Sales Compensation – Account Executive 1 – RDU / Southeast SaaS

Sales compensation is always tricky…  Most folks that haven’t “carried a bag” (vernacular for being in sales and carrying a quota) aren’t aware of the high risk, high reward nature of sales compensation plans.

We recently updated our comp plans and I thought I’d share the datapoints that I gathered.


The big concepts to focus on are:

  1. Quota – What is the rep responsible for bringing in to the company in new revenue?
  2. Base – What does the rep get for showing up?
  3. Variable – What commission do they earn for hitting quota?
  4. OTE – On Target Earnings – Easy…  this is simply base + variable.  This is also a confusing number since people who don’t live on a comp plan assume that this is what sales reps make.  They don’t.   A third of your reps will make or exceed quota.  Another third will bobble around it.  The last third will feel the heat and will move on or be moved on.  (Hence the high risk, high reward nature of sales compensation).
  5. Efficiency – This is a measure of what percent of new revenue you are paying out in quota to get the new revenue.


The averages we found for the Account Executive 1 role were:

  • $370k Quota
  • $42k Base + $37k Variable for $79k OTE
  • 22% Efficiency


  • Startups tended to have a higher risk reward scenario (lower baser, higher OTE)
  • Established firms tended to have a higher base, with a lower OTE (less risk, less reward)
  • Recruiters play to established firms (who can pay the commissions required for head hunting) and they reported in numbers that looked more like the established firms.


My google spreadsheet (link).


What are your thoughts on sales compensation plans?  If you’d like to offer additional data points to help flesh this out, I will add them anonymously.  Just reach out to me directly.

Aching for Something New

I had dinner last night with Chris Baggott, one of ExactTarget’s co-founders, and the founder of Compendium, and Bill McClosky, founder of eDataSource and Only Influencers.  The war stories of these two entrepreneurs from the digital marketing space as they took risks, built companies, and followed their passions was inspiring and humbling.

Chris told a story about his son, who commented on Chris’ constant search for creation and disruption of the status quo by saying “Dad, you always ache for something new.”

It hit me like a ton of bricks.  It’s exactly the way I’ve felt my entire life…  this (good) ache internally for newness, for creation, for problem solving.  This longing.  This muse.  It’s certainly what drove me start BuzzBox (an idea which failed miserably!) and then Windsor Circle (which is celebrating several milestones right now!).

My wife would tell you that the list is extensive, and ever growing (and thanks to Laurie for enduring all of the endless exploration of  ideas that will certainly change the world!).  Most of the ideas will never see the light of day.  But some will.  And maybe, just maybe, they will make something new and interesting in the world.

So, when the scotch arrived after a nice dinner last night, the toast went up among this table of entrepreneurs (which I felt a little humbled to be among): “Here’s to Aching for Something New.”

Yes.  “To aching for something new.”  Cheers.

Conceptualizing the Tunnel and Pushing Through

Laurie (super star wife) and I were reading a little book called “Good Busy” this weekend.  The author, Julia O’Grady, introduced a concept that fit well into the experience of starting a company.  She shared that when people find themselves in unusually tough circumstances (death of a family member, struggling with an illness, etc.) that it is helpful to conceptualize driving through a tunnel.

Normally, you’re zooming along the highway, blue sky and wind, and freedom to go where you want.  Speed up, slow down, change lanes, pull over…  do whatever feels good.

But when you enter a tunnel, things change.  Your options are severely limited.  You have to do what others are doing.  It’s dark and claustrophobic.  Thoughts of being stuck and perishing in the tunnel pop into your mind and cause anxiety.  There is very rarely any ability to turn around and go back…  once you’re in, you’re in.

That said, if you’re reading this post, you’ve probably made it through all of the tunnels you’ve entered.  That familiar “light at the end of the tunnel” shows up at some point, and you breathe your first sigh of relief.  You make it out and you’re renewed…  blue skies again.  The lesson is that tunnels feel constraining, risky, and uncomfortable when you are in them, but that they almost always pass.  By recognizing that the constraints are temporary, you can set your mind at ease, do what it takes to get through the tunnel and pop through on the other side.

