Ryan Walsh, CEO and founder of RepVue, recently joined Sam Jacobs, AJ Bruno, and Asad Zaman on the TopLine podcast to discuss sales team dynamics, the current state of B2B tech sales, and more. 

Key Topics:

• Shift Towards Efficiency in B2B Tech
• Operational changes and workforce impacts in sales organizations
• Unit Economics and Quota-to-OTE Ratios

Shift Towards Efficiency in B2B Tech

Recently, companies in the B2B tech sector have had to become more efficient due to changes in the economy. High growth rates, like 100% or 200%, are not as common anymore because businesses can no longer afford to burn through cash. Sales teams have been impacted as they must do more with less. Companies have reduced workforce sizes to align with current market demands. This has led to fewer sales positions and more precise quota targets for remaining team members.

Impact on Quotas and Teams

Sales quotas have seen adjustments as firms manage their workforce more effectively. Instead of just lowering quotas, many businesses have reduced the number of sales positions. This brings the number of salespeople in line with the market demand. 

The relationship between sales quotas and on-target earnings (OTE) has been a focus. High OTE ratios, like 3:1, are not sustainable long-term. Companies are adjusting these ratios to better fit their economic models, ensuring that salespeople’s goals are achievable and aligned with market conditions. This means recalibrating — often through RIFs — to ensure a healthier sales environment.

Changes in How Sales Teams Operate

Sales organizations are increasingly focused on efficiency due to economic changes and shifts in funding. Here’s how these operational changes are playing out:

Emphasis on Efficiency

• Companies must operate efficiently to survive.
• This focus has intensified due to decreased funding, requiring more careful use of resources.

Quotas and Workforce Adjustments

• The demand for products has decreased, leading to fewer sales.
• Sales teams are adjusting quotas, but layoffs have been a more common solution.
• Companies sometimes prefer reducing the workforce instead of lowering quotas.

Quota-to-OTE Ratios

• Sustainable unit economics are critical for mature software companies.
• A common ratio discussed is often three- or five-times OTE, but this varies.

Role-Specific Ratios

• Different roles within sales teams have different ratios.
• Enterprise account executives might not follow the same rules as more transactional sales roles.

These changes highlight the need for adaptable and efficient sales strategies in today’s market.

Unit Economics and Quota-to-OTE Ratio

Unit economics play a crucial role in determining sustainable business practices, particularly within the sales domain. Companies striving for growth need to balance costs and revenues carefully. A keen focus on metrics like the quota-to-OTE ratio is essential for maintaining economic health.

Quota Adjustments

To align with market realities, companies initially respond by reducing their workforce rather than just adjusting quotas. This strategy helps to align quota capacity with reachable market demand.

Sustainable Ratios

For a mature software company, a sustainable quota-to-OTE ratio is important. A $250,000 OT salesperson should not perpetually be on a $750,000 quota. Various roles within a company, such as Enterprise Executives and transactional SDRs, may have different ratios, but maintaining a reasonable ratio is essential for longevity.

Discussion on Workforce Reduction

The shift toward efficiency has put many companies in a tough spot. They had to make hard choices to survive. With the increase in Venture Capital investments into software companies during the early 2020s and the subsequent market correction, many firms found themselves overstaffed as demand dropped.

To adapt, businesses often needed to reduce their headcount rapidly. This initial step to align operational costs with reality involved significant layoffs. Companies reduced workforce sizes to match the accessible market and reduce burn rates. This helped to recalibrate their operational capacity with the market demands.

Another critical discussion point is the impact on sales quotas. With fewer people and lower market demand, adjusting quotas became necessary for more realistic targets. Still, the primary method for achieving immediate efficiency was through workforce reductions.

Key Takeaways:

• Workforce reduction was the initial and most impactful step to counter the misalignment between staffing levels and market demands.
• Adjusting sales quotas followed as a secondary measure to ensure remaining staff had achievable goals.
• Achieving a sustainable quota to earnings ratio became crucial for long-term company health.