There is an ongo­ing argu­ment in Sil­i­con Val­ley about the rel­e­vance of hav­ing an out­side (read expen­sive) sales force. Some ven­ture investors have told us that they will no longer fund any com­pa­nies need­ing out­side sales and instead will seek out “freemium sales mod­els” as the pri­mary sales chan­nel. There are two sides for this story. On one hand, out­side sales forces can be expen­sive, can have run­away costs if the hir­ing plan is either too early or too late and is not as effec­tive as in the past. On the other hand, the absence of a direct sales team may ruin the chances for an oth­er­wise suc­cess­ful infra­struc­ture invest­ment. Since the “no sales­man” the­ory is in vogue there isn’t much out there in the way of defense for the out­side sales­man so we thought we’d give it a try. The argu­ment in defense of the out­side sales per­son has three ele­ments — first it doesn’t have to be waste­ful — smart hir­ing deci­sions, fast “onboard­ing” of new hires, and well thought out sales team (out­side, inside, sys­tems engi­neer) can keep costs under con­trol while the cus­tomer acqui­si­tion rate ramps up. Sec­ondly, the out­side sales team can play a big role in com­mu­ni­cat­ing the value propo­si­tion and posi­tion­ing. But finally the most impor­tant argu­ment in favor of the out­side sales teams is that — IT WORKS.” Just look at the last three infra­struc­ture com­pa­nies that recently went pub­lic. The table below shows the cost of sales and mar­ket­ing from the com­pa­nies’ S1 fil­ings. These per­cent­ages, while being high com­pared to a freemium model, make the point that effec­tive sales teams remain a key for a suc­cess­ful strat­egy. While the per­cent­ages seem high keep in mind that these com­pa­nies may not have achieved “exit veloc­ity” with­out their direct sales forces.

Cost of sales and mar­ket­ing (% of revenue)

Com­pany 2011 2010 2009
Splunk 59% 60% 69%
InfoBlox 51% 44% 56%
Proof­Point 52% 48% 57%
Source: S1’s