Top 5 Go-to-Market Alignment Metrics
“Aligning Marketing, Sales and CS”
This week’s SaaS Barometer newsletter is brought to you by the SaaS Metrics Executive Summit. This event, which will take place in New York City on May 20th, will feature ~150 SaaS CFOs, CEOs, and GTM executives discussing how variable pricing is changing the world of ARR reporting, planning, and forecasting. In addition, roundtable discussions on how Finance and GTM teams use metrics to align and increase GTM efficiency. Click here to secure your seat, as they are selling out FAST!!! Use coupon code “BenchmarkitVIP” to identify yourself as our special guest!!
Top 5 Go-to-Market Alignment Metrics
“Aligning Marketing, Sales and CS”
The relationship between and alignment across marketing, sales, customer success, and professional services has been an ongoing topic of discussion and an elusive goal since I first started working in B2B software…many years ago.
I have personally been involved or led many efforts to increase alignment across the Go-to-Market departments, including singing “Love will Keep Us Together” with the heads of Sales, Marketing and Services at a company kick-off, organizing a “Great American Race” with cross-functional team members across Marketing, Sales, Services and CS and of course going through multiple “personality mapping” sessions using DISC, Myer-Briggs or similar programs to help everyone understand how to work with different personality types - all in the pursuit of alignment and the blissful state of harmony we were desperately seeking!
The initial results were often encouraging, and stronger personal relationships were formed. Still, the elusive goal of eliminating the friction between GTM departments and creating a harmonious “kumbaya” culture was typically short-lived. Unfortunately, the short-term hopefulness soon dissipated and was replaced with a continued focus on departmental wins and even a survival of the fittest mentality.
Today’s newsletter is dedicated to the aligning power and even magic of metrics across the Customer Acquisition, Customer Retention, and Customer Expansion processes.
Metrics to the Rescue!
Dave Kellogg, my co-host on the SaaS Talk with the Metrics Brothers podcast, and I recently conducted an episode in front of 100+ Chief Financial Officers at a Technology Finance Symposium in San Francisco. The episode's title was “Can’t we all just get along? - aligning Finance and GTM with SaaS Metrics”.
In preparation for the live episode, I revisited the SaaS Performance Metrics Framework I developed and discussed in detail in an earlier edition of the SaaS Barometer entitled “The Magic of Metrics”.
Below are the top 5 metrics I have seen serve as the foundation for alignment across the entire Go-to-Market organization, with the added benefit of enhanced finance and GTM alignment.
#1 GTM Alignment Metric: Net New ARR
Nothing says cross-functional alignment like a compound metric that includes four different input measurements that cross acquisition, retention, and expansion motions.
Though each SaaS company is structured and organized a little differently, the Net New ARR goal includes four components that require cross-functional collaboration and alignment, including:
New ARR: Requires Marketing and Sales to collaborate on generating pipeline “that closes” and requires a level of execution across multiple performance measurements, including, but not limited to: 1) Pipeline Generation; 2) Pipeline Conversion; 3) Win Rate; 4) Average Annual Contract Value; 5) Average Sales Cycle length
Expansion ARR: Requires Marketing, Sales, and Customer Success to generate a cross-sell and up-sell pipeline in the form of qualified opportunities. With Expansion ARR now representing up to 50% of Total New ARR, the expansion pipeline needs to be treated the same as the new customer logo pipeline
Churn ARR: This is no longer the sole responsibility of Customer Success, as ensuring that Marketing and Sales target the best-performing ICP prospects is a critical factor in decreasing churn. Sales can also help to reduce churn by ensuring Customer Success understands the “business value” and ROI variables that were used to close the business, and can then be used by CS to highlight the business value during Quarterly Business Reviews (QBR)
Down-Sell ARR: This input variable to Net New ARR is a little more challenging to decrease using cross-functional collaboration, but by having the heads of Sales, Marketing and Customer Success tied at the hip by sharing the Net New ARR goal, this metric will often experience a halo effect due to the increased focus, programs and cross-functional collaboration on the other three metrics
A key to this #1 GTM metric enhancing alignment is that it must be co-owned by all three departmental leaders, and each of the four components has its own specific goal, and is a large component of the executive leadership team's bonus.
Net New ARR is the #1 contributor to the ARR Growth Rate—the most important variable impacting SaaS company enterprise value to revenue multiples!
#2 GTM Alignment Metric: CAC Ratio
The CAC Ratio continues to be my favorite revenue growth efficiency metric. It has three versions, and all are materially impacted by each of the three primary GTM departments.
Blended CAC Ratio: Measures how much Sales, Marketing, and Customer Success expense is required to generate one dollar of New ARR from the combination of New and Existing customers. The benchmark for this metric is a median of ~ $1.50
New CAC Ratio: Measures how much sales and marketing expenses are required to generate one dollar of new ARR from new logo customers. The benchmark for this metric is a median of ~ $1.80
Expansion CAC Ratio: Measures how much Sales, Marketing, and Customer Success expense is required to generate one dollar of Expansion ARR from existing customers. The benchmark for this metric is a median of ~ $.90.
