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With downloadable apps taking over the enterprise, you’d think the days of six-figure enterprise software deals would be drawing to a close. In truth, enterprise deals are alive and well. But if users are doing the downloading, how do enterprise decision makers and purchasing managers get into the picture? The answer: Your inside sales force.
As I’ve covered previously, the route to the enterprise begins with freemium app distribution and conversion. The second phase is Inside Sales.
Inside sales are the future of enterprise sales
Just as there has been a sea change from outbound to inbound marketing, the tech industry is experiencing a similar wholesale shift from outside direct sales reps to inside sales teams. In fact, inside sales jobs are growing at 15X the rate of outside sales roles. Not only is it the future of enterprise sales, it’s also likely all you can afford at the early stages of a company’s growth.
In contrast to traditional outside sales, which is done in-person and tends to involve extensive travel and time expenditures, inside sales is professional B2B sales done remotely via phone, email and chat. It is strategic selling that requires managing a deal through a multi-stage process, multiple touch points with the customer, establishing value and an ROI for the product and supporting complex purchasing methods, like procurement departments, but importantly without visiting the customer.
This is about closing mid-sized transactions in volume – Salesforce.com was built exclusively this way during its first five years. It’s also how you move the billing relationship from a user and credit card to a company so you can grow the deal over time. Recently, there have been many examples of apps that started with a freemium product but offer compelling enterprise value that is monetized by inside sales teams, including Box, Evernote, FreshBooks and Expensify, and Jigsaw, which was acquired by Salesforce for $175 million. And across the many companies I have worked with, this is a common approach that has led to success.
The elements of an inside sales team
So how do you know if you’re ready to build an inside sales team? Truthfully, if the product is shipping it’s never too soon. A key test is the price at which you are converting free users to paid. There are a lot of apps that only charge 99 cents or $4.99 a month for the premium version. That won’t cut it – your margins won’t support a sales force. You’ll need a price point of at least $25 to $50 per user per month to validate the value of your product and make enterprise sales work. At that price or above, a workgroup of 10 to 20 users can be sold within a customer account for $5,000 to $10,000 per year. Over time, you’ll be able to increase the deal sizes through premium features like administrative functionality.
Your first inside sales team should consist of the company founder/CEO and two salespeople. My advice is not to hire an experienced VP of Sales to build your team. Instead, the founder/CEO needs to become a student of the science behind sales.
In the early stages, the founder/CEO can sell the product better than any high-priced rep or VP. That’s because emotion plays a big role in buying new technology from an unproven startup. No one creates emotion and enthusiasm like a founder. This is what you should look for in your first sales hires as well. Your first reps are likely to be a colleague or a rep with inside sales experience from other startups. They aren’t likely sitting at Oracle.
First steps and expectations
To get started, hire two reps so you can train them together and expect that one won’t make it. Your first reps should sit next to the founder/CEO, who should plan to spend time sitting in on sales calls and monitoring progress on a daily basis. Salesforce.com’s product is the gold standard for managing inside sales, but there are a number of other tools to try:
(Disclosure: The author’s company, Rembrandt Venture Partners, is an investor in InsideView and PaperShare; and the author serves on the board of Webtrends.)
This is how the founder/CEO figures out how to close mid-size deals in volume, and just like any other start-up situation it takes a lot of trial and error until you achieve traction.
The typical inside rep will make $40,000 to $60,000 per year in base salary. Including bonus, their on-target earnings (OTE) will be between $100,000 and $120,000. Check Payscale or Glassdoor for the latest figures. It’s obviously higher in places like the Bay Area, Boston and New York, but it’s important that your first reps sit down the hall from you. Over time, it will make sense to grow this function in lower-cost areas such as Salt Lake City, Austin, Seattle or Scottsdale, which are all known for having a lot of inside sales talent and experience.
Most Enterprise 2.0 startups are subscription businesses, so quotas should be tied to Annual Revenue Requirement (ARR) or Monthly Recurring Revenue (MRR) with accelerators for contract lengths greater than one year. A typical quota for your first rep is $500,000 of ARR. Over time, enterprise sales reps often settle around a $1 million quota. However, for the first six to 18 months, you should pay commissions based on the number of deals closed, regardless of size. This helps build momentum within the team and recognizes you don’t really know what deal size and volume to expect.
Even if you have a popular app that has some paid conversions, it’s not a slam-dunk that you will be able to successfully transition to inside sales. It’s possible that your product is better suited to single users rather than teams or that you’re not priced competitively compared to the perceived value.
Nevertheless, don’t get discouraged. In practice, if you can close some deals with an inside rep or two, you can sell more with more reps – the scaling is nearly linear. Once you’re really cranking at a high level, it’s probably time to deploy outside direct salespeople to sell very large deals to the largest enterprises.
