Artificial intelligence is about replacing human decision making with more sophisticated technologies. ~ Falguni Desai
Scaling a sales team to dominate a market is a solution for companies who already have achieved a product-market fit and consistently measure and optimize their conversion rates. When you know your product is right and all you need to do is reach out to more prospects and close deals, this is when you are ready to scale your sales team as much as possible to gain market share. For those companies still struggling to achieve product-market fit, the decision to pre-maturely grow their sales team can be expensive and with limited success. With the invention of sales robots, companies that are still experimenting have a lower cost option to grow a sales team that can help them identify niche markets and get feedback while still generating an ROI.
This article will show you the economics behind when you should scale your sales team and use sales robots to help you progress while still trying to find your product-market fit. We will focus on answering the following questions:
1. When do I have product-market fit?
2. When should I scale my sales team?
3. What can I do if I do not have a product-market fit, but I need to make more sales?
4. How can I get product feedback to help me achieve product-market fit?
Evolving Towards Product Market Fit
To begin, we will analyze a company in various phases of their development. We will look at a company before achieving product-market fit. This company can add more salespeople and not see a significant increase in sales, but see a considerable expense that can potentially bankrupt a company. Next, we will look at a company that is on the verge of achieving product-market-fit and can afford to grow its sales team to expand incrementally. Finally, we will look at a company that has achieved product-market fit and can scale their sales team, and gets a high return for their investment. By analyzing and understanding these three types of companies, you can identify where you are as a company and what you can do to take your company to the next level.
· Seeking Product-Market Fit: Companies that have yet to find the right features and solutions for a target market to make them a compelling purchase. These companies struggle to attract prospects, turn leads into opportunities, and close deals. The effort required to achieve their sales goal is so significant that scaling a sales force does not make financial sense.
· On the Verge Of Product-Market Fit: Companies that have the features and solution for their target market and are ready to scale their sales team but have yet to show that they have the conversion numbers necessary to grow their sales team significantly.
· Achieved Product-Market Fit: These are companies with a solid product and solution, and if given the opportunity, they can close the deal. They know they can covert, so they are ready to meet as many prospects as possible to turn them into leads and paying customers. Investing in more sales reps is an excellent investment.
Conversion Rate Is A Leading Key Indicator
When a company is not ready to scale, it will have a significantly lower conversion rate than ones that have achieved product-market fit. The considerably lower conversion rate will make it more costly and nearly impossible for a company to scale.
To illustrate this principle, let's look at a company targeting a yearly revenue goal of $5 million and has an average sales price of $20,000. This company will need to make 21 sales each month, totaling $416,667.
The instance of this company seeking product-market fit will find it harder to convert prospects into leads. They will need to invest a lot more money to reach more prospects to get the same results as a company that has achieved product-market fit and is ready to scale. This company will also have a more challenging time converting leads into opportunities and opportunities into wins. We estimate this company will need 282 sales development representatives to send 208,333 monthly emails to get 208 qualified opportunities. For companies seeking product-market fit, achieving their goal is a herculean task.
We used the lowest industry average conversion rates for the company seeking product-market fit and the upper bounds of conversion rates for those who have achieved product-market fit for our analysis. Those who have achieved product-market fit and are leading an industry can have a lot higher conversion rates. In our model, a company that has achieved product-market fit has to send significantly fewer emails and require only 19 sales development reps and one account executive to achieve their goal.
Conversion rate is the leading indicator to see who has achieved product-market fit. The higher the conversion rate, the more effective a salesperson becomes and the easier it is to justify adding more salespeople.
Feasibility of Ramping Up A Sales Team
When analyzing the total cost of ramping up a sales team to achieve 21 sales per month, the company seeking product-market fit will find that hiring a salesperson or outsourcing sales will be too costly and will have a negative ROI. The cost of a sales development representative ($8,916.67 - $12,250 per month) or outsourcing sales ($3,000 - $10,000 per month) will be too great for the results a salesperson could deliver. A salesperson for a company seeking product-market fit will not be as effective and will not reach enough prospects to get enough buyers to test the product and bring feedback.
On the other hand, sales robots are a worthwhile alternative for these companies and are inexpensive to scale. They can reach hundreds of thousands of prospects to sell the product and provide feedback to founders to help them understand what pivots may be necessary.
Companies on the verge of product-market fit will still find the cost of a sales development representative too expensive and contracting a top salesperson to be costly. Yet, they will start to see an ROI for offshoring sales or hiring entry-level contract salespeople. When considering salespeople, outsourcing is a good alternative for this type of company to scale.
Another even better alternative for this type of company is hiring a team of sales robots that can scale to help this type of company ramp up and deliver an ROI of 1,166% with a very inexpensive cost per lead of $16. $16 cost per lead makes sales robots one of the best sales channels for companies who are on the verge of achieving product-market fit. Sales robots can pave the way for companies to hire more salespeople by testing markets and conversion rates and creating the demand to hire more