The Magic of Metrics
“Making Cross-Functional Alignment Appear out of Nowhere”
SaaS Barometer Newsletter is brought to you by SaaS Metrics Palooza - the ONLY industry event dedicated to sharing the best practices of how operators and investors use metrics and benchmarks to measure and guide their journey to success. Click here to see the amazing line-up of speakers, their session’s title and to register for this virtual event!
The Magic of Metrics
“Making Cross-Functional Alignment Appear out of Nowhere”
The use of metrics can be a double-edged sword when departmental leaders are left on their own to determine, define, instrument, calculate and present their primary measurements and associated performance metrics. Many managers in the SaaS industry today were minted by and molded within environments where they saw executive team members wield the power of dashboards, metrics and data to highlight the success of their organization.
The modeling first time managers are exposed to can become the foundation for the misuse and abuse of metrics as a self-serving vehicle to gain organizational favor and hit incentive based objectives that determine their bonus. Often the metrics highlighted in the visually appealing dashboards they saw had little to no impact on the outcomes that actually mattered to investors.
The Curse of Departmental Metrics
The rapid growth of the SaaS industry, fueled by innovation and venture capital, has created a generation of leaders who have been consistently told platitudes about the importance of data and measurements without receiving the requisite training to n how best to leverage data to inform decisions.
First time managers will hear quotes such as “You can’t manage what you don’t measure” or "If you can't measure something, you can't understand it and if you can't understand it, you can't control it. If you can't control it, you can't improve it". These platitudes may motivate a focus on measurements and metrics, but does not provide the techniques and best practices required to measure what matters.
Many first time managers quickly rose through the ranks to Vice President or above during the rapid growth phase of the SaaS industry . They also had access to a wide array of SaaS tools that enabled them to become the purveyors of pretty dashboards, which were far too often full of vanity metrics that had little to no causal relationship with the outcome centric performance metrics that matter to investors, the CEO or the CFO.
How often have you seen dashboards that show data highlighting low value metrics such as the number of website visitors, the number of whitepaper downloads, or webinar attendees?
How many times do those “dashboards” chalked full page of vanity metrics or reports show a metric’s correlation to the outcome metrics the CEO and CFO were presenting to the board such as ARR Growth, New ARR, Expansion ARR or Net Revenue Retention?
Challenges Created by Departmental Point Solutions
A hallmark of the SaaS industries growth has been the ability to develop and sell point solutions to the executive in charge of a department. One of the challenges created by a department purchasing a tool like a Marketing Automation Platform (Marketing), Sales Engagement Platforms (Sales Development) and/or Customer Success Platforms (Customer Success) is the resultant proliferation of inconsistent or duplicate data.
The result is the creation of “islands of information” specific to the stage of a larger process that their department was responsible for executing. One example of the data hygiene issue created by point solutions is the existence of duplicate contacts or different emails for the same contact in the Marketing Automation platform versus the CRM!
A byproduct of using a departmental point solution to automate processes typically owned by one department, is that the ability to capture and present “performance metrics” is often limited to the data captured in that platform.
A common example is the use of Marketing Automation platforms which are good for creating target lists, executing an email campaign or broader demand generation program including scoring a Marketing Qualified Leads (Marketing) and routing that to the CRM system used by Sales. The challenge is that the demand gen leader can easily build reports based upon the “campaign data” captured by the Marketing Automation Platform (MAP), but often is not measured or incented to report on those leads as they become qualified opportunities and ultimately new customers generating new ARR.
As a result the Demand Generation leader becomes even more focused on how the campaign metrics are performing and less focused on investing time to understand how the outcomes of their process convert into the outcomes of qualified pipeline and new logo ARR.
The magic of metrics begins when every metric that shows up on a dashboard has a direct, measurable impact on the final outcome metric.
Departmental Metrics Noise:
🕳 Website Visitors with no follow-on actions
😤Look our website visitors increased 12% last quarter
Bounce rate went up 15%
Pipeline did not grow
🕳 Leads with no qualification or scoring applied
😤 We added 10,000 new leads into the CRM last quarter
purchased email list with lower delivery rates
30% do not fit ICP or target Buyer Persona
🕳 emails sent, unsubscribes and open rate
Causal Metrics Flow:
💡 Qualified Pipeline ($) → New ARR Closed → Total ARR Goal for the Period
💡 Marketing Qualified Leads → Qualified Pipeline → New ARR Closed
💡 Product Utilization Metric(s) → Customer Renewals → Gross Revenue Retention
The Deceiving Nature of Functional Dashboards
A term often used to describe magic is prestidigitation which means “sleight of hand”. Prestidigitation is the dark magic that I often see displayed by first time managers and experienced leaders alike use display when creating dashboards that showcase the metrics they purport to measure their departments performance.
I remember meetings I attended where a departmental leader just unveiled a new dashboard they created to measure their department’s performance. Responses ranged from WOW - look at the dashboards that the new CRO has put in place, he is really metrics driven or FINALLY we have a Demand Generation leader who is data-driven and understands we need more contacts and leads!
