Driven newsletter archive
Issue 19. February 22, 2020
Sales & marketing window dressing? | Performance & pay for account execs & sales leaders
If you missed last Sunday’s issue of Driven, today’s arrival on Saturday will likely surprise you.
As I wrote last week, Saturday morning (10:00 a.m. EST) is the new publication schedule for your weekly Driven emails.
The schedule change comes at the suggestion of reader “H.S.”
As a busy CEO and SaaS founder, H.S. said he wants more time over the weekend to digest his new issue of Driven.
He’d like to do so before he prepares for his hectic work week starting Sunday evening.
I imagine you may be in the same boat, so I made the change. I hope it works for you.
Is Driven more about sales or marketing?
Another reader, “J S,” suggested it may be a good idea to segment Driven’s content by sales- and marketing-related topics.
He said Driven’s weekly careening between sales and marketing topics has disoriented him.
“Is Driven mainly for sales leaders or marketing leaders?” he asked
I explained to J.S. why I’ve resisted that segmentation.
In my view, many sales and marketing leaders in B2B SaaS tend to focus too narrowly on their own discipline.
Many think it’s best for them to “stay in their lane.” Maybe their CEO, a board member, or a colleague has suggested they do so.
Look beyond your lane
Such self-imposed restrictions are passé. And worse, they’re dangerous.
In today’s highly competitive B2B SasS environment, those who think of themselves mainly as salespeople must understand more about marketing. Those who think of themselves as marketers must understand more about selling.
Both must understand more about Customer Success and Product Management.
And all revenue leaders—including C-Suite executives, founders, board members, and investors—must understand the customer.
You can help your company achieve outstanding revenue growth. You can achieve great personal and career growth. And both will happen only when you coordinate and align your company’s revenue operations across subdisciplines.
You can’t achieve all that by limiting your thinking only to your lane.
My hope and ambition for Driven is to expose you to all facets of effective revenue management. Your Saturday read may be one of the few sources that does so.
More consistent balance between sales and marketing topics
J.S. raised another important point I’ve taken to heart.
In future issues of Driven, you’ll reliably see one article that’s mainly about sales or selling. You’ll see another that’s mainly about marketing. You should experience less lurching back and forth between sales and marketing from one issue to the next.
Driven will also cover Customer Success and Product Management when I have worthwhile insights to share.
Repeat after me: One. Revenue. Team.
What to expect in this issue
Speaking of coordination between Sales and Marketing, this issue leads with unexpected insights from recent survey research.
The research suggests that effective cooperation between Sales and Marketing isn’t likely to be what you may think it is.
We look at these topics, in order:
- How well do your Sales and Marketing teams work together? Wait, not so fast…
- How top-performing SaaS companies manage their account executives
Your reading time this week is about 13 minutes.
SALES | MARKETING | COOPERATION | ALIGNMENT | PERFORMANCE |
RESEARCH | SURVEYS
How well do your Sales and Marketing teams work together? Wait, not so fast…
You’ll probably say your company’s Sales and Marketing teams work together well. And chances are good that you’ll say so even if it’s not entirely true.
Am I calling you a liar?
Of course not.
But a new research report suggests you may not know what effective cooperation looks like.
About 95% of Sales and Marketing leaders think they work effectively with the other team. But the evidence suggests otherwise.
That insight comes from a survey and interview with 350 sales and marketing leaders. They apparently work for companies mostly in the United States.
Focus on what matters, not niceties
It’s not that so many sales and marketing leaders are clueless.
It’s more likely that they (and maybe you) focus on superficial factors that have little to do with revenue performance.
This new study, by LeadMD and Drift, tries to look beyond the elements many executives associate with good sales and marketing cooperation.
Instead, it looks for characteristics that correlate with strong growth in both pipeline and revenue. Good alignment between sales and marketing, the study posits, delivers quantifiable business growth.
Alignment delivers top revenue performance
What does sales and marketing alignment mean? The authors of the study defined it by 2 measurable factors:
- Performance (that is, growth in revenue, deal wins, and lead quality over a three-year period)
- Pipeline (growth and sustainability in predictable revenue)
Research from Linkedin says “businesses with strong sales and marketing alignment are 67% more effective at closing deals, 58% more effective at retaining customers, and they drive 208% more revenue.”
But LeadMD’s research shows that only companies that participated in specific activities achieved such positive results.
