Part 1: Restructuring sales | The death of predictable revenue 🪦

When I was in my first company, Paddle, I had no experience in just about anything. 

It was the first business I’d ever been in/ran, and I was recommended a deluge of books.

One was Spin Selling by (GoCardless founder) Matt Robinson, which I still recommend to sales folks and founders today trying to run great discovery.   

But the one that had a real cult following was Predictable Revenue by Aaron Ross (2011). 

At Paddle, it was Ross' model that was the driving force behind our 3000% growth over three years, making us the fastest growing software company in the UK at that time.

And in our early days at GoodFit, it was the same philosophy that got us reaching thousands of prospects a month, and driving 6% response rates… with no XDRs.

I've tried to quantify it, but I can't comprehend the value of deals closed thanks to Ross and this model. 

Or the companies that are now worth in the millions if not not billions of dollars in value having followed this model. It’s truly an incredible legacy to have left behind, and I believe it’s just as relevant today as it was in 2011, if not more.

The question is: how can we pair it with giant leaps in programmatic technology, and massive changes in the SDR landscape, to run great outbound 14 years on? 

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1. Predictable Revenue: TLDR of the book

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Ross’ philosophy - which I think can and should apply to any SaaS company with any outbound motion today - sits across 3 main pillars:

More sales people != more sales

Ross dispels the idea that just adding sales heads will increase your sales numbers. It's a mistake that many make today - especially when they’re well funded - in trying to work out GTM fit. The book warns us not to scale teams until you have a predictable and consistent flow of leads. Consistent and predictable TOFU drives predictable revenue. 

Specialised = efficient 

Something that drives my thoughts about hiring in the early stages even today - my checklist of sorts - is: “is there enough work to satisfy them?” and “by that person doing the work (vs. it being someone else's responsibility) am I going to see greater output due to better efficiency?” We’ll go into specialised SDRs and SDR:AE ratios further in this post.

Know your spears

Predictable Revenue talks about leads in terms of Seeds, Nets, and Spears.

• Seeds are leads that come from many-to-many campaigns and word of mouth 
• Nets are leads that come from one-to-many marketing campaigns (e.g. inbound marketing and “growth hacking”)
• Spears are leads obtained by one-to-one outbound prospectors who actively find and reel in prospects.

You focus SDRs wholly on targeting high-fit Spears, driving meetings for AEs, who in turn focus exclusively on closing that business. So:

Build ICP > Map market > Run outbound > SDR qualify > Hand over to AE.

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2. Why the model applies to you, today

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So what are we optimising for with this suggested model? Where do things like role specialisation actually get us?

Answer: Low CAC. 

We want CAC as low as possible for efficient growth, and we want the payback to be as quick as possible so we can reinvest it into growth, and then you get this lovely flywheel effect.

To understand how Predictable Revenue is still relevant today, we need to zoom out and look at the market that SDRs are operating in. 

Increased costs 

If you’re a revenue leader, you’ll be painfully aware that costs are up and efficacy is down.

SDR salaries and SDR numbers have increased. Some quick GPT research suggests there’s been an increase of about 33% in their cost over about the last four years.

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I was expecting to see a drop in salaries during layoffs over the past year, but it feels like great talent stuck around - and we're likely seeing some evolution in the SDR:AE ratios. 

Companies have kept the great SDRs, and maybe got rid of some of the lower-performing ones. So salaries stayed high, but the SDR teams supporting AEs are smaller. 

In the early days at Paddle (2016/17), I was very hands-on in running the outbound programs. Running them again at GoodFit (albeit older, wiser, with more gray hair and a wisdom tooth due to be removed), it’s really interesting how much the market has changed. 

In 2017 we followed the SDR:AE Predictable Revenue model, and we did so with a 1:1 ratio. Not necessarily because the CAC was better, but because of career development on both sides of that equation. 

When you're growing at a certain trajectory, you need to build not only a growth engine, but a career development engine as well. The SDRs were learning quicker when shadowing an AE, so the promotional path was quicker. And we were coaching AEs on how to be coaches. It was a real learning environment.

But in this age of efficiency, I think it's much more common to see a 1:2 SDR to AE ratio - or at companies with lower ACVs and higher velocity, maybe even 1:5. 

This increase in SDR cost is coupled with difficulties in driving demand. We've all seen LinkedIn posts about outbound being dead (which I refute), but there's certainly some consensus that SDRs appear to be less effective.  

All this is making Aaron Ross’ model harder than ever to sustain. 

Increased everything  

Another reason folks are struggling is abundance. 

There's an abundance of competition. There are constant developments in AI and new technology. The barriers to entry for creating companies are lower than ever. There's constant messaging hitting our prospects' inboxes. There's automation around other channels like AI-driven advertising solutions. An entire multi-billion dollar category of products in sales engagement has emerged, making it easier than ever to reach people. 

The problem 10 years ago might have been finding a way to reach your target buyers - i.e. getting through the gatekeepers. Now, the problem is just getting them to engage with you. 

At GoodFit we talk about getting in front of the right customer at the right time with the right message. And that sounds pithy, but I think that's the crux of the problem. 

So we’ve got at least a 30% increase in SDR costs. We’ve got CAC payback lengthening. So how do we maintain the SDR setup of old? We need to:

1. Find a way to drive costs back down, and/or 
2. Improve efficiency to make up for those costs. 

In 2017, Paddle was growing at 200-300% year on year. And as much as we needed efficient customer acquisition and CAC, we also had a huge demand to scale the sales team. 

As well as that environment of learning and progression we were cultivating, we implemented another role - the Lead Development Rep, which no longer exists (but was actually kind of the genesis for GoodFit). 

This LDR role was us leaning heavily into the ‘specialization’ part in Predictable Revenue - one individual researching accounts, all day every day, to pass on to the SDRs.

Overall, we were building a system optimized for getting new logos through the door. 

We were responsible - we really did keep an eye on CAC and CAC payback - but honestly, it was a period where growth (much more than efficiency) was rewarded. 

Running this at GoodFit in 2024, the market and conditions as well as the limitations we’re all operating with are a little bit different.

We’re a leaner team than in 2017. Our ACV is more modest than what we saw at Paddle, there are new expectations around the efficiency of your growth, and most importantly, we're bootstrapped.

So when we’re thinking about implementing the SDR:AE model, my CAC payback is even more important. I'm spending the cash I'm earning as a bootstrapped company - not cash I’ve been given. So I need a really, really short time to payback to reinvest in growth. 

These conditions have really helped me evolve my thinking around how I could run top of funnel efforts and structure my sales team for the lowest cost and the best efficacy. 

I was ultimately questioning: how could I evolve on that 10 year old Predictable Revenue-esque setup that I leant on back in the 2010s? 

Not to leave this on a cliffhanger, but sometimes it’s helpful to separate the theory from the practical, so we’ll move onto the ‘process’ bit in Part 2.

Part 2: Restructuring sales | The revival of predictable revenue 🧟