Key SaaS Metrics for Accelerating Growth

Busiess MetricsExecutives love metrics, especially in the technology/Internet space. Metrics equal transparency and proactive improvement across key business metrics. Companies that set the bar operationally grow more effectively, and that means better shareholder value.

A few critical KPIs are key to measuring the health of the business, setting goals and identifying reprioritization efforts that can address potential issues before they surface. At the C-level, every executive, especially the CEO, continually evaluates how the business is doing on key fronts like sales, customer success, product, etc. With the rise of a more complex buyer’s journey, marketing has a huge impact on growth. Understanding the variables that indicate marketing success is what we will dive into below.

This overview and the examples are meant to give you a baseline understanding of creating a predictable marketing-centric model that helps justify further investment and testing of program-mix spend.

First, evaluate your strategy and your go-to-market model. There are three main variables to consider as inputs for optimizing productive growth:

  1. Average deal size: Annual Recurring Revenue (ARR): Are you living in a fast-moving, low-price, world? $2k ARR deals closing in weeks, not months? Or are you selling $250k ARR deals that take 18 months to close? Maybe you have businesses across multiple types of models. Are your new customers coming from freemium products? Trials? Demos?
  2. Sales cycle (number of days from lead to opportunity to close): Once the sales team accepts a qualified opportunity, they have the hot potato! What’s the Service Level Agreement (SLA) that comes with that company asset? Should the sales person use three or four calls and 30 days to close the deal? How are those efforts tracked, reported and planned for in your metrics and their compensation plans?
  3. Velocity (number of deals/rep/month): How simple or complex is it to sell your products? How many deals can your sales reps manage and close, in parallel?

Having a common understanding of what these mean is critical for your organization. Then you need to summarize and adjust your investment mix each quarter by leveraging solid data that you and your CEO trust.

What generates a fast-moving new pipeline?

In most cases, inbound marketing is the fastest way to generate a new pipeline. Inbound marketing is comprised of two channels:

  1. Organic search: Keyword phrases plus a highly optimized, dedicated landing page (under your URL) with content tuned to that exact search phrase. Every organic search campaign should have a dedicated landing page with a call to action (CTA) that converts the anonymous visitor to a known lead via the form-fill associated with getting the CTA offer.
  2. Paid channels (paid search/PPC, advertising and social): Google AdWords, Bing, Yahoo, LinkedIn, retargeting, Twitter, Facebook, etc.

Use common definitions, attribution (I recommend multi-touch) and math to report results across your channels. Here is a useful top-of-funnel (demand generation) reporting template that will clarify which investments are the most valuable.

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Here’s an example of a quarterly marketing report outlining pipeline growth and productivity results to track results and to share with your executive peers.

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This will show the team how you are doing at a high level and will enable you to adjust the marketing plan.

Accelerate revenue growth with content

You don’t need a ton of content to accelerate revenue growth. But, over time, the company with the best content wins because content cuts through all the digital channels’ clutter and noise. Be a thought leader and see where your content stands versus your marketing campaigns and those of your competitors. Why does this matter?

  • Great content engages new (previously anonymous) buyers early in their search to buy the right products.
  • Great content used correctly (marketed to the right personas at the right stage of interest) increases your conversion rates (which improves your cost of acquiring new customers – customer acquisition cost (CAC).
  • Acquisition inefficiency starts at the top of your funnel. Knowing what keywords engage new buyers and what promotions work best means you beat your competition and engage new buyers so they prefer your solution versus your competition. That means faster/higher conversion rates, and you get more value from your nurturing tracks and CRM systems.

The key is your numerator. We all need to convert more previously anonymous people into new, high-quality leads. How does that happen? From engaging new buyers early in their process of looking for your products (non-branded search, advertising and social campaigns coupled with your outbound marketing programs).

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I prefer using the “Magic Number.” Magic Number = (Increase in quarterly recurring revenue4 )/ (prior quarter′ s sales and marketing expenses)

Your magic number should be >1.25 to pour fuel on the fire. If it’s below one, you have a problem to fix; either your average deal size and sales cycle are too inefficient for your sales and marketing model, or your marketing spend mix is way off. Either way, understand the root cause of the issue and fix it before trying to accelerate your revenue growth.