The authors of the study labeled such companies as Leaders. They call the rest Laggards.
By these metrics, what’s the correlation between objectively measured performance and self-described alignment between Sales and Marketing?
Is the rift between Sales and Marketing overstated?
It’s a common observation that Sales and Marketing rarely get along in B2B companies.
Yet this study found that leaders of both functions talk about the other in much more positive than negative terms.
Executives of Sales and Marketing say they appreciate and respect each other. They feel aligned.
In focus groups, people in Sales are far more critical of their own performance than Marketers were.
Sales executives say they appreciate the power of branding, at least if it helps drive leads and close deals.
Marketing leaders respect the challenges of salespeople and speak of them in positive terms.
But a feeling of alignment does not correlate with better pipeline generation or revenue performance, the study found.
Performance lags in most companies where revenue leaders said Sales and Marketing are well or very well aligned.
Why the disconnect?
Less than 5% of Sales and Marketing executives report poor alignment.
Of 156 sales executives, not one believes (or at least says) they are anything less than moderately aligned with Marketing.
But of the respondents who said they were “‘very well aligned” or “well aligned,” 60% work in companies that experienced negative performance and pipeline growth.
What many revenue leaders get wrong
Common solutions to align Sales and Marketing are not effective, the study found.
One popular idea is to put a chief revenue officer (CRO) in charge of both Sales and Marketing. But organizations with a CRO over both functions show no significant improvement in performance or pipeline.
Another idea is for Sales and Marketing to cooperate in producing collateral.
But it makes little difference to a company’s performance whether Sales or Marketing creates sales collateral.
Should Sales or Marketing owned responsibility for the company website?
Again, it made no difference in reported alignment or results.
What about alignment on KPIs and metrics?
Respondents rated their organizations as being well aligned based on many factors.
Among the top 5 alignment factors, sales and marketing shared the same KPIs.
The KPIs executives cited most commonly were these:
- Sales-generated leads
- Revenue or bookings from customers
- Marketing-generated leads
- Volume of opportunities
- Profit margin
But alignment on these KPIs showed little correlation with company performance, the survey found.
Joint KPIs are not enough to improve business results.
Laggards also say they focus on KPIs. The study found they do so disproportionately.
What top-performing companies do differently
Focus on the customer is key to success. More than half (52%) of the Leaders visit customers together at least once a quarter.
Leaders take deliberate actions to foster the internal relationship between Marketing and Sales. They emphasize getting their teams together both physically and conceptually.
The part about relationship building is no surprise. It’s consistent with conventional ideas about alignment.
Leaders are more likely than Laggards to create budgets and manage spending jointly (43% for Leaders vs. 34% for Laggards.
Leaders are more likely to conduct account planning and targeting jointly (68% for leaders vs. 54% for Laggards)
Leaders are better aligned in their use of technology and data
Compared to Leaders, Laggards reported more disjointed use of technology between Sales and Marketing:
- Ownership of their measurement or attribution tools was unclear.
- Marketing solely owned account and contact data, with no input from Sales.
- Ownership of sales automation is unclear.
- Sales owns lead routing, with no input from Marketing
New assessment tool may help improve revenue performance
The creators of the study have created a tool they call the Sales and Marketing Meaningful Alignment Index (SMAX).
The goals of SMAX are..
- To assess sales and marketing alignment objectively at individual companies.
- To recommend actions that will improve revenue performance.
The tool enables participants to plot their Sales and Marketing alignment against a benchmark backed by research. So says Andrea Lechner-Becker, chief marketing officer at Lead MD.
“It’s a series of data points that we plot against our regression,” she says. “This gives us the explicit things folks can do to improve.”
What the study may get wrong
I suggest you review this study (and all others) with both interest and skepticism.
This one appears to be well run and well reported.
Let’s remember, correlation is not causation. The study found factors that correlate with above-average revenue performance, but they may not cause it.
The study starts by identifying top-performing businesses. It then looks for Sales and Marketing factors that correlate to strong performance.
The study cites several correlations that are not strong, so it would be a logical leap to draw conclusions from them.
Be alert for selection bias
Selection bias occurs when we cite only the evidence that confirms the points we want to make. It may cause us to miss or intentionally disregard other elements that contradict our findings.
This study didn’t consider many other factors that may correlate just as strongly with good revenue performance.
It’s conceivable (though not likely) that companies could perform well even without what the authors define as good sales and marketing alignment.
