The Science of Scaling · 23 Aug 2023
The Funnel and Revenue Math w/ Matt Plank (CRO, Rippling)
These are notes on the conversation, checked against its transcript. The episode itself has the full discussion.
In brief
Matt Plank, CRO of Rippling, joins host Mark Roberge to walk through the funnel and revenue math behind Rippling's growth from five engineers in a basement to a go-to-market org with more than 200 reps. He covers how to set quotas from rep OTE, how to work backwards from quota to opportunities, win rate and ACV, and how Rippling organises its SDR teams across inbound, mechanised and account-based outbound. The main argument is that sales capacity and demand generation must be planned together, and that demand channels saturate, so new ones need testing well before they are needed.
For founders
- Set a rep's quota from what you pay them, then work backwards through the funnel to the number of demos they need.
- Early on, lifting email reply conversion from 1% matters more than raw sending volume, which is capped by deliverability.
- Start testing your next demand channel about a year before your current one saturates, since a saturation found in Q2 can cost the whole year.
- Adding reps does not create demand, so sales capacity has to be matched by demand generation capacity.
- Monthly quotas reduce the quarter-end crunch for deals in the tens of thousands of dollars.
For revenue leaders
- Set quota at about 4x to 5x OTE, with Rippling using 4x as the acceptable level for new country launches.
- Use monthly quotas for transactional deals, since most business closes in the last 10 to 20% of any period.
- Track both S1s (scheduled demos) and S2s (demos accepted by the AE), treating S2s as the pipeline metric that counts; at Rippling AEs accept about 75 to 80% of the demos booked for them.
- Call form-fill leads within five to ten minutes rather than relying on automated email sequences alone.
- Keep AEs focused on closing in SMB and mid-market, with SDRs and separate outbound teams filling their calendars.
What was said 20, most useful first
Set a rep's quota at about 5x their OTE as a rule of thumb, with new markets starting lower and working up. Listen
Matt said his rule of thumb is a quota of 5x on-target earnings. Rippling started near 3x and moved up through 3.5x and 4x toward 5x as the business matured. For new country launches such as Canada, the UK and Australia, they aim for 4x and pay top dollar for reps, so the quota is set by what the business needs at that level.
“my rule of thumb is you want to get a 5X quota on someone's OTE, right?”
Listen to the episode Sales team, hiring & comp Link to this Report a problem
Work the quota backwards: quota equals opportunities times win rate times ACV, so the top of the funnel can be set from the quota. Listen
Matt described a funnel as simply how many opportunities, multiplied by win rate and ACV, gives the quota. He starts from the rep's cost and quota, takes the S2s the rep can work as the top of the funnel, and then adjusts win rate and ACV until the funnel is repeatable. Early on, win rate and ACV are unknown, so the opportunity count is the first thing to set.
“at the end of the day, a funnel is very simply like how many opportunities, what's the win rate, what's the ACV, there's your quota, right?”
Listen to the episode Pipeline & demand generation Link to this Report a problem
A $150,000 OTE SMB rep at 4x needs a $600,000 annual quota, or $50,000 a month, which means about 30 demos at a 33% win rate on $5,000 deals. Listen
Matt walked through a transactional SMB example. A $150K OTE at 4x gives a $600K annual quota, or $50K a month. With a $5K average deal, about 10 wins from 30 accepted demos reaches that figure. He said if you cannot give a rep 30 demos a month, you need higher win rates or higher ACV to make the funnel work.
“you need to win like 33% of them to get you 10 wins for an average deal size of 5K is going to get you to that 50K number.”
Listen to the episode Sales team, hiring & comp Link to this Report a problem
Set quotas monthly rather than quarterly for deals in the tens of thousands of dollars, to smooth out the end-of-period crunch. Listen
Mark said most companies close most of their business in the last 10 to 20% of the fiscal period. Quarterly quotas give four slow starts and four big finishes a year, while monthly quotas give twelve smaller cycles and lower volatility. He advises staying on monthly quotas as long as possible, even when finance and the board work in quarters, though he noted this does not work for million-dollar deals.
“Stay on monthly quotas as long as you can.”
