Why You Should Scale Sales and Marketing Before an Equity Round
It can be difficult to know when and how to grow your sales and marketing teams. If you scale them too early, you risk onboarding customers to a product that’s not ready; too late and you miss an opportunity to grow your revenue to its full potential before an equity round or exit event.
This blog post offers some tips on growing your sales and marketing teams in a smart, deliberate way.
When should you scale your sales and marketing team?
A good rule of thumb is to wait until you have validated your product-market fit. It’s wise to acquire a small set of initial customers, test the product in the market to determine implementation time and cost, and gather enough customer feedback to fix any issues and avoid churn.
Several months of consistent new customer deals and post-sales success (i.e. user engagement and consistent feedback) means you’re probably ready to scale your sales and marketing efforts.
At TIMIA, we work with a lot of growing SaaS and software-enabled startups. Generally, we find that if a segment of revenue is above $1.5 million in annual recurring revenue (ARR), that’s also a great time to start the sales and marketing flywheel.
“A rapidly growing portfolio of successful DTC brands has resulted in a community of loyal brand ambassadors for Measured. TIMIA has been an excellent partner supporting us as we grow our sales and marketing functions to build on client success and support this critical next stage of growth for the company.” — Trevor Testwuide, Co-Founder and CEO, Measured.
Who should you hire first?
If you hire a team of sales or business development representatives but have no lead generation mechanisms in place, you won’t set the team up for success. Likewise, if you invest a lot of money in marketing but don’t have a sales team capable of handling the volume of incoming leads, you won’t be able to capitalize on the opportunities created.
Hire one or two senior people with experience building sales and marketing teams for startups and go from there.
Ultimately, your sales and marketing hiring strategy must cater to the needs of your unique business. If you have a fast, transactional sales process, your ideal candidates will differ significantly from those in complex, relationship-driven sales environments.
What tools do you need?
There are hundreds of tools available for sales and marketing teams—the choice can be overwhelming. Investing in too many disparate tools may result in data silos and a poor customer experience. Focus on three key areas initially and consider other solutions as you grow:
Customer Relationship Management (CRM) software is the hub of your sales and marketing team. Examples include Salesforce, Pipedrive, and Microsoft Dynamics.
The CRM is used to track every person that enters your funnel and that you interact with. Every time a prospect downloads an ebook, visits your website, or speaks to a sales rep, the interaction is tracked in the CRM so you have a record of what you have told them so far and what you need to do to move them along the buyer journey.
Every sales and marketing tool should integrate with CRM so that every touchpoint is captured and you can determine which activities are working—and which are not.
2. Sales Enablement and Engagement
Sales engagement tools enable salespeople to automate and track some of the interactions with their buyers while still having the flexibility to personalize those interactions across email, phone, social media, direct mail, and even video. Examples include CoPilot AI, Seamless AI, and Salesloft.
2. Marketing Automation
Marketing automation software manages all marketing tactics from email marketing to landing pages. Examples include Marketo, Pardot, and HubSpot.
Marketing automation allows you to set up workflows, score leads, and create automated qualification and routing processes. Some even have plugins for website, blog, and social media management.
How do you measure success?
There are lots of blog posts out there that can demonstrate how to measure the success of sales and marketing efforts. In terms of how you can measure the success of sales and marketing hires, here are three metrics to watch:
1. Revenue by FTE
Revenue per full-time employee—calculated as a company’s total revenue divided by its current number of employees—is an important ratio that roughly measures how much money each employee generates. As your sales and marketing teams grow, revenue by FTE is a good indicator of whether the growth in hires is resulting in a growth in revenue.
2. Lifetime value (LTV)
Customer lifetime value is the total amount of revenue generated by a single customer over the life of their subscription to your SaaS product. Calculating LTV requires you to know some other metrics: customer churn rate, average revenue per account, and cost of sale (implementation, customer success).
3. Customer acquisition cost (CAC)
Customer acquisition cost tells you how much it costs for you to acquire a new customer. It is determined by two factors: the cost of generating a lead (marketing) and the cost of converting that lead (sales). The easiest way to calculate CAC is to calculate your total sales and marketing expenditure over a defined time period (for example, a month), and divide it by the total number of new customers gained in that time period.
Each of these metrics can tell you if growing your sales and marketing team is having the required impact on your business.
Looking for non-dilutive capital?
TIMIA Capital works with B2B SaaS and software-enabled
companies between $2 – $20 million ARR.
How can you fund the growth of sales and marketing?
Depending on your sales cycle, it could take 6 to 18 months to start seeing a return from your sales and marketing investments. So how do you fund it initially?
Begin with customer cash, then when you see your CAC under your LTV, time to step on the gas pedal. Debt is a great way to fund sales and marketing and should always be considered about equity financing. Think about it—a huge part of your valuation is based on your revenue. If you can leverage debt to grow your revenue, your business valuation will increase and you’ll be in a much better position to negotiate an equity round or an exit later on.
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“As a scaling company, one thing you forget is that you need money to service customers. The TIMIA investment will also help to cover accounts receivable for 30-50 days and help with cash flow.” — Karl Swannie, CEO, Echosec.