Other factors not studied here may contribute even more to outstanding revenue growth.
The report’s implications should surprise no one who reads many research studies from vendors.
The report implies you can improve your company’s performance by using the sponsors’ solutions.
Such reports invariably point toward the strengths of the vendor’s solution. They never hint at a solution’s inevitable weaknesses or limitations.
Research for the study occurred online in Q3 2019. The study surveyed sales and marketing executives with the title of director and above. It also surveyed leaders with and ownership of both sales and marketing functions.
About two thirds of respondents were at the level of EVP, SVP, or C-level.
A total of 350 people responded to 33 questions. More than a quarter (26%) were responsible for marketing, 44% for sales, and 30% for both marketing and sales.
The study doesn’t say how many companies responded or the countries where they’re located.
About 10% of respondents were in information technology. Companies ranged in size from $25 million to $50 billion in annual revenue.
- Just because your Sales and Marketing teams feel well aligned, the two organizations are not necessarily doing the most important things to improve revenue performance.
- The keys to productive alignment are…
- Focus on the customer and joint customer-focused KPIs
- Visit customers together at least once a quarter
- Participate in joint budgeting and planning
- Plan and target accounts jointly.
- Use data and technology cooperatively and consistently across the revenue team.
One thing you can do now
Find your SMAX survey here and fill it out for a free assessment.
The LeadMD Sales and Marketing Alignment Survey: Benchmarking and Insights Report. February 2020. Sponsored by LeadMD and Drift. [Downloadable PDF. 36 pages. No charge.]
SALES | MANAGEMENT | OPERATIONS | ADMINISTRATION | COMPENSATION | RESEARCH | ORGANIZATION
How top-performing SaaS companies manage their account executives
Here’s food for thought for any leader in sales or sales operations in a SaaS company:
- Are you paying your account executives enough for a company your size?
- What should their annual quotas be, considering your average contract value (ACV)?
- What’s a typical turnover rate for sales reps in a company like yours?
- How long does it take to ramp a sales rep to full productivity?
- What percentage of an account executive’s sales pipe can you expect marketing to deliver?
- And what percentage of an account executive’s pipeline might sales development reps (SDRs) deliver?
You’ll find answers to these questions and more in a just-released survey report from The Bridge Group. And you’ll find highlights of survey results here.
Must-read material for sales leaders and sales reps
If you’re a leader in sales or revenue management in North America, this comprehensive document is essential reading.
What if you’re a sales rep or an SDR? The document provides good insights about where you stand compared to your peers in companies of similar size.
You can download this trove of great information at no charge.
The report analyzes responses from 287 B2B SaaS companies, of which 87% have headquarters in North America.
It’s well done and clearly presented. It provides a ton of information that’s both interesting and useful.
How management of AEs varies with a company’s revenue performance
This year’s survey showed how responses differed between what The Bridge Group called “high-growth” and other companies..
Data analysts sorted responses into categories based on company growth rates and annual revenue. They used the numbers respondents shared about their company.
Analysts first created a series of bands for annual revenue. Within the revenue bands, they then arranged companies by their growth rate.
The process yielded a list of faster- and slower-growing companies at each level of annual revenue.
They designated as high growth the companies that appear in top quintile (or the highest 20%) of each revenue band.
They labeled as laggards the companies in the bottom quintile (lowest 20%) for each revenue band.
Growth rates–measured in percentages–were, as expected, much higher for companies with lower annual revenue.
How much experience do companies require of newly hired AEs?
How much experience do SaaS companies require when they hire account executives?
The average experience prior to hire is now 3.0 years. This is up from the average of 2.6 years in 2017.
About two-fifths (42%) of companies now require more than 3 years of experience.
That’s an increase of 60% from 2012.
It’s interesting that high-growth companies require 18% less experience, on average, than laggards.
Companies require more experience as their annual contract value (ACV) increases.
Companies with ACVs over $100,000 require almost 2.5 times more experience than those with ACVs less than $5,000.
How long does it take to ramp a newly hired AE?
Average ramp time is 4.3 months. High-growth companies report slightly faster ramp times than laggards. Ramp times are 4.2 months versus 4.9, respectively.
Average ramp times are improving, but the survey also found an increase in the percentage of companies with average ramp time of 5 months or more.
How long do AEs stay on the job?
