The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch 20VC: The Metrics That Matter in SaaS Today; Why CaC Payback is Flawed & CAC Ratio is Better, Why You Need to Hire Three Sales Reps at a Time, How to Forecast in 2024 & Biggest Mistakes Made Forecasting & How to Make Customer Success Sell More with Dave K
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Jan 31, 2024 In this discussion, Dave Kellogg, a veteran SaaS executive and former CMO of Business Objects, shares his wisdom on essential metrics for SaaS success. He argues that the CAC payback period is flawed and explains why the CAC ratio is more relevant. Dave emphasizes the importance of hiring three sales reps at once and reveals the biggest forecasting mistakes companies make. He also explores how to align customer success with sales goals to drive more revenue and addresses the evolving strategies that CFOs are adopting in the tech landscape.
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CAC Ratio vs. Payback Period
- CAC payback period is a flawed metric, favoring VCs in screening mode.
- Use CAC ratio (sales & marketing expense / new ARR) for a purer sales efficiency measure.
Calculating CAC Ratio
- Include customer success costs and cash-based sales commissions in your CAC ratio.
- Avoid using amortized/gap sales commissions, which understate actual expenses.
New ARR vs. Net New ARR
- VCs prefer net new ARR for measuring business health.
- Operators should focus on new ARR to isolate sales and marketing efficiency, ignoring churn.