Every SaaS marketer I know is in full-swing planning for next year. After signing up for your marketing commit of demand generation, you’ll have a very specific set of measurable goals to manage. But what else should marketers be evaluating on a regular basis to make sure things are on track? Over the past several years, 5 metrics have emerged to me as the most important in aligning demand generation investments with the strategic pace and direction of the business:
1.) Lead / Opportunity Velocity
If you’re in a SaaS business, you’re undoubtedly working on big and fast-growing targets. Quickly scaling the marketing organization is a leading indicator of future sales growth. As long as leads and opportunities are increasing each and every month, you’ll never have a starving sales org, and they’ll have an easier time hitting huge goals. Calculate this metric by finding the percent change in leads or opportunities month over month. According to Jason Lemkin, the key is to set this goal about 10%-20% higher than your desired revenue growth. In my experience, this is one of the toughest things to execute consistently across the entire year.
2.) LTV / CAC (customer lifetime value vs. cost of customer acquisition)
This ratio is a favorite of investors and that’s why I am arguing it should be a favorite of yours. The goal here is to measure the revenue a customer will bring over their lifetime vs. the sales and marketing cost it took to bring them in the door.
You need two pieces: customer lifetime value, and cost of customer acquisition. If you don’t already measure LTV, I suggest using the simple definition from David Skok where LTV = (Average MRR per Account / monthly customer churn rate)
For, CAC it’s more simple. Count all sales and marketing costs to acquire 1 customer (make sure you include the cost of your team). So take your sales and marketing costs for the time period, divided by how many customers you gained in that time period.
Once you have both numbers, compare them to each other. A good result to shoot for is 3, if your SaaS business enjoys good gross margins. The more efficient marketing gets, the better CAC gets. This pushes the ratio higher toward 3 and beyond.
3.) Magic number
Magic number, explained here in great detail by Rory O’Driscoll, is one of my favorites to look at on a quarterly basis. The idea is that you’re measuring sales and marketing spend from last quarter in relation to the annualized incremental revenue increase from last quarter to this quarter. You want your result to ideally be over 1X.
The folks over at Scale Venture Partners have created an online calculator that makes this easy for you.
4.) CPO (Cost per Opportunity)
The calculation I use for CPO is pretty simple. Just use marketing program spend (take out the cost of your staff) and divide it by the number of opportunities qualified in a time period. I believe this is flexible enough to be tracked monthly or per-initiative and provides a good real-time indication of how efficiently you’re sourcing opportunities. Make sure to track this by lead source to achieve some more granular insights, and set benchmarks that will help you steer toward or away from certain programs. If you have a sponsorship opportunity that will yield $500 opportunities, but your goal is $300, then it requires more thought and research. Keeping CPO in check almost guarantees that metrics such as CAC or magic number won’t get out of whack. Even though I typically leave out the cost of the team, it’s always helpful to identify and remember that some opportunities are a heavier lift for the staff than others.
5.) Website conversion rate
This metric evaluates how many new users (from Google Analytics) on the website are converting to new website leads in a given time period. Measuring the conversion rate of your website traffic does 2 things: First, it helps you understand how well the website is functioning. You want prospects to have an easy path to requesting a demo or whatever CTA is most valuable to you. Second, and more importantly, it shows you how the messaging on the website is working over time, reflecting the efficacy of your product marketing efforts. If you clean up your path to conversion and make small tweaks to tighten up messaging each month, you should see small bumps in the website conversion rate (with traffic quality being equal). Because website traffic is so cost effective as a lead generator, it’s worth the time spent to gain half a percent here.
I hope you’re feeling inspired to test out some new KPI’s for the upcoming year. Stay tuned for a future post that offers a free CMO scorecard template, combining these must-have metrics with other useful KPI’s for customer success, branding and demand generation.
What are the other metrics you can’t live without? Leave them in the comments!
About the Author: Mallory Lee
Mallory was lucky enough to “grow up” in SaaS marketing operations, overseeing the global budget and marketing operations at ExactTarget, serving as a marketing automation consultant at Salesforce, and most recently was VP of Marketing at Bluebridge. She now consults in Indianapolis while keeping track of her baby boy. Read more at malloryrlee.com.