To succeed in a competitive market, SaaS startups focus on new accounts, which means sales teams devote every minute toward productivity. In his blog post, venture capitalist Tomasz Tunguz tackles the question surrounding the appropriate time to invest in sales team training.
Understanding the return on learning
If managers saw immediate and visual effects of employee learning, they wouldn’t hesitate in starting learning and development initiatives. With this in mind, Tomasz lays out the math for determining effective training for a hypothetical young SaaS sales team: In a team of five sales reps with a $750,000 quota, four of them attain 70% of that, and one closes $900,000. “It’s quite common to see a distribution of account executive performance resembling this one,” Tomasz says.
To really understand the impact of effective learning on a business, leaders should consider another definition of improvement. We’re talking much more than making employees more proficient with their paperwork. Effective learning makes employees better at every aspect of their work, and that level of improvement propels business in the right direction. It’s more than employees doing more work, it’s employees doing better work.
The numbers behind better work
Using his hypothetical sales team, Tomasz makes the case that even a 10% improvement in production from a sales team can have big impact:
Let’s assume after training this team improves close rates by 10%, which translates directly into a 10% increase in bookings. Before the training, the team books $3.0M annualized (750k x 70% attainment x 4 reps + 900k), and after it books $3.3M annualized. A $300k increase… At a 70% gross margin, the training generates an incremental $210k in gross profit.
An extra $300,000 at the end of the year, and that’s just a 10% improvement. For reference, Lessonly customers reported to us that, on average, their teams are 22% more productive with our learning software. The best part about this type of growth is that it scales: Teams of all sizes benefit from learning and training efforts.
When to invest in learning?
With the vocabulary to understand the impact of learning, leaders make more informed decisions. Tomasz notes that if “at a 70% gross margin, the training generates an incremental $210k in gross profit… an economist might argue the business should be willing to spend $209k for the training.”
That number is theoretical, but the idea still applies: If companies invested even a quarter or fifth of the extra revenue generated by training, it pays for itself in no time, as Tomasz illustrates. Say his hypothetical five-person sales team generated an extra $300,000 in revenue at the end of the year. A fourth of that new business—generated by training—totals $75,000, a fifth is $60,000. That’s a substantial gain on investment to be had by investing in learning and development. And again, that growth scales:
Imagine our hypothetical startup’s sales team grows to 20 people. On average, they attain 70% of their quotas for a total bookings run rate of $10.5M (750k x 70% x 20). A 10% improvement is a $1.05M addition to the bookings, which is just about 2x the bookings capacity of a current rep. At this scale, the economics of sales training are plain to see: less headcount required to attain the same bookings run rate.
The answer to the question “When do I invest in training?” might just be “As soon as possible.”
If you’re looking for a team learning software to help your sales team increase productivity by at least 22%, consider Lessonly and our 15-day, unlimited free trial. Sign up today.