time slice, how much new revenue every single month or quarter are you bringing in on the on a monthly basis. So those are the ones that if you held my feet to the fire, I'd be sane. Now other ones, I like to look at detailed loss reporting, you can't under underestimate the value of loss reporting early on in business, because small businesses can pivot quickly. And I can say, Hey, I'm losing over here. Well, we need to do X over the product to mitigate these losses and bring X dollars, the loss reporting is super, super important. As you get bigger, you know, customer NPS to ensure you're not churning, are you finding out why you're churning? And then of course, when you get bigger, deeper marketing analytics, Google Analytics, click through and things like that, as opposed to more generic, you know, CAC for marketing.
That's great. Yeah. And I recognize that that's, as I was asking it, I knew it was an unfair question to ask, but I had to ask it anyways.
it's a great question. It's asked a lot of many CEOs. So it's a good question to ask.
So Dave, let's move to a few, excuse me concluding questions. And these are questions that I like to ask everybody that I speak to, specific to sales, are there any resources that come to mind, whether it's books, people should read, blogs that we should follow? Tools maybe in your sales, tech stack that you used, that CEO should familiarize themselves with? Are there any kind of must reads or must follows?
Again, everyone talks about have you read the most recent book, have you read the most recent book, and I try and keep up as best as I can. And invariably, they all the books end up being about the same, the same thing. They're all very similar with different challenges, or different changes and different permutations. A couple of books I really like number one is, and it's an older book, but it's still a bit of a Bible for me. And that's called Solution Selling by Michael Bosworth. And it's about the creating pain in tough selling situations. How do you create pain for a customer then when a customer doesn't even know they have pain, I love that book. It's always grounded me, when it comes back to every sales cycle I get into. I really enjoyed the challenger sale recently with a couple years old, but it's been about how you challenge a customer differently and how you challenge them to make a decision.
Target accounts selling for large deals, if you've ever there's lots of these tazz books out there about how you manage larger sales cycles how you find the right people inside an organization I've always liked that. It these are all cornerstones to building a good sales process. I encourage you all to read them and and and take what you want the Golden Nugget out of each and build your own sales process. from other part, I do a lot of reading. There's lots of great websites and clips out there. It's hard to focus on on any single one. There's lots of great algorithms I've found, CAC calculations, lots of great benchmarking tools and blogs and industry and sales blogs. LinkedIn has got a lot of really great courses online that are free. There is a lot of great content out there, it's hard to really distill what's the best you're gonna have to eat a couple of sour oranges to get a couple of really good ones and that's what worked for me.
I would say for anybody out there that is new, and or starting a business and is starting up sales organization. Don't just real high end surfing the web. Get yourself a good mentor. bring somebody in from the outside and help them. These people have done this if they built organizations, you're going to avoid stepping in a lot of potholes by having somebody that really understands sales process and what it takes to build a high culture, high velocity sales organization. Find somebody. ask your colleagues, ask your friends, have you worked with somebody or they might not have had been a rent mentor before, they've never been mention before. But they built and know what it takes to build a sales organization. And guess what, if they're passionate about what they do, they'll be happy to help.
And in fact, that's how I found you. We had worked together formally when I was running my company. And the way that we got connected is, through me staying connected with my universe of peers, of CEOs and business owners, and essentially asking them, Hey, who is who's hired an effective revenue coach. And I was referred to you. And coaching wasn't necessarily something that you did as your you know, primary occupation, but it was something that you did on the side, just because you were kind of passionate about doing it. So another piece of advice that I would give to complement what you just said is for CEOs and business owners, find yourself a community of other CEOs and business owners, because these are the folks who have scaled the mountains, that you are trying to scale or maybe simultaneously trying to scale the same mountain as you are. And there's nothing more informative than actual lived experience of people who are going through very similar challenges to you.
It doesn't matter what your experience level is deep today, right now, I'm building another new sales organization. And I still have that same self doubt, I still have the same questions of my own abilities about is this the right path? Is this what I should be doing? And is this the right structure I should build for this organization. But when I go, when I talk to my community of colleagues, and former employees or former bosses or or former, whoever it may be, what great resources to have to have, they're not afraid to tell you how you're going to rate the way or this one's not the right path. The best decisions are decisions made by a group of people and not in isolation, and you're gonna have self doubt, you're gonna ask questions of yourself. So don't be afraid to surround yourself with a group of people that are there to help out and don't be afraid to ask people are willing to help.
Such an important message, especially for younger CEOs. I've mentioned in one of my blogs, how I suffered from something called imposter syndrome, which is feelings of self doubt, despite external evidence of success. And, interestingly enough of all the links that I've posted on all of my blogs, the link that has been clicked on most frequently by a factor of about five X, is an article that I posted about how to overcome imposter syndrome. And I think the lesson there is that regardless of how knowledgeable you are, how experienced you are, you look at a guy like you, Dave, who's built more sales organizations than I can count on two hands, even people like you have self doubts about the things that you're most knowledgeable about. And so especially for new CEOs, not only is it okay to have these questions and doubts, it's extremely normal. And one of the best ways to deal with it is to not deal with it by yourself. Charlie Munger, who is Warren Buffett's partner at Berkshire Hathaway often says, the most expensive lessons you can learn are the lessons that you learn from your own firsthand experience, you'd be much better off learning from the mistakes that other people make, and just don't make them yourself. And I think that's a really, really important point for CEOs, maybe leaders of sales teams who just got promoted into a VP role or feeling a bit of imposter syndrome themselves. You don't get any extra points by doing it by yourself. You don't get any points deducted because you called someone and asked them what they did in a similar situation. So something I wanted to underline is incredibly important point.
A healthy level of self doubt, is one of the most powerful tools any leader of any organization can harness without a doubt.
So I think this is a great way for us to conclude with with one final question that I would like to ask, if you could scream something from from the proverbial mountaintops and hypothetically, every CEO of every small medium sized business in the world could hear what you're screaming, what would you say?
Sales don't just happen, you're not going to walk in and things aren't just gonna magically happen. It's a science and it's a process. Don't bet your company's growth on platitudes, and bravado. Make sure you measure your efforts. And it's never too early to put in a process, a really strong one. Live by the process. If you do that, you will do well and you'll understand your business, your managing metrics and your revenue.
Process, process, process. Perfect way to end. Dave, thank you so much for your time. I really appreciate it.