Metrics that a CFO, CEO and CMO can all Support
This week’s SaaS Barometer Newsletter is brought to you by SaaS Metrics Palooza 2024 . Come join 30 of the SaaS industry’s top leaders as they share the latest in how leading companies are using metrics and benchmarks to inform decisions, achieve efficient revenue growth and maximize enterprise value creation for every stakeholder.
Marketing Performance Metrics?
“Metrics that a CFO, CEO and CMO can all Support”
I was recently asked to present at the Chief Marketing Officer brunch at SaaStr, hosted by Carilu Dietrich , the former CMO at Atlassian. Carilu led marketing as Atlassian grew from $50M to $500M+ ARR, ultimately leading to their IPO.?
I was impressed with the A-List CMOs that Carilu brought together to share their experiences, insights, ideas and best practices that led to their company’s success.This session inspired me to expand upon a previous edition of the SaaS Barometer newsletter which focused on the top 5 GTM Metrics for a CMO and CRO.
In today’s newsletter, I share the top five outcome metrics and the top five Marketing Return on Investment metrics from my B2B SaaS Performance Metrics framework.? The framework includes Marketing metrics that measure both outcomes and the efficiency of those outcomes, providing a Marketing performance metrics foundation that investors, CEOs, and CFOs can all support.
Top Five Outcome Metrics for Chief Marketing Officers
I always like to start any “Departmental SaaS Metrics Framework” with the primary responsibilities of the department and thus the department’s executive leader. B2B SaaS Chief Marketing Officers have three primary strategic responsibilities, in no particular order:
At the end of the day, the ultimate financial measurements for every SaaS executive, including the CMO is revenue growth, profitable revenue growth and shareholder value.?
My B2B SaaS Marketing Performance Metrics Framework includes the top five “outcome” metrics below:
#1: New Logo ARR
The Chief Marketing Officer is a key member of the Go-to-Market executive team responsible for customer acquisition, customer retention and customer expansion, and the number one outcome metric - REVENUE GROWTH.
In the SaaS industry, annual recurring revenue (ARR) growth remains the metric that matters most to private company investors including venture capital and private equity. Revenue growth continues to be the number one measurement that matters to public company investors including institutional and retail investors. Yes, operating profitability is important, especially in 2024, but growth rate continues to have a 2X - 2.5X greater impact on Enterprise Value to Revenue multiples than Free Cash Flow Margin - the primary operating profitability used in the Rule of 40.
Best in class CMOs co-own the New ARR goal in partnership with the CRO.? In recent research conducted by Benchmarkit, 28% of CMOs reported they have New ARR generation as a primary objective. 95% of those CMOs who shared the New ARR goal were in companies with growth rates in the top quartile!
#2: Existing Customer Expansion ARR?
Expansion ARR within the existing customer base represents a median of fifty percent (50%) of New ARR at B2B SaaS companies as they scale beyond $50M ARR. Expansion ARR is also a key component of Net Revenue Retention, which ranks as the fourth most correlated metric to enterprise value-to-revenue multiples in public cloud and SaaS companies.
B2B SaaS companies often begin to dedicate Marketing resources and programs to existing customer retention and growth as they scale to $50M ARR and above.? Another key factor in investing in customer marketing earlier is based upon the primary Go-to-Market motion (Product-Led vs. Sales-Led), or if the GTM strategy includes a prioritized focus on a hyper “land and expand” approach. This is common in many Product-Led Growth and/or Usage-Based Pricing companies and also in those companies with a broader platform play that includes multiple products,and? built-in motions for cross-sells and up-sells.
Best in class Marketing organizations partner closely with the Customer Success team by developing customer marketing programs and content assets that focus on maximizing customer engagement, increasing product utilization and validating customer outcomes which are foundational elements to increasing customer retention and serves as the foundation to customer expansion.
#3: Pipeline Generation - Total Pipeline and Inbound Marketing Pipeline
It is hard to argue that pipeline generation is not a top objective for any Marketing organization. In B2B SaaS, pipeline generation is often the number one or number two barrier to achieving sustained revenue growth.