The startup life is very much about going into a tunnel.  You’re committed in ways that don’t occur in other career choices.  You’re constrained financially.  There’s a lot of obscurity… who knows when or how this will end.  Your family is along for the ride. Things like college savings and home renovations all go on hold. Vacations are more basic, eating out is coupon-driven, and gifts shift to that which you can find on sale.

Recognizing the experience for what it is… temporary…  is comforting.  The tunnel won’t last forever.  The familiar light will appear again.  The blue skies are ahead.

And… just maybe…  there are rewards on the other end of the tunnel that add a little something extra for those with the courage to persevere!

Extraverts: Talk Think Talk, Introverts: Think Talk Think

One of our investors and mentors, John Fahlberg, is a retired executive who’s built and managed several companies, and has held executive posts with Target.  Net: this guy’s got some time in the saddle.

He does executive coaching these days to keep active, and we’ve been fortunate to have him run several sessions with our team.

We did a standard Myers Briggs personality inventory early in our development, and he coached us through thinking about how to use the results to build a really strong team.

Extraverts: Talk – Think – Talk

One of the core concepts that he coaches us on was that extraverts (yours truly) often process ideas out loud and watch for cues from their colleagues that the ideas have or lack merit, and iterate accordingly.  In other words, extraverts talk about a concept, watch for reactions, think about what they saw, and then talk more to iterate.  It’s a very social process.

Introverts: Think – Talk – Think

Introverts, on the other hand, do that same processing internally.  They think long and hard, using their intellect and their research to derive a conclusion.  They think, then they share what they’ve thought about, and then they think some more based on the results.

Marrying the Two Styles for Strong Outcomes

Cue the obvious observation….  Most technical types are introverts.  Many sales and business types are extraverts.  There’s huge potential for miscommunication and stress.

When I (an extreme extravert), am working through a problem, I start brainstorming out loud to socially engage my team and find an answer.  Chris, my CTO (an extreme introvert) is used to putting a lot of deep thought into something before communicating, so when he hears me list out several ideas, he assumes that I’ve already done a ton of diligence and am proposing a concrete list that we need to act on.

Clearly, this can cause friction.  The extravert can’t believe that someone could work on an important concept without engaging deeply with the group to find an answer together.  The introvert can’t believe that someone could put ideas on a board that haven’t been vetted deeply before being communicated.

What John taught us was for me to literally invoke the phrase “Talk Think Talk” to signal the beginning of a socialized thought process, and to give Chris room to breathe so that he doesn’t interpret the long and rapidly changing list of ideas as items that must be wedged into the development calendar.

This has unlocked a ton of power because it marries the strengths of the socialized creative process with the power of the rigorous scientific development process.  While Chris and I are about as opposite as you can be on the introvert – extravert scale,  this mechanism has allowed our proclivities to complement one another and build on each others’ strengths.  It helps that we have a lot of common ground in our personal values and perspectives on building Windsor Circle, but we’re thankful for a technique that has unlocked a lot of great collaboration.

Thanks John!

Pardot’s Growth

David Cummings posted some numbers about revenue growth and financial models in his blog.  I took a moment to boil it down to growth projections to compare to Windsor Circle’s SaaS growth model.  

The first post, Key Moments in the Life of Pardot, gave some milestones for Annualized Recurring Revenue (ARR) at $1M, $5M, and $10M, and the approximate dates.  I used these plot growth rates and map out growth.

The second post, Financial Projections for Startups Hurt More Than They Help, lists revenue for the first 4 years.

The data and graph below attempt to show these helpful metrics (thanks David for being so open).



This is important for entrepreneurs, because you must think big (I’ve literally been asked by VCs several times “how will Windsor Circle be a $100M company in 5 years?”), but you must also bear in mind that the very best SaaS companies (ExactTarget, HubSpot, Pardot) achieved $10M by year 5 (and with the exception of Pardot, took millions in venture funding to achieve it).

Key take aways:

  • Significant growth, in part by pivoting to Marketing Automation
  • Took 2-3 years to get to $1M ARR
  • Year 5 did not exceed $10M
  • $95M exit to ExactTarget on ~$11M in 2012 revenues (8.6X revenue multiple)

Thoughts?  Do you have add’l data points re: SaaS growth models and benchmarks?