Monthly opportunity reporting

I saved the best for last. Below is my favorite report (simple but brutal) – a monthly opportunity report that is critical for your ability to predict the revenue impact from marketing’s pipeline contribution. The best forecast of future revenue is tracking opportunities that will turn into closed business.

If your opportunity-to-close percentage is 50 percent and your opportunity-to-close time averages 30 days, you can predict September revenue by adding up your total opportunities at the end of August, dividing by two and multiplying them by your average deal size.

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Since you know how many opportunities need to be created from marketing-generated leads, you can also improve your ability to forecast future opportunities based on math and past conversion rates. Over time, your marketing model will be so seamless that your ability to forecast future quarters’ revenues will be better than that of sales leaders … and that will create a trust to invest more in your business.

From the CFO and CEO view, operating expense increases are limitless as long as they trust it turns into faster revenue growth in a predictable way. Review your existing marketing model, generate and utilize reporting tools that track the value of your content and succeed in effectively tracking your marketing efforts and generating new business. You can do it!

Originally posted on http://sandhill.com/article/c-level-metrics-and-reporting/.

How to Find Your Total Addressable Market

Businesses love talking about total addressable market because it’s exciting for them to see the available opportunity for their product or service. So exciting, in fact, that they often clammer to craft specific campaigns or shift messaging around new potential markets. However, if this is done hastily or without thorough research, it can turn into a waste of time and resources.

Determine Your Ideal Customer Profile

To find your total addressable market, you first need to determine your ideal customer profile, then find look-a-likes that accurately fit the mold.

Determining which data are relevant to your total addressable market is a challenge. With so much data available on both current and prospective customers, it’s hard to distinguish the signal from the noise.

The traditional way of figuring out significant information was to look at the accessible firmographic data. Firmographic data includes basic information such as industry, location, size, and revenue. While this is useful to include in your analysis, this type of data is only the tip of the iceberg. Additional business signals that are harder to obtain, such as web savvy or social presence, may actually be better predictors of success.

Let’s pretend for a moment that you are a point of sale (POS) system looking to sell your product. Perhaps you target restaurants, because they fit your ideal customer profile. You may have performed well with them in the past, so you continue searching for other look-a-likes in the same industry. But what happens when you throw a new industry in for comparison?

addressable market

On the surface, with solely the firmographic data taken into account, the mechanic appears to have a lower success rate than the restaurants. This is where most marketers end their targeting exercise and launch campaigns targeted solely at restaurants. But look at how the success rates change when you add additional business signals:

addressable market

With the additional signals taken into account, the business in a new and unexpected industry has a significantly higher likelihood of success than a formerly considered look-a-like.

This example reveals that before you deeming a category unfit, make sure you are looking at the best possible predictors of success. This advanced segmentation uncovered a more effective go to market strategy than the original idea to sell to restaurants.

In this case, social media presence was more indicative of success than industry. 

The restaurant segment performed well because restaurants are more likely to be socially savvy than other small business industries. This new perspective with additional business signals revealed almost as high of a success with mechanics that were on Facebook as with restaurants on Facebook.

Discover the Size of the Market Opportunity

Once an ideal customer profile is solidified, the next step is to figure out how large the market opportunity is that fits the description.

Understanding your total addressable market will help you answer 4 key questions:

  • How long will my sales pipeline remain satisfied?
  • What is the real size of the market?
  • How many prospects can I expect?
  • What is the potential revenue for a particular quarter or year?

You can think of your total addressable market as the sum of your ideal buyer profile look-a-likes.

Let’s look at two scenarios to help understand how valuable it is to understand total addressable market for a product or service.

In this first scenario below, you have a segment that has a very high success rate compared to your typical conversion rate. Here is a highly targeted segment with an impressive success rate of 85.7%:
addressable marketsegmentation

It is clear that this segment will perform well. However, the addressable market opportunity – as shown in the number of new and open records – is small. This segment should still be used, but it will soon need expansion to provide a full sales pipeline and fuel sufficient business growth.