Pipeline generation is not the sole responsibility of the Marketing organization, as most companies will have at least four primary sources of pipeline including: 1) Sales Development; 2)? Direct Sales; 3)? Channels/Partners and; 4) Marketing. Marketing is typically the number one source of new pipeline,representing a median of forty percent (40%) of pipeline created in 2023.?
My SaaS Talk with the Metrics Brothers partner Dave Kellogg recommends, the CMO should be the quarterback of the pipeline.?
Though “attribution” can be valuable in understanding which programs, channels and/or content target buyers are engaging with, it often comes with baggage including the belief by many that attribution is more about getting credit for revenue impact versus creating pipeline.
To eliminate debates over which “attribution model” to use, measuring a primary outcome metric of “Inbound Marketing Pipeline” provides a solid solution.? For this purpose, Inbound Marketing Pipeline is simply defined as:
“All pipeline that comes from an inbound handraiser that is specifically requesting an activity that requires meeting with a sales person”
An inbound marketing opportunity may be the result of a contact us form, request a demo form or even a chatbot interaction that results in a conversation with a sales person or a scheduled meeting that converts into a qualified opportunity.
The CMO should monitor the total pipeline and inbound Marketing pipeline at least weekly, but preferably daily.
Inbound Marketing Pipeline can be measured by both the number of opportunities created and the dollar value of the qualified pipeline generated in Stage 2. Notice the suggestion to begin measuring qualified pipeline at Stage 2 - which assumes that Stage 1 opportunities may be created without being Sales qualified, or there is a step and associated stage prior to an opportunity being fully qualified and ready to be worked on in a dedicated manner by Sales.
One of the questions I often get asked is “how do I measure the return on non direct response marketing investments such as organic social or media such as podcasts?”? By tracking and measuring “inbound marketing pipeline” as a percentage of all qualified pipeline over multiple quarters, the trends should highlight that inbound marketing pipeline grows materially as a percentage of total pipeline. In one company I work with, after 4 quarters of implementing a “Media-Led Growth” program the percentage of pipeline from inbound hand-raisers increased from 18% to 34%.? Moreover, inbound generated opportunities were closing with a 15% higher win rate, a $22K increase in ACV and with a 68 days sales cycle versus the average sales cycle of 94 days!!!
#4: Win Rate
WAIT - how can Marketing have responsibility for a metric that is clearly the responsibility of the Sales organization? I start by highlighting one of the most common “issues” leading to Marketing and Sales misalignment - low quality leads!? When the CMO includes the opportunity Win Rate as a top metric that Marketing can impact, the first thing that happens is the creation of a culture that Marketing and Sales are in this battle together. This includes an increased focus on generating leads and pipeline with target companies (ICP) who are most likely to buy. When conversion rates and win rates increase, Sales quickly begins to value the quality of leads being generated by Marketing, magic begins to happen.
I will not go into the strategies and tactics of how Marketing can assist in increasing win rates beyond highlighting a few measurable strategies including refining the ICP targets to those target customer segments with the highest win rate, the highest retention rates and highest expansion rates. Concepts such as Marketing Qualified Accounts and Sales Qualified Accounts in an account-based program, enhanced data enrichment programs and/or enhanced lead routing and demand conversion programs are all examples of Marketing led initiatives that can materially increase win rates.
#5: Awareness
I was debating on including this metric, as it can be difficult to measure.? Moreover, this can be chalked full of vanity metrics that do not directly correlate to qualified pipeline and new ARR.??
Increasing awareness can be accomplished by both “brand” and “category” centric investments.? The Metrics that Measure Up podcast episode featuring Udi Ledergor from Gong provides an excellent example of how investing marketing dollars into category creation, in this case, "Conversation Intelligence" had a direct positive impact on the number of times direct organic search results highlighted "GONG" on the first page of the Google search results.