Listen to the episode Sales team, hiring & comp Link to this Report a problem
Rippling's mid-market reps went from about 35 accepted demos a month early on to fewer over time, as win rate and ACV rose. Listen
Matt said in the early years mid-market reps were doing around 35 S2s a month. Over the past five years that number fell steadily while revenue per rep rose, driven by higher win rate and ACV. He said you should not raise quota indefinitely, and that at some point the unit economics support adding reps instead.
“mid-market reps would be doing literally like 35 S2s a month”
Listen to the episode Sales team, hiring & comp Link to this Report a problem
Adding reps to a plan does not by itself produce more demos, so sales capacity has to be matched to a demand plan. Listen
Matt said many companies put reps into a spreadsheet with a quota on top and treat that as the revenue plan, without knowing how the demos will be generated, and said hiring reps does not equal more demos in his experience. Mark framed the revenue plan as two sides, sales capacity and demand generation, that both have to work. He said it is easier to add reps than to predictably get demand gen working.
“They think that hiring reps equals getting more demos. You know, that's not true in my experience.”
Listen to the episode Pipeline & demand generation Link to this Report a problem
Early on, the binding constraint on outbound is send volume and reply conversion, so raising conversion from 1% matters most. Listen
Matt said at a 1% conversion rate you need to email 3,000 people to get 30 demos. Early on, the limit is how many emails you can send before the sending domain gets flagged, so the most important lever is improving conversion, which is how Rippling measures SDR work. Sending more volume through automated tools does not give a yield good enough to make the business work long term.
“so getting that conversion rate from 1% to 2% to 3%, 4%, 5%, whatever, that's like the most important thing that you can do.”
Listen to the episode Pipeline & demand generation Link to this Report a problem
Calling form-fill leads within five to ten minutes booked far more demos than an automated email sequence did. Listen
Matt said Rippling used to send inbound form-fill leads a three or four touch automated email sequence, which booked a lot of demos. When they began calling those leads, they booked considerably more. Rippling's inbound SDR team now calls within a five to ten minute SLA.
“But what do you know, when we started calling them, it was like we booked a lot more demos, right?”
Listen to the episode Sales process & deals Link to this Report a problem
Rippling runs three SDR sub-functions: inbound follow-up, a higher-volume mechanised email team, and account-based outbound. Listen
Matt said the inbound team handles form fills from organic search, review sites and paid ads. The mechanised outreach team runs higher-volume email distribution with follow-up on engaged contacts, a hybrid between inbound and outbound. Account-based SDRs are assigned named accounts and run an outbound playbook against them, and any lead from a named account goes to them.
“So we've got pure inbound, pure outbound, and then we have a hybrid.”
Listen to the episode Sales team, hiring & comp Link to this Report a problem
Separating roles so AEs only close, with SDRs filling their calendars, is what Matt says works for Rippling. Listen
Matt said he believes strongly in separation of duties, and that SDRs doing SDR work all day will far outperform an AE trying to do both. At Rippling almost all demos come from the SDR org, and SMB and mid-market AEs do no prospecting. Upmarket AEs do some inbound, and some are starting to do outbound with SDRs on named accounts.
“Our account executives in SMB and mid-market do not do any prospecting.”
Listen to the episode Sales team, hiring & comp Link to this Report a problem
Test alternative demand channels about a year before you need them, because a channel that saturates in Q2 leaves the year lost. Listen
Mark said annual planning starts in August of the prior year, and you need to know what your current channels can deliver, since they will saturate. If you realise this in Q2, you cannot start cold calling and expect results that year. He recommends running small experiments in cold calling, partners or ABM a year ahead, so the channel can scale when needed.
“if you wake up in Q2 of that year and realizing it, you're cooked on that year.”
Listen to the episode Strategy & market Link to this Report a problem
Early-stage companies are not TAM constrained, but they become TAM constrained at scale, and then yield per account has to rise. Listen
Matt said early on the pool of companies under 100 employees felt infinite. Six years in, with about 13,000 customers, Rippling became TAM constrained and could no longer send infinite emails. At that point the work shifts from volume to getting a higher yield from each account.
“at some point you become TAM constrained. You can't send infinity emails anymore.”
