in Business Models, SAAS, Sales, Scaling

Rule of Thumb for the Direct Sales Channels that are Viable for Different Revenue Levels

So these are very general rules of thumb: there are loads of exceptions and as always context is king. That said, I find these rules a useful shortcut when analysing possible direct sales models for companies. The rules are based on the annual average net revenue that your typical customer is responsible for:

  • Below €500 annually you can’t afford to call a customer and you must have a 100% automated sales channel
  • Below €5,000 annually you can’t physically meet a customer and you must either have an automated or inside sales channel
  • Below €50,000 you can’t get on a short haul flight to meet a customer
  • Below €500,000 and you can’t get on a long haul flight to meet a customer

Each of the different direct sales channels has radically different costs, and companies need to structure their sales operation so that they can expect to recover the cost of making a sale in well under a year.  

A typical inside sales rep will have an OTE between €40K and €70K and a fully loaded cost of roughly 150% of that. If they close 10 deals a month then the cost of making the sale is going to be somewhere between €550 and €950. Clearly if the resulting customers are only going to bring in €500 in net revenue it’s going to take a long time to cover the cost of making the sale.

A typical field sales rep will have an OTE of €60K to €100K with a fully loaded cost of double that due to the cost of travel. They should be closing about 7 deals a month, but they typically require a full time inside sales rep to source the leads and set up the appointments, taking the total cost of making the sale to somewhere between €2,300 and €3,500. So while it’s possible to run a field sales channel at under €5k net revenue, it’s difficult.

Once you have to get on a plane the whole dynamic and cost base changes dramatically. Now we are realistically starting to look at enterprise based selling. OTEs range from €70K to €150K (and up) with a fully loaded cost of about 250%. You can expect a maximum of a deal a month. Typically one meeting a week is reasonable – more can be done if you have particularly high customer density, but in that case you should probably be considering a local field sales force. So your total cost of making a sales ranges between €15K and €34K although it likely to be higher as a deal a month is on the high estimate.

Inter-continental travel makes everything even slower and even though OTEs aren’t much different, the number of meetings possible in a month shrinks to about 1 a month and resulting sales to maybe three a year. This results in an cost of sale ranging between €60K and €130K.

I find this a useful ready reckoner to quickly evaluate the available direct sales channels when analysing a company. It’s a shortcut, and I know that if something is anywhere close to the boundary it merits further in depth analysis as the peculiarities of a particular business or context may make a sales channel that initially seems implausible possible.  

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  1. Great post as ever Caelen. We are one of your exceptions to making field sales work at a sub 5k annual revenue per customer. But the reason we were able to do this was to ensure that a field rep is able to close at least 12 accounts per month and sometimes go over 20. Another factor necessary to achieve this is to have a sub 5% annual churn rate. But interestingly doing field sales with small businesses often leads to better relationships which then leads to a lower churn so it is a positive feedback loop if you can make it work.