Below is another scenario for comparison with one signal removed to widen the net of potential businesses.

segmentationsegmentation

In the second scenario, you have a segment that converts at a lower success rate, but with a much larger market opportunity available to target – as shown in the number of new and open records. Even though the success rate is lower in this scenario, it still has a high success rate at 67.7% – and is well worth targeting. The sheer volume of the potential in the new and open records make up for the slightly lower success rate.

The results from the second scenario are more helpful in determining the size and scope of the total addressable market because it is scalable. Continue this analysis process with additional high performing segments that have ample market opportunity to effectively visualize your total addressable market.

Conclusion

Estimating the size of your market used to be a struggle that involved informed guesswork and complex calculations. Now, there are tools available to businesses that automate the total addressable market discovery and execution process. Taking advantage of these tools gives marketing and sales teams confidence that they are focusing on the right market segments and opportunities. Marketing organizations in particular need to be more strategic in their analysis because their efforts span a large scale that requires significant resources. Gaining a realistic understanding of your ideal customer profile and your total addressable market will help your entire organization become more targeted and effective.

The images in this post are of the Radius product. If you would like to learn more about Radius, click here.

To view the original post, click here.

SaaS Customer Metrics: Why is my SaaS Business Not Making Money?

David Skok’s valuable blog, SaaS Metrics 2.0 – A Guide to Measuring and Improving what Matters – discusses how Software as a Service (SaaS) businesses hone their SaaS customer metrics. The article includes easy-to-use spreadsheets to help these businesses define the cost to acquire their customers (CAC) and how to price effectively and expand intelligently to keep their books in the black.

In my experience, customer relationship management (CRM) activities are usually implemented after the money has been spent to acquire the customer. Moreover, much of CRM activity is limited and short-sighted — tracking leads, follow-up and interactions with each customer – without assigning a dollar value for each step of the customer lifetime. Skok’s exercises allow us to assign costs to each step of the process – from acquisition onward – and truly get a clear view of customer investments. I wish I had had some of these metrics when I was managing the communications projects for a sales force—I could have really put some useful metrics in the representatives’ pockets!

Why is SaaS Different? How is Your Business the Same?

The SaaS business model often requires a high investment in acquiring customers based on its monthly, subscription payment structure. In fact, it often takes up to 13 months after the client signs the contract to experience profit. This causes cash flow problems if it’s not accurately planned for and it’s often unclear as to when to start spending again on new customer acquisitions.

In addition, SaaS companies, in this increasingly commoditized marketplace, need to “grab market share fast” in a “winner takes all” game. You must have solid numbers and know how much it costs to acquire and keep customers to assure investors of the value of your business.

Skok’s in-depth paper also suggests other opportunities for delineating customer value:

  • Skok discusses why sales models with a long sales cycle (consultative sales for extremely complicated offerings) require more resources and better planning to identify CAC and the “profit-point” when that investment pays off. For SaaS, he’s come up with a 3 x CAC ratio to identify the lifetime value of a customer (LTV). Skok also suggests looking at the value of current lead generation activities; customer segmentation for the “quickest return and highest LTV”; and finding out when to push the button to expand.
  • If you haven’t recouped your CAC fast enough, Skok offers some good suggestions. For example, he suggests “variable axis” pricing, up-selling and cross-selling to create more revenue with existing customers. Another way to protect cash flow is to offer discounts for clients who pay in advance or getting paid more up front.
  • A word about customer churn: You need to know when it’s happening, why it’s happening and how to stop or mitigate it. Skok provides excellent, step-by-step instructions to discover why customers are leaving and what it means to your business. Will the expansion revenue from new customers cancel out or exceed lost revenue from churning customers? Skok’s got some excellent SaaS customer metrics and graphs to show you how to find out.

David Skok started his first business when he was 17 and today, he’s one of the most sought-after consultants in the business world. Reading this paper is like having “the smartest guy in the room” deliver all of his hard-earned secrets for free. Find out how much your customers are costing you – and create more value from each and every one.