How to think about your first sales hire (including comp)

How to think about your first sales hire (including comp)
Expectation setting with my first sales hire

I've been there. You're spreading your time thin between customer support, product meetings and sales calls.

At a certain point, you recognize that if you bring in someone for sales, you could be growing revenue faster.

This is absolutely true, but depending on your existing funnel, your runway in the bank and your personal strengths, there's a number of different types of hires that might make sense for the first sales hire.

I'll walk through a few paths, and speak to my first sales hire for Privy and how I thought about that.

Scenario 1. You have a strong pipeline coming inbound and you're personally taking several sales calls a day or week.

Scenario 2. You have a strong product and several happy customers truly seeing value and engaged with the product, but very little pipeline.

The other thing to consider is how are you capitalized. Did you just raise a $5M seed? or are you bootstrapping this thing. Maybe you're somewhere in between and have 12-18 months of cash remaining, and a path to breakeven.

In Scenario 1, if you have a decent inbound pipeline and 2 years of runway in the bank, I'd consider hiring a head of sales to grow a small team and prove it out. I think the right fit here is not recruiting a current VP to join your team as VP, rather recruiting a player coach who is still actively selling and carrying a quota, with aspirations to also manage. Their current title could be team lead, or maybe a very active sales manager.

In Scenario 2, you have no existing pipeline. So the hire should be very different. I believe you as the founder need to create pipeline. It's healthy for you to roll up your sleeves, build a target list, and start cold emailing, linkedin messaging and yes, picking up the damn phone. You should do that yourself for a bit and find something that works. If you can't get customers yourself, how will anyone else be able to do it. If you can prove it out that cold outbound is generating some calls and demos, then I'd consider hiring a BDR to book meetings for you as a phase 2. The opportunity for that BDR is to then grow into a closing role since they will have been successful setting meetings for you, and listening to every meeting right by your side. Also if you find yourself in this spot, it likely means you gotta start doing marketing too.

Measuring impact and structuring things for the first rep/head of sales.

If you're hiring your first rep, you should expect to see an impact quickly. In SMB sales, you should expect to see MRR generation in week 4, and hitting full quota in month 3, or 4, tops. For enterprise deals it could be 6-10 months but you should feel pipeline building quickly.

I'd set a weekly meeting with the hire to review a simple set of metrics, and eventual discuss each deal (aka "pipeline review").

In the beginning, for someone new to managing sales, you should keep things simple.

  • Number of outreaches
  • Number of meetings set
  • Number of meetings held (demos)
  • Number of closes

That's pretty much it.

A healthy outreach to meeting set rate is about 5, maybe 10%. So if you reach out to 100 accounts, can you set 5-10 meetings?

A healthy meeting set to demo held rate should be 60-70% (people are flaky and do cancel, especially in SMB).

A healthy demo to close rate is 30-40% in a competitive market, hopefully higher if you really are solving a major pain with something unique.

So using the above funnel metrics, if you reach out to 100 accounts, it would look like this:

  • 100 touches
  • 10 meetings
  • 6 meetings held
  • 2 deals closed

That's why activity at the top of funnel is the most important thing you need from your first hire. Anyone coming into the interview process asking for BDR support, or not willing to put in the work, is a major red flag for the first sales hire.

What I did at Privy.

For context, I did all sales for the business until $2M in ARR. All of it. It helped me learn. It kept me close to the customer. And we hired marketing before sales because we were having a ton of success through our freemium model. The shopify app store drove our freemium model for us, and through live chat and setting up calls we closed a ton of deals without formal sales. Marketing helped us pour fuel into the top of that app store funnel.

So when we went to hire for sales, I was looking for someone specifically that aspired to grow a sales team, but recognized that initially they were going to be closing deals themselves, carry a quota and do outreach. Assuming they proved they could do that and do it more effectively than me, then we'd give them some budget to grow a small team of reps to replicate, and shift from a personal quota to a rollup of their team's quota instead.

We recruited this person out of an AE role they were filling at the time. They were dabbling as a team lead but carried their own quota. He very much wanted to build a team but understood what we needed on day one.

This ended up being an incredible fit for us from $2M to $8M as he grew the team to about 10 reps, before the wheels started to come off and we recognized we were ready for sales leadership that had seen the next 10-30 reps and what that should look like.

This is common btw. What works from $0-$1M or $2M-5M doesn't necessarily continue working at the next phase. Best if you recognize that early.

Structuring Compensation: Account Executives

For a closing rep like an AE, variable should be paid out based on MRR closed each month, and a quota.

Let's say you want to pay your rep $100K OTE (on target earnings). For simplicity, say $64K is paid in base, and $36K is available in variable.

That means over a 12 month period that $36K in variable per year is really $3K in variable per month.

And let's say you set a quota of $3K MRR per month in the early days. The way you would calculate the variable paid per MRR closed is by dividing $3K in potential variable over $MRR quota. In this case, $1 paid in variable for every $1 in MRR brought in.

So if the rep closes $2.5K in MRR that month, they make $2.5K of the $3K in variable.

You could also come up with "accelerators" if the rep closes above quota. so maybe rather than $1 per MRR, if they are 110% of quota they get $1.1, if they're 120% they get $1.2.

I like this model because its simple to calculate and understand for everyone.

Structuring Compensation: Business Development reps

If instead of a rep, you're working on comp for a BDR, I'd run the same calc based off meetings set, or meetings held, instead of MRR quota. So you come up with a variable paid per meeting set, and use that to pay out variable.

To bring it home, imagine the OTE for a BDR is $50K. Where $12K of that comes as variable, the remaining $38K as base. That means the BDR can earn $1K per month in variable. The quota for a BDR should be something like "meetings held" because you want some quality filter on the meetings they're scheduling. That way if they set 12 meetings and all no show, you avoid this scenario as the quality of these meetings was not good enough.

So if the potential is $1K in variable per month, and lets say the meeting held quota is 10 meetings, then you'd be paying $100 for each meeting held. Simple, easy to explain and digest for anyone joining the team.