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Road to 1mio B2B revenue


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The road to 1mio B2B revenue
- Top 10 mistakes
- Segmentation & Ideal Customer Profiles
- Sales process definition
- Sales pipeline & funnel
- Sales cost calculation template
- Sales reporting
- Contracts & T&Cs
- Organisation & remuneration

Published in: Sales
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Road to 1mio B2B revenue

  1. 1. The road to 1mio B2B revenue Matthias Hilpert Berlin XPRENEURS UnternehmerTUM München April 2020
  2. 2. - MH2 Capital Customers (including non-paying ones)? Paying customers? Pilot/Trial customers? Fully operational customers? Show your hand if you have …
  3. 3. - MH2 Capital 20+ years Operator turned full time Investor ■ Worked in telecoms globally, running a EUR1bn P&L ■ Generated EUR800mio enterprise value for Private Equity sponsors ■ 15+ years investing in public and private markets & real estate ■ Angel investing since 2008 with 19 investments and 4 exits ■ One of the top 30 angels backed by the European Investment Fund (EIF) in Germany ■ Seed & Series A stage subscriptions and marketplaces from EUR10K monthly revenue ■ 175cm, 83kg, 47 years, 1 wife, 3 kids, living in Berlin ■ More on
  4. 4. - MH2 Capital Top 10 mistakes on the road to 1mio 1. Building a product without constant customer feedback from the beginning 2. Addressing a wide segment instead of a detailed ideal company and buyer profile 3. Founders not selling themselves but hiring employees to sell on their behalf 4. Underestimating the complexity of the buying process of a larger organisation 5. Not qualifying the prospects rigorously enough 6. Hiring a VP Sales too early (ie pre 1 mio ARR) and the wrong one (ie from big logo) 7. Not establishing granular metrics and reports for the sales process early on 8. Thinking a pilot means a customer 9. Pricing too low for the size of the target company (as well as too small contract durations) 10. Not learning fast enough, asking for qualified help, write down learnings & iterate weekly
  5. 5. - MH2 Capital The road to 1mio ARR: building the foundations 0-100K ARR 100-300K 300-500K 500K-1mio 5 Organisation and remunerationExplore & Learn Standardise & Optimise 4 Sales Reporting 1 Segmentation & Ideal Customer Profiles 2 Sales Process definition 3 Sales Pipeline, Funnel and Cost Management 5 Contracts & T&Cs 1-5 customers 6-10 11-15 16+
  6. 6. - MH2 Capital Explore and Learn ■ Founders do everything to sign 1 to 5 customers ■ Founders learn the basics by reading up on sales, speaking to other founders who are 2-3 years ahead and/or investors/advisors with operational experience ■ Founder network, word of mouth and inbound customers are the first channels ■ Lots of effort and iterations on segmentation and ideal customers profiles ■ MVP is sold with charisma of the founder as well as deep product/customer knowledge ■ Price points between 10-50K ARR => Informed trial & error and weekly learning cycles are paramount
  7. 7. - MH2 Capital Start by potential revenue per customer and resulting sales channels ■ The target segment informs the search for scalable channels with the appropriate acquisition cost ─ Marketing and inbound channels with virality for smaller animals (and earlier phases) ─ Sales and outbound channels for larger animals (and later phases) ■ Generally speaking companies move from smaller to larger animals in the space of the first 2-4 years ■ Most successful B2B companies concentrate over time in the “deers” and “elephants” segment, this is also the broad focus of this presentation
  8. 8. - MH2 Capital Focus on a manageable 500-1K target company universe you can easily identify Statistisches Bundesamt 2017 Deutsche Börse ■ There are approx 70K medium and 7K enterprise companies in Germany ■ A lot of initial inbound interest usually comes from companies with 10-250 employees: take their money and learn to build the right product, but then swiftly move up the food chain with outbound channels ■ Medium size companies should be targeted with a minimum ARPA of 10-100K and a lead time of 1-6 months and Enterprise customers with 100K to 1mio with a lead time of 6-12 months Small Medium Enterprise <10mio revenue 10mio-1bn >1bn Revenues Logos Anzahl Beschäftigte Timely and profitable revenue Logos for references and investors
  9. 9. - MH2 Capital Define an ideal customer profile (ICP) to achieve high conversion Size of the company ...bigger usually means longer lead times, higher prices and lower churn Industry margin ...lower margins drive affinity for cost saving propositions Public vs private ...private and family led companies have higher affinity to innovation Age of company and employee base ...younger employee base with higher affinity to innovation Stage of company ...growth, internationalisation, lay-offs drive different needs Complexity ...#offices, #teams, #countries drive need for simplicity solutions Software/Machine/Process stack ...mandatory requirements for software plug-ins and affinity to innovation Job title availability ...minimum budget levels available for certain product domains Company participation in events and PR ...affinity to product domain ■ ...and more, depending on your proposition ■ Spend a lot of time researching and trialing local and international data and enrichment providers, with regards to the availability of search criteria and data quality ■ Sometimes tech teams can scrape their own data :-) ■ Expenses for high quality data are minimal compared to the funnel cost resulting from a low quality data set Geography and language ...higher affinity for innovation in US and UK software markets and multi-language complexity
  10. 10. - MH2 Capital Find the appropriate champion for your target ARPA and speak their language Title of contract champion Revenue & Budget Responsibility Contract signing capability (Target ARPA) Marketing message Marketing channel Involved teams CEO 1bn 10mio 10 year vision, P&L impact in $, Competitive advantage PR, Sign-off process, Warm lead Board/Shareholders CXO 100mio 1mio P&L impact in $, Competitive advantage PR, Sign-off process, Warm lead CEO, Purchasing, Legal SVP/VP 50mio 500K Competitive advantage, Revenue gains, Cost efficiency in $ Sign-off process, Outbound Purchasing, Legal Director 10mio 100K Cost efficiency in $ Outbound Purchasing, Legal Head na 50K Product benefit Outbound, Inbound Purchasing Manager na 1K Product benefit Inbound R&D / Innovation 25-50K pilot only Innovation Inbound ■ In early phases (in particular while in product development) first entry points are Heads and Managers ■ Sales towards Directors, VPs and upwards are necessary to scale ARPA ■ Sign-off processes and accompanying upward internal introductions are great opportunities ■ Beware of pilot only opportunities with R&D teams that have limited impact on operational decisions
  11. 11. - MH2 Capital Customise the sales process to your industry and product domain ■ A sales process makes sales repeatable and revenues planable ■ Sales processes are similar on a high level across all companies, however there is a lot of detail that is different for each proposition and target segment ■ The single most important outcome is to prioritise resources according to the level of customer interest ■ Start with xls, and once you found your process, upgrade to CRM software from Pipedrive/Hubspot/Close/Agile/Base etc. until Series A, then upgrade to Salesforce 1 Prospect 2 Lead 3 Qualified Lead 4 Opportunity 5 Customer 6 Customer upsell Input Ideal customer profiles Segmentation criteria Name, Job title, Email, Phone number, LinkedIn profile Interest Budget, decision maker Proposal Contract signed Activity Company lists, Deskresearch, Events Outbound Email, Call, LinkedIn message Inbound Webform, Calls, Emails, Business cards Emails, Calls Demo & Presentation Potentially Pilot/Trial & Negotiation for operational Contract Upsell negotiation Output Name, Job title, Email, Phone number, LinkedIn profile Interest Budget, decision maker Decision process & timing, Proposal Contract signed Upsell signed Entry points for Outbound lists for Inbound requests for RFPs & Tenders
  12. 12. - MH2 Capital Understand the activity needed for one single customer # of activities to win one customer minutes / activity 1 Prospect 2 Lead 3 Qualified Lead 4 Opportunity 5 Customer 6 Customer upsell Researching the prospect 10min 1 1 Emails/LinkedIn messages to reach contact 1min 3 Call attempts to reach contact 1min 3 2 Intro calls with contact(s) 10min 1 1 Video calls to present solution 60min 2 2 2 On-site Meetings to negotiate 240min 1 1 Total 15 h ■ The activities required to win one customer is highly depending on the size of the company as well as the product price and complexity ■ The example above approximately represents a 10-100K ARPA product that is familiar to the buyer organisation, has a budget allocated and there is no formal RFP process ■ For highly innovative products, that have no clear budget or decision maker, the required activities can be a multiple of the above