For me, the best way to measure the direct impact of awareness investments by Marketing include:
Though there are other ways to measure awareness such as media coverage, social media engagement, referral traffic, branded keyword search performance, and even brand awareness surveys -? they are all primary input variables to the contribution from inbound pipeline (hand-raisers) and the associated new ARR.
Top Five Efficiency Metrics for Chief Marketing Officers
领英推荐
#1: Pipeline Coverage Ratio
Pipeline Coverage Ratio measures the amount of qualified pipeline ($) required to close “x” dollars of new revenue. Most companies will establish the Pipeline Coverage Ratio by dividing the qualified pipeline at the beginning of a previous period (month or quarter) by the dollar amount of opportunities closed in the same period.?
An example calculation is below where at the beginning of the quarter there was $10M ARR of qualified pipeline projected to close in the quarter and $2.5M ARR closed in that quarter - the resultant pipeline coverage ratio calculation would be:
One of the common questions I’m asked is “how do I measure the return on non direct response or demand generation programs such as organic social, content marketing and/or media assets such as podcasts?”? By tracking and measuring “inbound marketing pipeline” as a percentage of all qualified pipeline over multiple quarters, trends should highlight that inbound marketing pipeline begins to grow materially as a percentage of total pipeline.
In addition to measuring the Inbound Marketing Pipeline, it is important to also measure the “Inbound Marketing Pipeline Coverage Ratio” for opportunities generated from “inbound hand-raisers.?
Why is it important to understand the pipeline coverage ratio for inbound? Opportunities created from inbound hand-raisers will typically close at a higher rate, close quicker and represent a higher ACV which mathematically decreases the overall pipeline coverage ratio as a larger percentage of the pipeline is generated from inbound hand-raisers!!!
Just IMAGINE the conversation with your CEO and CFO when you can say that the Inbound Marketing pipeline has grown from 20% to 40% of total pipeline, and the pipeline coverage ratio is 2.3x for inbound versus 3.8x for all other pipeline sources!?!
#2: Pipeline Conversion
Understanding how a qualified lead performs across the entire funnel is critical to identifying the attributes of top performing leads that convert into qualified opportunities and ultimately new customer ARR. There are far too many articles, white papers, LinkedIn posts and opinions to repeat the key concepts and tactics here, but to suffice below are key funnel conversion metrics to measure:
In strategic account programs, it is also important to understand conversion rates for those best fit “accounts” as well as those accounts in the Ideal Customer Profile (ICP) segments.
A best practice is to also measure pipeline conversion rates by target customer segment(s), opportunity source(s) including Inbound Marketing generated opportunities.
#3: Cost per Opportunity
I define efficiency as producing the maximum output as measured by revenue for the minimum amount of input as measured by expense. One traditional measurement for Marketing efficiency is to understand how much cost is incurred to generate a qualified opportunity. This measurement is helpful in those homogeneous environments where the average contract value is fairly consistent and the product mix purchased is consistent across the majority of new customers.
This metric is more useful when using “variable cost channels” such as paid search or other paid media and dividing that variable cost in a period divided by the number of new qualified opportunities created.?
In order to have a dollar based understanding of how much Marketing investment is required to generate a dollar of qualified pipeline and/or new ARR, it is much better to use the Marketing CAC Ratio which is defined and discussed in detail below.
#4: Marketing CAC Ratio: Pipeline Generation
The Marketing CAC Ratio: Pipeline Generation moves beyond looking at the cost per opportunity on a variable cost basis and expands the measurement of Marketing ROI to include the fully loaded costs of Marketing divided by total dollars of qualified pipeline generated. The formula is:
One common objection to using the above formula, which includes all marketing expenses such as compensation, program spend, and other costs, is that not all expenses are directly tied to demand (pipeline) generation. In a B2B considered purchase, I would argue that every dollar invested in building brand, creating awareness and any other Marketing program is in the pursuit of only one thing - PIPELINE THAT CLOSES!
Though it is important to understand the pipeline influence of specific programs, channels and other variable expenses - at a high level nothing is more important than to understand the overall efficiency of Marketing is to measure and know the “predictable” output of every dollar invested in Marketing expenses.