The reality of the two above real life examples was that the pretty dashboards, that on the surface appeared to include every possible metric one could hope for and were visually pleasing, were in fact served as a distraction from the outcome metrics that really mattered
When I conduct SaaS Metrics assessments, one of the first things we request are the slides and/or dashboards each department head shares at board meetings, in executive team meetings and during their one on ones with the CEO. The results often highlight the disparate nature of the systems and the associated data that is being captured and used to inform departmental decisions.
Over 50% these dashboards highlight the primary focus on departmental metrics based on the processes they own versus the outcome metrics that are the result of cross-functional processes and collaboration.
An example of a misleading, departmental dashboard is the demand generation leader who has a dashboard that shows the number of campaigns launched, the number of emails sent, the open rate, the click through rate, the MQLs generated and even meetings held. What the dashboard does not highlight is how those “activities and events” convert into qualified pipeline and closed-won ARR.
Measuring and presenting activity may initially make the CEO feel good about the demand generation activity that is happening. However, if the metrics on the dashboard provide no visibility into the outcomes that matter, such as qualified pipeline and closed-won ARR - what is the value of having that dashboard BEYOND possibly measuring an activity objective that has little to no value?
Another example is when the head of sales has RevOps create a dashboard highlighting that the win rate is increasing, the annual contract value (ACV) is increasing and wins against the #1 competitor have increased…while they are missing new revenue plan by 20%, 5 of 7 new AEs hired left after 6 months, the CAC Ratio has increased by 22% and CAC Payback Period is 5 months longer.
Would those great looking Demand Generation or Sales dashboards that highlight a few strong performing vanity metrics which may or no be leading indicators make-up for missing the number?
You might be thinking it’s an easy call on the Head of Sales - all that matters is hitting the number - right?
But what if the real issue is that the pipeline has not grown in 4 quarters, the conversion rate for MQLs to SQLs has decreased from 11% to 5% and the Stage 1 Sales Qualified Opportunities (created by Business Development Representatives) to Stage 2 Opportunities conversion rate has decreased from 58% to 41%?
👆 The above highlights why department dashboards and even metrics can introduce a bias and too narrow of a view into the “Customer Acquisition Process” which is impacted by a cross functional process that is the responsibility of multiple departments including Demand Generation, Field Marketing, Digital Marketing,, Business Development and Direct Sales.
The Power of Cross-Functional Processes + Shared Measurable Objectives (Metrics)
In a previous SaaS Barometer edition (#7) we introduced the concept of a SaaS Performance Metrics Framework that includes five pillars of Enterprise Value creation including:
Customer Acquisition Efficacy
Customer Retention Efficacy
Customer Expansion Efficacy
Capital Efficiency
Operational Efficiency
The ability to create a metrics framework that identifies the outcome metrics that really matter to the company financial stakeholders and then creating cascading levels of leading indicators (inputs) that have a direct, causal relationship to the lagging indicators (outcomes) is where the “Magic of Metrics” begins to appear.
On an episode of the Metrics that Measure Up podcast Allison Ellsworthy, Executive Vice President, Revenue Operations at Hubspot shared their performance metrics framework which leverages terms from the healthcare industry including:
Vital Signs - those measurements that sustain life like a heartbeat
Pulse Signs - those inputs critical to healthy vital signs (oxygen level, hemoglobin level, blood pressure, etc.)
Diagnostics - those root causes that directly impact the input signals (metrics)
The naming conventions are not the point, the point is to have a cascading level of performance metrics within a company wide metrics framework that identify the top 3-5 company (Level 1) performance measurements, and then identify the top 3 -5 input variables (Level 2 - leading indicators) and the responsibilities by department for those level two metrics that have a causal relationship to the Level 1 company measurements.
Those Level 2 metrics become a top objective for the department(s) that is responsible. Then each department identifies the top 3 - 5 leading indicators they control that directly correlate to the outcome metrics that the department is responsible for achieving.
A graphic on what this could look like for the company goal on Net Revenue Retention:
The Power of Metrics
This happens once the First Five Principles of Metrics Management have been deployed
Develop the strategy
Identify, Define, Assign and Communicate the top company measurements (Level 1 metrics) aligned to measuring success of the company strategy to everyone in the company each department that can impact the outcome metrics performance
Instrument the capture, calculation and publishing of those measurements
Identify, Define, Assign and Communicate the primary leading indicators (Level 2 metrics)
Instrument the capture, calculation and publishing of those Level 2 measurements for every department that can impact those metrics
Assign individual measurable objectives (Level 3 metrics) to every team and every team member that are correlated to the Level 2 metrics and thus the Level 1 company measurements that directly impact the corporate strategy
Communicate and celebrate the successes of all hitting and exceeding the goals for each metric at the company, department and team level!
The Magic of Metrics
This happens when every executive, every department, every team and every employee shares the passion to achieve the company’s mission, understands the corporate strategy, and understands how their role, efforts and performance objectives impact the metrics that measure the company’s success and increases the company’s enterprise value.
I leave today’s edition of the SaaS Barometer Newsletter with one of my favorite quotes related to the use of metrics to measure goals and objectives performance.
“Tell me how I am measured and I'll tell you how I will behave”
SaaS Barometer Newsletter is brought to you SaaS Metrics Palooza - the ONLY industry event dedicated to the sharing of best practices of how leading companies and investors use metrics and benchmarks to measure and guide their journey to success. Click here to see the amazing line-up of speakers, their session title and register for this virtual event!