  13. 13. - MH2 Capital The road to 1mio ARR: building the foundations 0-100K ARR 100-300K 300-500K 500K-1mio 5 Organisation and remunerationExplore & Learn Standardise & Optimise 4 Sales Reporting 1 Segmentation & Ideal Customer Profiles 2 Sales Process definition 3 Sales Pipeline, Funnel and Cost Management 5 Contracts & T&Cs 1-5 customers 6-10 11-15 16+
  14. 14. - MH2 Capital Standardise and Optimise ■ Inbound customers still important, but outbound channel necessary to address larger ARPA ■ ICPs & Process become mature, but are optimised regularly ■ Pipeline management, reporting and contracts are developed and standardised ■ Young, humble and ambitious Sales Development Reps and Account Executives join the founders ■ Product is maturing based on overlapping requirements of a defined set of similar customers in the ICP ■ First larger customer with 100K is signed - a watershed moment => Building and honing the machine for scaling and larger investments
  15. 15. - MH2 Capital How many new prospects to win one customer per month? Funnel to win one customer 1 Prospect 2 Lead 3 Qualified Lead 4 Opportunity 5 Customer 6 Customer upsell Input contacts 200 200 20 6 2 1 Conversion rate 10.00% 30.00% 33.33% 50.00% 100.00% Progressing contacts 200 20 6 2 1 1 Parked contacts 180 14 4 1 Next steps for parked contacts Try again in 3-6 months Find budget and try again Try in 3-6 months Check on progress in 6 months ■ The conversion rates per stage give an indication of the quality of the sales process ─ Prospect -> Excellence in segmentation and ICPs (has the highest impact on lowering sales cost) ─ Lead -> Excellence in finding the interested entry point and marketing message ─ Qualified Lead -> Excellence in finding budget, decision maker and deep customer understanding ─ Opportunity -> Competitiveness of proposition against existing solution and competitors ─ Customer -> Excellence in objection handling and closing ■ Conversion rates should rise through each phase of the process due to the increasing qualification (they however make only limited sense with small numbers in the funnel at the beginning) ■ Contacts that don´t progress to the next stage should be either eliminated or parked according to the response of the prospect
  16. 16. - MH2 Capital Some thoughts on managing the pipeline and funnel Most important ■ The single biggest mistake made is to not spend enough time on segmentation and selecting the right outbound target list (think weeks, not only days) ■ The second most common mistake is to not qualify rigorously and keep companies too long in the funnel instead of parking/eliminating them and then re- allocate resources to new potential customers Others ■ When qualifying opportunities, finding a budget and the decision maker is important, but a short time to buy is most critical (eg <3 months) ■ 70% of resources should be focussed on deals that can actually close <3 months ■ It is equally important to fill the funnel as well as clean the funnel, ie park target companies, on a monthly basis, in order to focus resources only on finding the companies that have actual deals available ■ Parked companies should be revisited regularly based on parking reasons ■ Regular and granular reporting is of paramount importance
  17. 17. - MH2 Capital Understand the cost for the funnel to result in one customer win ■ The activity needed for each phase of the whole funnel drive the cost to acquire one customer (CAC) ■ Almost 80% of the funnel cost are in the first 2 phases emphasizing the need for a good segmentation and well defined ideal customer profile ■ In order to control this cost over time more junior Sales Development reps are deployed to focus on Prospect and Lead phases ■ Later in the funnel the quality of the marketing message, delivery and negotiation skills are paramount and hence founders and more senior Account Executives with strong closing skills are handling those phases ■ Upselling is usually done by experienced and consultative Key Account Managers ■ Calculate the cost of your own sales efforts, minimum ARR etc. on: Funnel cost to win one customer 1 Prospect 2 Lead 3 Qualified Lead 4 Opportunity 5 Customer 6 Customer upsell Total 50K salary $ 868.06 $ 2,256.94 $ 104.17 $ 312.50 $ 312.50 $ 156.25 $ 4,010.42 21.65% 56.28% 2.60% 7.79% 7.79% 3.90% 100.00%