The Marketing CAC Ratio is a superior measurement to be able to answer the below question that every CEO and/or CFO will ask during the planning and budgeting process:
“How much Marketing budget will be needed to generate $100M in qualified pipeline to close $25M in New ARR next year?”
?? Using the Marketing CAC Ratio:Pipeline will make it much easier to answer the pipeline component of the above question.
?? Using the Marketing CAC Ratio:Revenue will make it much easier to answer the second part of the question.
#5: Marketing CAC Ratio: New ARR?
The Marketing CAC Ratio:Revenue moves beyond looking at the cost per opportunity and/or the investment required to generate enough qualified pipeline to close “$X” of new ARR and answers the below question:
“How much new ARR can be produced if we invest $20M in Marketing next year?”
The Marketing CAC Ratio:Revenue formula is:
Using a rolling twelve-month basis for Marketing expenses provides a clear baseline forecast for how much new ARR can be generated. For example, if we plan to spend $20M on Marketing, knowing that last year we spent $8M and generated $16M in New ARR—resulting in a $0.50 Marketing CAC Ratio: Revenue—helps set expectations for growth.? As such, to generate $20M in new ARR next year, with all other variables remaining constant we would need a Marketing budget of $10M.
?? Envision being able to answer the above question from the CEO or CFO with such an easy response?!?
Of course, you will always be asked how you can be more efficient. This is a question that can be easier to answer by understanding which channels and programs produce the most efficient outcomes as measured by REVENUE and PIPELINE compared to the historic expenses required to generate one dollar of New ARR and one dollar of qualified pipeline.
?? The above take on the top five outcome Marketing metrics and top five Marketing efficiency is sure to create debate, disagreement and hopefully critical thought on what are the “Marketing Metrics that Matter”.? The primary context for my ideas above is that the primary outcome metrics for every SaaS executive? is measured by profitable revenue growth and optimal enterprise value.
??The two charts below are from my friend, David Spitz.? They highlight how Go-to-Market efficiency impacts the growth rate and enterprise value of public SaaS companies.?
?? Hopefully these two charts serve as an inspiration to the potential enterprise value creation impact of understanding Marketing and overall Go-to-Market efficiency as measured by the primary outputs of revenue and pipeline against the investment!
This week’s SaaS Barometer Newsletter is brought to you by SaaS Metrics Palooza 2024 . Come join 30 of the SaaS industry’s top leaders as they share the latest in how leading companies are using metrics and benchmarks to inform decisions, achieve efficient revenue growth and maximize enterprise value creation for every stakeholder.
CEO & Co-Founder @N.Rich??| Upmarket GTM ??? | High-ACV ABM/ABX ??| Reduce GTM Waste ??
2 个月Ray Rike - great metrics as always! When reading I was wondering if you lacked the conversion metric, but it was there towards the end. There is one tweak that I would suggest, though. In this post you assume a lead-based approach, which typically means a spray-and-pray top-of-the-funnel motion. If we focus on the enterprise/upmarket high ACV GTM, Account-Based, ICP-led approach is more appropriate. Therefore, I would suggest considering the quality aspect of conversions as well: Conversion of ICP accounts into pipeline. This way it's not just any pipeline, but conversion to high-value ICP pipeline (and win-rate) that really matters. This is what marketing should be measured on. Furthermore, I have a take on the sales cycle as well - if the pipeline accounts are well aware when the sales process starts, isn't it expected that the sales cycle will be shorter vs. those that had low awareness? As with all account-based pipeline metrics, you can take two approaches to measuring them, just measure the overall numbers vs. your ICP, in which case you'll mix marketing influenced to those that weren't influenced, or compare those that were influenced to those that weren't.
6x Public company and PE-backed CMO
2 个月These are great performance metrics Ray Rike. In addition to your top 10, I have 14 more for market presence, brand strength and pipeline health that optimized success. https://bit.ly/47pvas5