Are your marketing activities generating a thimbleful of leads, or are they gushing MQLs like a firehose? And, can you directly attribute revenues to specific marketing strategies, or are you just casting proverbial darts at the proverbial dartboard?
In my years as a marketing leader, I’ve heard C-suite executives bemoan the efficacy of their marketing activities – based on nothing but gut feel. They alleged that marketing is a black box, or that you cannot effectively measure the effectiveness of your activities.
I disagree. You can absolutely measure the effectiveness of your brand awareness and demand generation efforts. In fact, last year, more than 75 percent of corporate marketers were able to report how their campaigns were directly influencing revenue.
But only 35 percent of that same group said that such demonstrations of ROI were important to their CEO – reflecting a gap in understanding that marketers will need to bridge to ensure a seat at the “big-kid” table. That brings us to the third installment of our series – the SaaS metrics that matter.
In our first blog we talked about how to make your brand shine using some successful positioning techniques, and in the last installment, we gave you some steps to gain command of your demand generation program. But none of this means much if you cannot track the efficacy of your efforts and prove that they are collectively moving the needle.
Let’s start by looking at three SaaS measurement categories to focus on — demand waterfall, sales velocity, and your flywheel model.
The metrics within the demand waterfall to focus on are website visits, form conversions, marketing qualified leads (MQLs), sales accepted leads (SALs), and sales qualified leads (SQLs) – but the latter three represent the key data. That’s because typically, MQL means that the prospect fits your ideal customer profile (ICP), and they’ve reached a reasonable activity level to consider them engaged. SALs tell us that your sales team or business development reps have set a meeting with the prospect; and SQLs are opportunities that have emerged from that first discovery call as a valuable prospect.
Thus, these measures reflect lead progress from the top to the middle of the funnel – a critical moment in the demand waterfall when marketing meets sales. Making it this far requires operational efficiency and discipline, considering the cost of incubating a lead into mid-funnel residency can be hefty!
Rewind with me, for a moment, to the top of the demand waterfall, or the top of funnel. At this stage, besides website visits and form conversions, we also want to capture impressions. Impressions and engagement are key metrics that determine how well your chosen conversations and content topics resonate with your audience, both on social media and through digital advertising.
Conversion rates at this stage are important – since B2B SaaS companies website visits to form conversions should be somewhere in the 1-3 percent range. Once you reach the MQL stage, you should be expecting at least 10 percent of those to convert to SAL; and 75 percent from SAL to SQL. Generally speaking, win rates for new business in the B2B SaaS universe top 20 percent. Even more compelling: After the Discovery call, if a prospect makes it to Evaluation — the next stage in the sales process – the conversion rate leaps to more than 50 percent!
Speaking of sales efficiency, there’s a very simple and powerful equation to measure the effectiveness of your marketing campaigns, sales enablement, and sales process. That equation is called sales velocity, and the formula works as such: Multiply 1) the number of opportunities by 2) the average deal size, and 3) by the win rate, and then 4) divide by your average sales cycle.
The resulting sales velocity number is relative to each business and its individual product-market fit. However, it is important and valuable to understand the performance of these four variables by campaign and by sales territory. You’ll quickly notice which of the four variables are “off,” and which you can improve the most.
The flywheel, or product-led growth (PLG) model, is a favorite of venture capitalists and has led to many a SaaS unicorn. PLG is powered by two concepts. The first is reliant on your product superiority -- you have such an optimal product-market fit, and provide such a frictionless experience, that your prospects “self-service” their way to the “Aha moment.” In other words, your prospects search for you, find you, try out your product, immediately see the value, and buy! Does this sound hard to believe? Well, believe it or not, it is possible.
The second concept is that once your prospect becomes a customer, they can self-adopt the product, and usage naturally increases. In fact, because they are so happy with their experience and gain so much value from using the product, they are compelled to recommend your solution to their friends and colleagues. So, in effect they become a sales force for you, while also paying you to use your product. It doesn’t get much better.
Within the flywheel reside three metrics that track how well it is working: The first is Customer Lifetime Value divided by Customer Acquisition Cost (LTV:CAC), the second is a magic number which relates to payback period, and the third is Net Promoter Score, or NPS. The LTV:CAC is a measure of how many customers you add in a quarter vs. how much it cost you in total sales and marketing expense to do so (a result greater than three is considered optimal).
A magic number of one or greater means that your gross margin pays back your Customer Acquisition Cost in less than one year. This is extremely efficient but could mean you’re not spending enough in sales and marketing. Finally, the Net Promoter Score measures how willing your customers are to “promote” your company or solution to their friends and colleagues on a scale of 0-10. Zero to 6 is considered a detractor, 7-8 are passive, and 9s and 10s are promoters.
NPS is extremely effective in both understanding where your product and service need to improve, and who to reach out to for case studies and referrals. Make time to engage with your promoters and detractors — it’s almost always worth it. Interestingly, I’ve been on quite a few calls with “0s” who, by the end of the call, become a promoter and want to buy more. Sometimes all it takes is empathetic listening and some quick action to resolve an issue. NPS and your promoters are a good systematic way to capture case studies and online product reviews, which amplify why your customers think your solution is amazing.
There you have it — the SaaS metrics that matter. In our final blog in the series, we’ll zero in on sales enablement, and, in particular, how sales converts the demand and interest that marketing generates into revenue.
In case you missed the first two blogs in the series: