Want to know the single biggest ARR killer in SaaS companies?
Nope. It’s not churn.
It’s mis-hiring AEs.
Too many AE mis-hires can (and will) devastate your ARR plan.
Everyone talks about this. This isn’t a NEW problem.
But everyone is understating the cost.
And almost every scaling SaaS company deals with some serious AE mishiring along the way (the average mishire rate for SaaS AEs is 40%).
Here’s an example that breaks down revenue cost.
Let’s say AEs at your company have an $800k/year quota – a typical mid market SaaS AE number.
Of course, during their first year, they’re spending their first few months ramping. So they have a first-year prorated quota of closer to $500k.
If you hired the RIGHT sales rep, their ARR generation would look like this:
A good rep will close no business for the first few months as they ramp, but get up to speed to eventually hit or exceed their ramp quota of $500k. In this case, the rep overachieved against their prorated number by $86k.
Like I said, that’s a ‘good’ rep.
But as we’ve already stated above, if you’re like many other SaaS sales organisations, 40% of the time you’re going to hire the wrong person.
What does a MIS-HIRE look like?
Compared side by side to the ‘good’ hire, it looks like this:
The ‘weak’ AE would track around 70% of their number after they ramp, give or take.
After 12 months…
That’s a $254,000 ARR gap.
$254,000 lost ARR PER mis-hire is already hugely expensive.
But it gets worse.
Let’s say you decide enough is enough with the underperforming rep. You manage them out of the business. Now you’ve got to go replace that rep with a backfill.
Most likely, finding the right backfill will take two months.
That’s two months where your ARR for that open role drops to $0 closed per month.
Before you even have somebody back in the seat, you’ve missed out on $130k ARR that would have been brought in by the right sales hire producing $65k per month all along.
And once your backfill is in the seat, they STILL have to ramp up. Assuming you’ve hired a winner this time, that’s an another two months where your ARR for that role stays at $0.
That’s painful enough on its own, but it becomes especially painful when you compare it to the ARR that the RIGHT sales hire is bringing in the entire time.
While you are scrambling to let your mishire go, find a replacement, and ramp that replacement, you have created a massive ARR hole.
When we initially compared our average rep with our mishired rep at the end of twelve months, it LOOKED like the difference between the two was $254,000 in ARR.
However, when you take into account fixing that mishiring mistake, the TRUE cost of that SINGLE MISHIRE over a twenty-four month period was almost twice that:
That’s a colossal impact on your company’s performance and revenue.
And let’s not forget, that is happening on average 40% OF THE TIME you hire an AE(!)
Imagine the impact of 3,4, or even 10 mishired sales reps. That’s the difference between a record setting year and one that shakes your confidence to its core.
If we were to clone the company above into an identical separate company we could see this play out on a much bigger scale.
If company 1 hires 30 ‘good’ sales reps and company 2 hires 30 sales reps, but with the average mishire rate of 40%, the difference in their two-year ARR numbers is in the millions!
But on the flip side, imagine the impact of making the right hiring decision every time.
What would your ARR growth look like if you never hired a bad AE again?
When great companies hire great AEs, that company can go on to change the world. And when a great seller joins a great company, that career (and life) could change forever.
These companies who hire crazy-successful AEs turn into buzzing organisations that crush their numbers, full of engaged, alive, strong sellers who are in THE right role for themselves and go on to achieve their career dreams.
What could possibly be a more meaningful problem to solve in the sales domain than THAT?
Okay. Let's wrap up. Here's the deal:
Few things hurt ARR more than AE mishiring.
And it's SO EASY to mishire salespeople. Did you know weak sellers look 'almost' identical to top producers in interviews?
Even if you’ve done it DOZENS or HUNDREDS of times.
Weak salespeople tell 'smoke screens' that make them LOOK like top reps (these are HARD to detect).
I'd estimate that 90% of sales leaders can’t detect these.
Here’s what to do next:
I want you to learn the 7 ‘smoke screens (and how to catch them).
You'll learn powerful techniques to 'clear up the smoke' and get REALITY.
=> 7 'smoke screens' weak AEs use to look like top reps in interviews.
I want you to download our free interview questions cheat sheet:
=>91 interview questions to spot SaaS reps that SELL.
These questions are sorted by traits, skills, and experiences.
You simply click the trait you’re hiring for and BOOM:
You get a list of proven questions that help you screen for that trait.
So here’s what I want you to do.
First, download the master list of interview questions.
Select no more than 6-8 “mission-critical” attributes you want to hire for.
Click on those attributes in the cheat sheet.
And add those questions to your sales interviews.
Download the free cheat sheet here.