Listen to the episode Pipeline & demand generation Link to this Report a problem
Every demand channel saturates once everyone uses it, so a channel that works today will eventually stop working. Listen
Matt said email worked well at Zenefits, but over the following decade it became much harder as more companies used it. He said that this is the pattern for any growth channel: once it works and everyone adopts it, it stops working, which forces teams to find new creative approaches.
“anything that you do that works, like everybody does it and then it doesn't work anymore.”
Listen to the episode Pipeline & demand generation Link to this Report a problem
Buying low-quality leads damages email deliverability, and that damage can persist long term. Listen
Matt said Rippling bought high-quality leads and built its own database, because poor leads lead to poor deliverability, and that can affect them for a long time. He also said you cannot load a million leads into a marketing tool and send, since the domain will be flagged quickly. Rippling treated deliverability as an engineering and systems problem and spent months iterating.
“And if you buy crappy leads, then you're going to get a bunch of poor deliverability.”
Listen to the episode Pipeline & demand generation Link to this Report a problem
Rippling still round-robins inbound leads across more than 200 reps with no territories, which Matt says it should have changed sooner. Listen
Matt said Rippling has no territories, geos or industries, and round-robins across more than 200 reps. He said this is shifting significantly over the next 18 months and that they probably should have made that change a while ago.
“Rippling is still a round robin based inbound company. We don't even have territories, you know, no geos, no industries.”
Listen to the episode Sales team, hiring & comp Link to this Report a problem
Aligning leads to reps by time zone or region, rather than by zip code, is likely to raise yield. Listen
Matt said zip code territories are not necessary now, but routing a demo from New York to a rep in California does not make sense. He said just aligning leads to reps by time zone or region probably gives a yield increase.
“just trying to slot in almost like time zones or regions is probably, uh, you get some yield increase”
Listen to the episode Sales team, hiring & comp Link to this Report a problem
Matt defines an S1 as a scheduled demo and an S2 as an accepted opportunity, and treats S2 as the metric that counts. Listen
Matt said marketing delivers MQLs to SDRs, who turn them into S1s, scheduled demos, at a target conversion rate. AEs then accept about 75 to 80% of the demos on their calendar as S2s, which are pulled into pipeline. He said S2s are the metric everyone measures pipeline against, and that AEs may have about 30 demos scheduled a month.
“they might only accept like 75, 80% of them that they actually pull into their pipeline downstream.”
Listen to the episode Pipeline & demand generation Link to this Report a problem
Rippling splits ownership of pipeline output across SDRs, marketing and growth engineering, with each team accountable for a shared metric. Listen
Matt said the SDR function reports to him and owns the S1 and S2 quota numbers. Marketing shares the S2 number as its deliverable, but growth engineering reports to the CTO. He said if growth engineering falls off for a week or a month, the S2 plan will not be hit, so the dependency crosses separate reporting lines.
“the SDR function actually owns like the output of what we, what we call, you know, S1s and S2s.”
Listen to the episode Pipeline & demand generation Link to this Report a problem
Monitoring job changes from LinkedIn and similar sources finds people more open to a new system. Listen
Matt said Rippling looks for people changing jobs, because someone moving to a new company is more likely to consider a new system. They use engineering to pull job-change data from LinkedIn and other sources rather than doing it manually. The broader principle is to look at what humans do in marketing and SDR work and ask how it could be automated.
“we look for people who are like changing jobs, right?”
Listen to the episode Pipeline & demand generation Link to this Report a problem
Unit economics should include the full quarterly cost of marketing, SDRs and AEs against the revenue and lifetime value of each sale, not just rep pay. Listen
Mark said you add up quarterly spend on marketing, SDRs and AEs to get the cost of a sale, then compare the revenue and lifetime value it generates. He pointed to payback within 12 months and an LTV to CAC ratio of three to one as common benchmarks. He said a rep who creates their own demand has better unit economics than one fed by a large SDR team, so rep pay alone is not enough.
“What is the quarterly spend on marketing? What is the quarterly spend on SDRs? What is the quarterly spend on our account executives? And that's the cost for a sale.”
Listen to the episode Metrics & finance Link to this Report a problem