  18. 18. - MH2 Capital The effort in the process defines the CAC and that in turn the minimum CLV/ARR ■ Customer Acquisition Cost (CAC) should in general include top-down all marketing and sales expenses, incl. salaries, overhead (eg rent), tools (eg Salesforce), etc. and take into account lead times of several months ■ The previous 4K CAC calculation solely focuses on bottom-up sales efforts calculation based on a 50K salary of the sales employee ■ Initially typical committed contract length is 12 months and hence the ARR is a good proxy for Customer Lifetime Calculation (CLV) ■ Target payback periods should be between 3 and 6 months and not longer than 12 months ■ This results in a minimum target ARR of 10K for the above sales effort, taking into other elements of CAC, such as advertising, overhead, tools etc. ■ The above calculation becomes relevant really only after the Explore and Learn phase ■ Calculate the cost of your own sales efforts, minimum ARR etc. on: Funnel cost to win one customer 1 Prospect 2 Lead 3 Qualified Lead 4 Opportunity 5 Customer 6 Customer upsell Total 50K salary $ 868.06 $ 2,256.94 $ 104.17 $ 312.50 $ 312.50 $ 156.25 $ 4,010.42 21.65% 56.28% 2.60% 7.79% 7.79% 3.90% 100.00%
  19. 19. - MH2 Capital What is the data that needs reporting for a well managed funnel and team? Reports 1 Prospect 2 Lead 3 Qualified Lead 4 Opportunity 5 Customer 6 Customer upsell Activity # contacts researched # emails, calls # emails, calls # demos & presentations # pilots # data points in CRM (contact details etc.) # data points in CRM (situation, needs, responsibilities etc.) # data points in CRM (budget, decision maker etc.) # data points in CRM (process, timing etc.) # data points in CRM (decline reason, competitors etc.) # data points in CRM (decline reason, competitors etc.) Contracts # proposals # contracts # trials # contracts Performance Conversion rate Conversion rate Conversion rate Conversion rate Conversion rate Revenue $ ARR $ ARR ■ Ideally reporting starts early to track performance over time and facilitate learning ■ Daily activity reporting is important to establish effort needed to win one customer and is the mandatory basis for team management ■ Once a CRM is in play entry of structured content and insights about the customer will greatly enhance efficiency and learning in the sales process ■ Conversion rates, average deal sizes and sales cycle times are key metrics for performance management ■ In an established pipeline, the number of Opportunities, Qualified Leads and Leads represent the health of the pipeline and revenue in approx. 3, 6 and 12 months time respectively
  20. 20. - MH2 Capital Structuring ideal terms for a 50-100K SaaS type of contract One contract document (ideally with only one single customer signature required) ■ Offer = Contract ■ Contract = Phase 1 (eg 1 month proof of concept) + Phase 2 (Operational contract from month 2 onwards) ■ Customer can cancel because of an unsuccessful Phase 1, but otherwise automatic transition into the operational contract, without additional signatures required ■ Avoid stand alone trials with contract negotiation and signature only after the trial Contract for specific customer (ideally 1 page including signature) ■ Scope: ─ Software ─ Days/hours of Training, Dedicated Development, Customer Success etc. ■ Pricing of software product per year (alternatively per month) ■ Pricing of day (alternatively hour) per Developer, Customer Success Manager etc. ■ Set first list price to be able to accomodate later discounts for buying unit and purchasing teams ■ Reference to Terms & Conditions Terms & Conditions as appendix to Contract for all customers (ideally <5 pages small print) ■ Expenses, such as travel etc., being charged extra ■ Professional Services (Developer, Customer Success Manager etc.) as per latest price list ■ Duration of contract (12 months minimum, ideally 24 or 36 months) ■ Renewal (automatic renewal for similar or double the initial contract length) ■ Cancellation (3rd month prior to contract end date) ■ Payment terms (yearly fee up front on contract signature with money due at date of bill) ■ Limitation of liabilities (to maximum of revenue of contract) ■ Ability to reference the customer (absolutely critical! If red-lined by Legal, do a side letter)