Studying ExactTarget – Post #2: Cost of Revenues and Operating Expenses

In this post, I wanted to explore a bit about how a high growth SaaS company has been spending in various functions against top line revenues.  I’m using consolidated financial statement data from their S1 (link here) between 2002 and 2006.  Given that ExactTarget was founded in 2000, this represents years 2 through 6 of their business.

Cost of Revenues – 2002: 1% -> 2011: 34%  |  First 5 Years Average: 13%

It’s clear that as ExactTarget scaled, two major costs did as well.  The first was the size and complexity of their data center operations, and the high-availability requirement of their service.  The second was the professional and support services required to enable customers, particularly high end clients.  Cost of Revenues seems to be hovering in the 30%-35% range for now.

Note that the first five years, Cost of Revenues averaged 13%, presumably including whatever support and professional services existed in those early years.

Cost of revenues consists primarily of wages and benefits for software operations and optimization services, as well as depreciation, licensing, maintenance and support for hardware and software used in production, and co-location facilities, bandwidth and infrastructure expenses. The expenses related to co-location, bandwidth and infrastructure are affected by the number of clients using our application, the complexity and frequency of their use, the volume of messages sent and the amount of stored data. In addition, these expenses are impacted by our requirement to maintain high application availability and redundancy. We expect these expenses to increase in absolute dollars as we continue to expand our business and serve the needs of larger and more sophisticated enterprise clients.

Sales & Marketing – 2002: 101% -> 2011: 45%  |  First 5 Years Average: 71%

As top line revenue scaled, the percentage of dollars spent on sales and marketing dropped from 101% of top line revenue to 45%.  The latest 10-Q (Q212) shows 39% spend in this function, so one might be able to say that it’s leveled off around 40%.

In the first five years, the average spend was 71% of to line revenues.

A side note about growth of top line revenue: It’s interesting to me that it took 5 years to get to $11M, given that VCs often ask me how we’re going to be a $100M company in 5 years.  This poster child of a SaaS company focused on the marketing vertical was at $11M in year 5, and any VC out there would want to be a part of this syndicate.

Here’s management’s commentary on Sales and Marketing expense:

Sales and marketing expenses consist primarily of wages and benefits for sales and marketing personnel, sales commissions, travel and entertainment expenses, and lead generation marketing programs. All sales and marketing costs are expensed as incurred, including sales incentives and commissions. Sales incentives are expensed in the period of contract signing and commissions are expensed upon receipt of payment. Our sales and marketing expenditures have historically been highest in the last two quarters of each year, which are periods of increased sales and marketing activity. In order to continue to grow our business and increase our brand awareness, we expect to continue investing substantial resources in our sales and marketing efforts. As a result, we expect that sales and marketing expenses will increase in absolute dollars as we invest to acquire new clients, but decrease as a percentage of revenues as our existing client base represents an increasing portion of our total revenues.

Research and Development – 2002: 38% -> 2011: 20%  |  First 5 Years Average: 24%

R&D expenses, likes sales and marketing, start high and drop by roughly half over 5 years of operations, where they stabilize.  I would have guessed R&D expense to be higher, especially in the early years.  Here’s how ExactTarget categorizes R&D expenses:

Development expenses consist primarily of wages and benefits for product strategy, product architecture, product design and development and quality assurance personnel. We focus our development efforts on usability, application performance, new features and functionality, and development of emerging one-to-one marketing technologies. We expense development costs as incurred. Direct development costs specific to new functionality is minimal due to the relatively short development cycle. Such costs are instead recognized as a component of development costs when incurred. We expect that development expenses will increase in absolute dollars as we continue to enhance our product offerings, but decrease as a percentage of revenues as we continue to scale our business.

General & Administrative – 2002: 45% -> 2011: 13%  |  First 5 Years Average: 21%

While most of my analysis is focused on the early years (which averaged 21%), its interesting in the management notes below that they are projecting an increase in both absolute dollars and as a percentage of top line revenues that G&A expenses will go up as a result of being a public company.

