SaaS Metrics
An introduction and why they're so important to understand
Many people in sales struggle to grasp the fundamental metrics of their pipeline let alone SaaS metrics in general. As a career sales pro - graduated leader - who knows how important “control” is in the sales cycle, I find it odd that salespeople don’t apply that same “control” discipline to their own career.
Most salespeople will literally allow their leaders to dictate to them rabbit-fashion what all the metrics mean without really taking them in. You know, like that class at school that you turned up to but was just too difficult to follow, so you promptly switched off, counting down the minutes, exultant to get the hell out of there for another week!
This edition of my newsletter serves as an introduction as to why it’s critical that you understand not only your pipeline metrics but also the metrics of the wider business, and it serves as the first of a series of newsletters over the coming months that aims to demystify SaaS metrics for you.
Why it’s critical to understand SaaS metrics
It’s kinda simple. Metrics are both leading and lagging indicators of performance. They offer you, your team, your manager and your investors insights into the health of the business, and critical decisions are made on the back of them.
A simple tactical example of a critical decision is hiring and firing
Quota capacity (QC) is the expected performance of the sales team if everyone hits 100% of goal. In the world of fast growth SaaS, and in the companies I have built, whilst everyone’s target is set at 100% of the goal, I actually only budget for the mean performance to be ~80%.
It gives me wiggle room to be wrong on the downside, whilst encouraging me to be very realistic of what is possible if all goes to plan - after all, forecasts are not an exact science.
If the team performs above that mean, and other metrics such as lead volume, lead quality, lead type and engagement stack up, I’ll likely make the case to add headcount to my team. If the team performs below that mean, I know I have serious work to do and it activates a completely different set of behaviours.
So, if you’re an IC, budding to become a leader, and you hit >100% consistently AND you recognise the team is operating at >80% to goal, and lead volume looks solid, this might be the leading indicator that signals you should ask for the opportunity to lead a team.
If, however, you’re operating beneath the mean, 80% in this example, you can be sure questions will be being asked of whether you’re the right fit for the next stage of the company journey. In this case, you should be going the extra mile to illustrate you are doing what it takes to learn and improve fast.
One side note: if you’re operating on a team that’s missing goal by around 10%, but you’re hitting >100% then you should know that whilst psychologically for you that might be tough to process, in reality, that’s likely an acceptable performance, that you and the company can grow from.
An example of when your individual metrics get raised up the flagpole
There are a myriad of metrics that are publicly available to every IC. One big one I look at in order to assess individual performance is the meeting-to-close ratio.
If your meeting-to-close ratio is below the mean of the team, then for reasons I’ll look to uncover with you in due course, this metric is telling me you are burning opportunities. Which is a red flag.
Note: the industry average according to Hubspot is 1:4, but the strongest teams close 1:3 or greater. The strongest salespeople close 1:2. I’ve experienced purple patches that extend a whole year where some salespeople close 80% of opportunities that hit their pipeline!
Now let’s take the meeting-to-close ratio up a few levels. If your ratio is below the mean, you are increasing the average cost to acquire a customer (CAC), which reduces my CAC to LTV (lifetime value) ratio and simultaneously increases the time it takes to pay back the CAC (payback period), which in simple summary means the business is running less efficiently due to this performance. These metrics will therefore be a drag on the company and will make it harder to get the valuation we are looking for when we’re sitting in front of investors.
So you can see from that last example how your personal sales efficiency metrics can very quickly escalate up to board level.
There’s a lot to unpack in that last example, look out for a post on LinkedIn about that this week, and a deeper dive in a future newsletter.
The craft of selling is not enough
If you’re ambitious and you want to build an incredible career and company, then mastering the craft of selling is just first base.
The people that surround you, whether they be in engineering, product, finance or your investors will seek a common language that you can all relate to.
That common language is SaaS metrics. It’s these metrics that will offer impartiality about what products the product team should guide the engineering team to build, what budget should be allocated to what, by the finance team, and it’s these metrics will justify increasing the overall value and future investment into the company by VCs.
Learning to speak that common language extends your audience and enables you to build trust across your organisation at the highest level.
SaaS metrics
Over the coming weeks, I will demystify the SaaS metrics that matter for sales leaders.
My approach will be to reverse engineer what VCs look for because it’s those metrics that ultimately roll downhill to you as the sales leader or sales rep.
Getting ahead of the metrics will allow you to get ahead just generally.
Wishing you all a wonderful week!
Wayne
Advising: WayneMorris.co
Newsletter sign-up: WayneMorris.me
Twitter: @waynegmorris