Are Sales Reps a Good Investment?
Sales teams are historically expensive.
tl;dr - The ROI on sales headcount has declined significantly over the last decade. Radical efficiency improvements are necessary.
Everyone is cautious about hiring - In conversations with 26 GTM VPs, nearly all indicated they’re unlikely to grow their sales team headcount this year.
Sales costs rise; output declines - When adjusted for inflation, quotas are lower now than they were in 2012. OTEs have outpaced inflation, creating a perfect storm of poor ROI. It costs 62% more to field a sales team bringing in $10M in ARR now than it did a decade ago.
A comprehensive approach to efficiency is the way - Sales teams must optimize strategy, automation, and operations to stay in the game—AI alone won’t fix what ails sales.
Read on for the full story.
Over the past 3 months, I’ve held 4 coffee events with GTM VPs/CXOs in 4 cities. I’ve been lucky enough to have deep discussions with 26 folks from a wide cross-section of companies (bootstrapped startups to 10k+ employees) and GTM functions (marketing, new business, CS, partner, operations). It’s not a perfectly representative sample—these attendees probably skew towards more mature companies—but there’s a still a solid cross section of what I’d consider “normal” successful SaaS companies.
One thing these VPs nearly all had in common: they plan to add little-to-no additional sales headcount despite meaningful growth targets. We’re past the bad old mass layoff days of 2023, but nobody’s in full-on hiring mode. Some reported very modest headcount growth plans, most are staying flat and some are allowing natural attrition that they don’t plan to backfill.
It seems clear that there’s a strong aversion to growth through headcount from the VPs themselves and from their partners in finance. Many of these VPs shared that their CFOs are extremely skeptical of any plan that involves more FTEs.
Certainly the vibes are pointing to smaller sales teams. Since the the end of ZIRP, sales teams that binged on expensive, brute force growth have been trying to get more efficient. Every thought leader in the world wants you to know AI reduces the need for FTEs. And of course, rep-light PLG is the dominant GTM motion for a growing number of SaaS companies.
The vibes, as usual, don’t tell the full story. I wanted to go beyond vibes and dig into some actual numbers. Maybe it’s time to revisit the investment case for having sales teams in the first place.
The downturn may be over, but this ain’t 2021
Despite the fact that “the downturn is over”, there’s still a hangover. Companies (outside pure AI craziness) remain at record low levels of sales and marketing efficiency despite a massive clean-up effort over the past couple years. According to Battery’s 2024 OpenCloud Report, the industry-wide median Magic Number1 for public SaaS companies is down to 0.36x from 0.54x in 2022 (a 33% drop).
Adding revenue has gotten historically expensive, which puts pressure on the whole organization to find ways to reduce costs and maintain the Rule of 40. It’s no surprise that we saw mass layoffs in 2023 and CFOs are still holding the line on budgets.
All this paints a pretty dire picture for companies with large sales teams. Something’s gotta give and anything that increases sales and marketing expense is going to be challenging.
However, most companies still need reps to sell. Up to a point, more reps should be accretive to revenue, but CFOs are clearly voting that sales headcount isn’t a great investment in this market. Let’s do a more detailed analysis of the ROI of a sales team in 2025 to find out why.
The incredible shrinking ROI of sales reps
We’ll need some data to build this case and the best source I’ve found for longitudinal data on rep comp, quotas and performance is the Bridge Group SaaS AE Report. They’ve been running variations of this survey since 2007. The 2024 version has data from 2012 to March of 2024.
One caveat: Bridge Group publishes these reports early in the year, so the Bridge Group data is really covering the period from 2011 to 2023. We all know 2023 was tough. It’s possible that this analysis changes if it fully took 2024 into account.
Finally, we’re concerned specifically with sales headcount and the ROI of sales reps themselves. I’m going to ignore demand generation costs like marketing and even SDR support to just focus on the direct costs of the AEs and their management.
Let’s start with quotas. One way to (theoretically2) get more from the same reps is to simply ask for more in the form of higher quotas. The Bridge Group report shows that’s happening. Median quotas have increased from $625k in 2012 to $800k in 2024.
That’s significant—a 28% increase. But it’s only a 2% CAGR over 12 years. Hey, wait… hasn’t inflation been running > 2% for a while now? Let’s get out our trusty CPI Inflation Calculator and look at that change in quotas over the years.
If median quotas had simply grown at the rate of inflation since 2012 they would be $850k now ($625k baseline + $225k in inflation), not $800k. Prior to 2020, quotas were growing faster than inflation. With increased inflation over the past 4 years, they’ve fallen behind.
In real terms, median quotas are actually lower now than they were in 2012. We’re not actually asking more of our reps.
Ok, so we’ve increased quotas in current dollars but actually reduced them in real terms. What does that mean for OTEs? Well I’ve got more bad news.
In 2012, the median OTE was $105k. That’s grown to $190k as of the 2024 report—a 5% CAGR— much faster than inflation. The median sales rep now has a $47k higher OTE than they would if OTEs had simply tracked inflation since 2012. Given that Bridge Group reports a 53/47 base/variable split, that translates into paying each rep an additional $25k in base salary before they generate a dime of revenue.
Maybe all this would be worth it if reps were crushing their quota. Alas, that’s not happening either. In fact, Bridge Group notes attainment has never been worse in the history of their survey. Median attainment was 51% in the 2024 report after being relatively stable in the mid-60s from 2015-2022. That’s especially impressive (or disappointing, depending on our perspective) when you consider that quotas were actually higher in real terms back then.
There’s one last piece to this. You can’t hire teams of AEs without managers. Manager OTEs have also increased, though not at the same rate as AEs. The Bridge Group survey starts tracking manager salaries in 2015. Since then median manager salaries have risen at 4.2% CAGR from $140k to $198k.3
Let’s put all this together and consider how the investment case for generating new revenue with AEs has changed since 2015. We can take the base salaries, variable comp and attainment metrics from the past 9 years to calculate how much it would cost to generate $10M in new ARR.
A few assumptions here worth calling out:
I calculated the number of reps you’d need based on historical attainment levels relative to historical quotas. I rounded up since you can’t have partial reps.
Based on rep numbers, I followed the general rule that you should have 1 manager for every ~8 reps.
I added a 20% load factor for taxes, benefits, etc for each rep and manager based on their actual earnings.
In 2015, generating $10M required around $3M in pure sales headcount cost. By 2024, that’s risen to nearly $5M. This means a 3.3x ROI in 2015 is now a 2x ROI in 2024 (before factoring in any demand generation costs). This is the cumulative effect of higher base salaries coupled with lower attainment.
It’s no wonder most people’s Magic Number is in the toilet—you’d be hard pressed to cut other sales and marketing costs enough to make up for the deterioration in the sales headcount ROI.
There you have it. That’s why your CFO doesn’t want you to grow sales headcount.
Where do we go from here?
I’m on record that I believe in human sellers and I don’t think the answer is just replacing them with AI. There’s still too much value in forming human relationships, making connections and guiding a sales process. Not everything can be automated.
But, we need to automate as much as possible to enable humans to do what humans do best at commercial scale. Sellers are going to have to get radically more efficient—or at least as efficient as they were 12 years ago—to be a good investment again.
This is ultimately why I write so much about efficiency in this newsletter. It’s hard to see a world where sales teams survive without getting smaller, lighter and faster.
AI isn’t coming to save us. It’s necessary—but not sufficient—to solve the problem. It’s going to take new ways of thinking about strategy, operationalizing ICP, managing territory and building pipeline to get there. The future of sales is at stake.
To be clear, this is a “net” Magic Number that includes churn. It’s also not 100% clear from the Battery report that this is a median on public comps. However, this report from Sapphire Ventures looks mostly the same so it helps to corroborate the data. They also state the longer-run (2015-2021) median is 0.7x.
Yes I know it doesn’t work this way.
It’s interesting how AE OTEs are now nearly equivalent to manager OTEs. In 2015, the median AE was at $118k while the median manager was $140k. Now it’s $190k and $198k respectively.