Average tenure for AEs is 2.5 years. The number has changed little since The Bridge Group began its annual studies.
Companies that hire more experienced reps have longer tenure on average.
How long do AEs stay after ramping to full productivity?
Study reports on a metric they call “months at productivity.”
They arrive at this number by subtracting ramp time from tenure. This gives them the number of productive months after ramping.
The study found a median of 26 months at productivity.
What are typical turnover (attrition) rates for AEs?
The study also looks at attrition rates. It considers involuntary turnover (that is, reps getting fired) and voluntary turnover (reps leaving by choice).
The survey told respondents not to count promotions and internal transfers in their calculations.
Compared to the laggards, high-growth companies have higher total turnover, higher levels of firing, and lower levels of reps leaving by choice.
(The report also benchmarks daily activity levels needed to achieve quota. I’m skipping that here.)
How big are sales quotas?
The study measured quotas for AEs in terms of average contract value (ACV) for new business.
The median quota is now $775,000.
Quotas have increased modestly since 2012, at a compound annual growth rate (CAGR) of about 3%.
About 41% of companies and annual ACV quotas of more than $900,000.
Sales teams with higher ACVs have larger quotas on average.
This is not surprising. Across all bands of ACVs, high-growth companies have higher median quotas than laggards.
How many AEs achieve their quota?
On average, 65% of reps achieve quota. This number has changed little since this series of studies began.
High-growth companies achieved an improvement of 7 percentage points in quota attainment versus laggards. The numbers are 66% versus 59%, respectively.
How much do AEs earn?
Median on-target earnings are $158,000.
Base salary and variable compensation are split 50/50.
Median on-target earnings (OTE) have been increasing for a decade.
Is that because quotas are increasing?
Quotas have increased at a CAGR of about 3% annually. But OTEs increased at double that rate (6% or more).
High-growth and laggard companies are about the same regarding on-target earnings.
Four-fifths (80%) of respondents reported OTEs of more than $100,000. About half (52%) reported OTEs of more than $140,000.
As ACVs rise, so do median OTEs.
The message to AE’s is clear. If you want to increase earnings, sell higher-priced products.
What proportion of AEs work at company headquarters?
Almost half (48%) of respondents have reps who work in the same role at different locations.
This may occur because companies add offices through mergers and acquisitions.
Companies often choose not to close the remote offices of companies they’ve bought. That’s especially likely if it’s hard to recruit and keep talent at the headquarters office.
Smart companies are thinking about remote offices to provide better access to talent.
How does AE compensation vary from office to office?
Most companies that have offices in multiple locations offer the same OTE across locations. This is true for 67% of companies.
For the remaining third of companies, changes in compensation normally correlate with changes in quota.
In other words, a company that pays AE’s 10% less in a secondary location might assign quotas that are 10% lower in that location.
What commission rates do SaaS companies pay AEs?
At 100% of quota, the median commission rate is 10% of ACV.
For renewal business. Companies typically pay commissions on renewals at the same rate as for new business. About two-thirds (37%) of companies do this. More than half (55%) pay lower commissions on renewals.
For expansion business. Most companies (85%) pay AEs at the same rate for expansion business as they do for new business.
How many AEs report to a first-line sales leader?
The median is 7 direct reports per first-line sales leader. It hasn’t changed since 2015.
As a company’s revenue increases, a first-line sales leader supports more AEs.
How much do sales leaders earn?
First-line sales managers. Compensation for first-line sales managers has stayed flat in real terms since 2015. It’s grown at a CAGR of just 2.7%
The OTE for a front-line sales leaders rises as annual contract values (ACVs) increase.
For a company with ACV in the range of $50,000 to $200,000, OTE for sales manager is $180,000.
For a company with ACV of $100,000 or more, median OTE for sales managers is $237,000.
Directors and VPs. In contrast, compensation for directors and vice presidents increased at CAGR of 5.8%.
For a director it’s now $258,000. And for a vice president, $300,000.
For a company with ACV in the range of 50,000 $200,000, OTE for a director is $258,000. For a vice president it’s $288,000.
One thing you can do now
Check your own company’s metrics against the benchmarks you see here.
Make sure your compensation is competitive so you can keep more of your top AEs at lower-than-average industry attrition rates.
SaaS AE Report: Models, Metrics, and Compensation Research. The Bridge Group. February 2020. [Downloadable PDF. 50 pages. No charge.]
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