The key to making the CAC Ratio a strategic GTM alignment metric is to first assign the top-level goal to all department executives who contribute to the processes that deliver the outcomes of New and/or Expansion ARR. Then, develop the next level of “Departmental CAC Ratios” for each, which can take the form of the following metrics:
Marketing CAC Ratio = Fully Loaded Marketing Expenses / Total New ARR
Sales CAC Ratio = Fully Loaded Sales Expense / Total New ARR
Sales Development CAC Ratio = Fully Loaded Sales Development Expenses / Total New ARR
Though it needs to be extrapolated, the CAC Ratio is a key ingredient to ensuring operating profitability since Sales and Marketing expenses are the largest operating expenses and are the investment most closely associated with New ARR!
#3 GTM Alignment Metric: Net Revenue Retention (NRR)
Let’s face it—the beauty of the SaaS recurring revenue model has always been that if you can achieve 100% NRR or better, all new customer ARR immediately contributes to the year-over-year ARR growth rate. Moreover, if you can accomplish an NRR of 110%, your ARR Growth Rate is already 10% without including the first dollar of New customer ARR!
Net Revenue Retention measures the ARR growth of a segment of customers from a year ago compared to today. All expansion ARR from up-sells and/or cross-sells, as well as the negative ARR impact from lost and down-sold customers, are included. NRR does not include any ARR from new name customers during the period.
Going back to the theme of cross-functional alignment, NRR typically requires input from all three GTM departments, including:
Customer Success leads the effort to serve the customer to ensure the highest level of satisfaction. Validated customer outcomes and increased product utilization both lead to higher retention rates. Customer Success is typically well-positioned to identify up-sell and cross-sell opportunities with the existing users and/or economic buyers to create Customer Success Qualified Leads (CSQLs) that are nurtured by the direct sales or account management teams
Direct Sales (AEs) or Account Management (AMs) are typically responsible for working with CS to create expansion opportunities with existing customers, or to work on the CSQLs that CS identified, resulting in expansion ARR
Marketing often underinvests in “customer marketing,” which is a key strategy for increasing customer engagement and awareness of new use cases and/or products that can lead
#4 GTM Alignment Metric: Customer Lifetime Value (LTV)
Customer Lifetime Value is an example of a “compound metric”. LTV is calculated using the following formula:
Average Revenue per Account (ARPA) is the direct result of the success of the initial Average Annual Contract Value in combination with the success of the existing customer expansion motion. Per the above, we discussed how expansion ARR is a direct result of the combined efforts of Marketing, Sales, and Customer Success. Additionally, the churn rate is directly impacted by customer marketing efforts, the targeting and winning of deals in the highest performing ICPs, and the impact of CSMs on optimizing customer satisfaction, product utilization, and validating customer outcomes.
An advanced use of Customer Lifetime Value is when you compare it to the initial Customer Acquisition Cost to calculate the LTV:CAC Ratio. This is a metric that many investors will use as a proxy to measure the return on every dollar invested in new customer acquisition.
#5 GTM Alignment Metrics: Inter-Departmental Satisfaction
This metric might be the most underused, yet most important measurement to facilitate enhanced alignment between Marketing, Sales, and Customer Success.
The concept is simple. At the beginning of the year, each department identifies the top variables their “sister department” will depend upon to fuel their success, which is generated or materially impacted by the other department. Examples of those may include:
Marketing Sales Satisfaction Criteria
Qualified Leads that become Qualified Opportunities
Marketing content that engages middle-of-funnel opportunities
Percent of New ARR generated from Inbound Handraisers
Sales Marketing Satisfaction Criteria
Qualified Lead response time
Inbound Lead response time
Win/Loss Feedback
Customer Success Sales
Customer Success Qualified Leads Generated
CSQL win rate
Customer Validated Outcomes shared with Sales
Marketing Customer Success
Customer Use Cases Published
Customer Events Conducted
Product Content for Education and Engagement
A best practice is to measure the inter-departmental satisfaction once per quarter via a simple departmental employee survey that measures the satisfaction with the top 3 – 5 inter-departmental satisfaction criteria that the GTM executive leaders agreed to upfront and highlights the trend lines and initiatives being implemented to continue to improve the satisfaction scores. This provides transparency while signaling the priority and importance placed upon this measurement. Making this at least 25% of an executive’s bonus is a great best practice to turn the talk into the walk!
The FOUNDATION of GTM Alignment: THE CEO
All of the above talk about the power and magic of using metrics to align Marketing, Sales, and Customer Success is meaningless without the strong support and advocacy of the CEO. The CEO owns GTM alignment, and unless the executives in charge of each GTM department truly understand and respect the level of priority the CEO places on cross-functional GTM alignment, it will fall victim to the measurements, objectives and successes ( or failures) that the CEO values and the CFO calculates the executive bonuses upon.
Talk is cheap when it comes to performance and alignment. All of the above ideas, company bonding activities and desire to increase GTM alignment will fall victim to the innate friction built into cross-functional processes and interpersonal relationships without the strong advocacy from the CEO and the inter-organizational measurements highlighted and communicated by the CEO and CFO in concert with the company’s strategic objectives and financial performance measurements that everyone has a ve$ted interest in achieving.
This week’s SaaS Barometer newsletter is brought to you by the SaaS Metrics Executive Summit. This event, which will take place in New York City on May 20th, will ~ feature 150 SaaS CFOs, CEOs, and GTM executives discussing how variable pricing is changing the world of ARR and how Finance and GTM teams are using metrics to align and increase GTM efficiency performance. Click here to secure your seat, as they are selling out FAST!!! Use coupon code “BenchmarkitVIP” to identify yourself as our special guest!!