  21. 21. - MH2 Capital How does a sales team evolve over time? Team evolution 1 Prospect 2 Lead 3 Qualified Lead 4 Opportunity 5 Customer 6 Customer upsell 0-5 customers <100K ARR Founder Founder Founder Founder Founder Founder 6-10 customers <300K ARR Founder/Outsourced Sales Development Rep Founder Founder Founder Founder 11-15 customers <500K ARR Founder/Outsourced Sales Development Rep Account Executive Account Executive Founder Account Executive 16+ customers 1+mio ARR Analyst/Outsourced Sales Development Rep Account Executive Account Executive Account Executive Key Account Manager ■ Founders should run the complete process and pipeline for a minimum of 10 customers to learn ─ Company entry points that work ─ Communication channels that work ─ Messaging that drives interest ─ Triggers that close the sale ■ Over time costly early phases of the process can be owned by junior Sales Development Reps (1-2 years of experience with on target earnings (OTE) 30-50K) while she learns the later phases ■ Afterwards Account Executive (3-5 years experience with OTE 50-70K) take over the middle of the process with Founders closing the deal ■ Finally Founders will be replaced by employees to optimise the sales process and manage pipeline and team ■ Ideally a customer relationship with regards to contractual and relationship topics is build and maintained by a single primary contact over the lifetime of that customer to minimise handover friction
  22. 22. - MH2 Capital How to best incentivise a sales team? ■ All sales employees should have a variable remuneration or commission based on their contribution to sales ■ On target earnings should be not be higher than about 25% of total target revenue to be acquired ■ The commission part should initially be a 20-40% of basic salary based on seniority ─ <20% has limited impact on motivation ─ >40% drive detrimental effects on quality of sales and team work within the sales team ■ Payments should be done quarterly alongside basic salary ■ Payments only after revenue is in the bank ■ Clawbacks due to customers cancellations should be avoided (and be very rare) ■ First quarter commission after employment start may be paid out at 100% to give time to ramp up Remuneration components Basic Salary Commission/Bonus On Target Earnings Sales Development Rep $40,000 $10,000 $50,000 100.00% 25.00% 125.00% Account Manager $50,000 $20,000 $70,000 100.00% 40.00% 140.00%
  23. 23. - MH2 Capital How to structure sales commissions? ■ The commission system should be driven by simplicity and include only a limited set of target KPIs, eg ─ Activities, eg minimum # of calls, emails etc. to qualify for commission payout ─ Team/Individual New Revenue signed ■ In early stages commission focus should be on new revenue instead of recurring revenue ■ Company or Team targets drive team cohesion and collaboration in the initial learning phase ■ In later phases with several SDRs and AEs Individual targets become more important to weed out the underperformers. ■ Achievements levels should usually be anywhere between 80-120% most quarters and above 100% for most quarters for the top performers. Low performers (<80%) must go within 6 months. ■ To keep a highly motivated team, realistic targets are of paramount importance ■ Great segmentation, product, pricing and sales process are a must to enable high targets New ARR target per quarter $100,000 Commission per quarter $5,000 Target achievement <79% 80-99% 100-119% >120% From $0 $80,000 $100,000 $120,000 To $0 $99,000 $119,000 unlimited Commission payment From 0 $4,000 $5,000 $6,000 To 0 $4,950 $5,950 unlimited
  24. 24. - MH2 Capital Key requirements for a SDR and AE job description Sales Development Representative ■ 1-2 years of experience ■ On target earnings 30-50K ■ Bachelor ■ High energy & self motivated ■ Very strong communication skills (phone, email, social media) ■ Strong desire to win ■ High level of integrity ■ Amicable and engaging with customers ■ Fast learner with innovative ideas ■ Collaboration with distributed internal sales and marketing teams ■ Effective use of core sales tools (Salesforce, LinkedIn Sales Navigator etc.) and processes Account Executive ■ 3-5 years of experience ■ On target earnings 50-70K ■ Bachelor/Master ■ Experience with target ARR, product complexity and target buyer level ■ High energy & results focussed ■ Very strong communication and presentation skills ■ Strong desire to win ■ Understanding and optimisation of sales methodologies ■ Demonstrated success in qualifying, pursuing and closing sales opportunities ■ Exceeded monthly, quarterly and annual quotas ■ Ability to develop lasting trust and customer relationships ■ Willingness to dive deep into product and technology with customers ■ Collaboration with internal teams including product and technology ■ Use and optimisation of core sales tools (Salesforce, LinkedIn Sales Navigator etc.) and processes ■ Openness to mentorship and coaching
  25. 25. - MH2 Capital What are your questions?
  26. 26. Come and visit Berlin!