The AE payback period

Tomasz Tunguz

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The AE payback period

There’s a second and equally important payback period – the payback period on hiring a new account executive.

Let’s take a hypothetical SaaS startup that sells a $20k product at a 75% gross margin. Clients pay monthly and commissions are paid monthly. The company hires a new account executive in month 1. The AE has an on-target-earnings (OTE) of $60k base/$60k commission and a quota of $600k. The AE is given 5 months to ramp to full quota: 0% in the first month, 25% the second, 50% in the third, etc.

The chart above shows the cash flows associated with the hire. I’m assuming the AE attains exactly 100% of quota in each month. The company incurs $5k of expense in the first month, marked in red. This figure grows and stabilizes at $10k per month as the AE ramps and attains full quota. The positive cash flows in blue grow over time. These the collections from new business booked by this account executive.

[see original article for full example]

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