Management’s commentary:

    General and Administrative.    General and administrative expenses consist primarily of wages and benefits for executive, finance and accounting, legal, human resources, internal information technology support, and administrative personnel. In addition, general and administrative expenses include professional fees, bad debt expenses and other corporate expenses. We expect that general and administrative expenses will increase as we continue to add personnel to support our growth. We also anticipate that we will incur additional costs for personnel, professional services including auditing and legal services, insurance, and other corporate governance related costs specific to operations as a public company. We expect that our general and administrative expenses, in total, will increase in absolute dollars as we grow and operate as a public company. We expect that the costs as a percentage of revenues will increase in the next twelve months.



Here’s my spreadsheet.

Studying ExactTarget – Post #1: Cost of Revenue, Subscription v Prof Svcs, Gross Profit Margins

ExactTarget (ET) is currently on a tear.  Founded in 2000, they raised $75M on the way to going public in April of this year, and have already made $115M+ worth of acquisitions (Pardot for $95M, and iGoDigital for $21M).  As of this post, they have $1.5B market cap and rumors of buyouts from SAP, Oracle, and Microsoft (Bloomberg article).

ExactTarget serves as an interesting SaaS model in the interactive marketing space, and one that many SaaS startups (Windsor Circle included) can learn from.  In this post, I’d like to explore how quickly ExactTarget grew, its gross profits as it did so, and the amount spent on various functions in the business.

Cost of Revenue

For the past 4 years of reported financial data, ExactTarget has consistently reported 33%-34% CoR.  Raw data can be seen here.

Subscription Revenue v. Professional Services Revenue

Average 84% of Revenue from Subscription Software, Cost of Revenue 23%

ExactTarget’s subscription revenue has been shifting a bit.  In 2009, 87% of its revenue was from software subscriptions.  For the 6 months ending June 30, 2012, it was 80%.  On average, looks to be about 84%.

Management notes in the S1 show this as them going up market and needing to handle more professional services on behalf of larger clients.

On average, the Cost of Revenue (CoR) for the SaaS software revenue is about 23%.

Professional Services Revenue Averages 16%, Cost of Revenue Averages 89%.

The inverse of the revenue model is obvious.  What you’re not making in software revenue falls to professional services.  But the interesting thing here is the CoR…  They only make about 11% gross margin on this.  It’d appear that they are basically covering their costs of professional services, showing that this is an enablement play to ensure that their customers are getting enough value from full usage of the software to stick around year after year.

I’ll dig a bit deeper into amounts spent in each function in the following post.

Here’s my spreadsheet.

Go After Really Big Markets… The Target Addressable Market (TAM) Conundrum

For my inaugural, post, I thought I’d share a bit of wisdom from Brad Feld, of the Foundry.  I’ve had the good fortune to have met him once or twice, and I occasionally seek his opinion on items of import.

I’ve been recently engaged in the venture funding process, and as usual, the notion of the Target Addressable Market (TAM) comes into play.  The concept is simple…  if you could win 100% of the potential business out there for your product offering, how much is there to be had?

From my experience, investors want to know that there’s at least $1B in TAM…  not because they think you will capture 100% of it, but because any hot market will attract competitors, and they are looking for a well-reasoned and logical explanation as to why the market for what you are doing is big enough for you and the 75 other entrants that are going to try to make money with their solutions to the problem you are try to solve for your target market.

My research indicates that there is well over $250B of global ecommerce happening right now, and its growing at 10%-20% per annum.  It’s a big market.  Ironically, it turns out that the very simple question of “how many online retailers are there” is very difficult to answer.  The publication that most of us turn to is the Internet Retailer Top 500 and Second 500 Guide.  Logical, right?  The problem is that it is significantly underreported.  Scot Wingo, CEO and Founder of ChannelAdvisor (and a Windsor Circle advisory board member) estimates that it’s off by at least a factor of 2, and probably more, primarily because retailers must choose to self report in most instances, and many do not do so.

So, I asked Brad Feld….  can you help me with data points on this?  He was willing to do so.  But his first response was:

” I’m not a fan of TAM analyses. My view is simply ‘go after really big markets and if you can’t assert that your market is big, widen it.'”

(I’ll spare you the full email discussion, but suffice it to say that we’re in agreement that the market for automation and personalization for retailers is quite large).

But the bigger thing here as the entrepreneur is to think broadly about the problem:

  • Are we going after a big enough market?
  • Are we on top of a really big trend?
  • What are 3-5 logical extensions of our market that could widen it?