Metrics that Measure Up

The Alexander Group works with many of the leading companies in the B2B SaaS industry, and I was recently joined by Ted Grossman, their co-lead of the technology industry practice, and Davis Giedt, Director of Research and Analytics.Based upon Ted and Davis' unique insights and understanding of B2B SaaS due to the discussions and data from over one hundred customers, coupled with their historic Sales Compensation research and benchmarks with has become an industry standard.My first question was how has the use of SaaS metrics evolved. Ted's perspective is the core metrics have not changed that much over the past few years - rather it is the weight that is placed on specific metrics, especially growth vs profitability. As an example in 2021 and the first half of 2022, the weight was much higher on growth rate versus profitability metrics. One example is the Rule of 40 has increased in importance as measured by R-Squared by 3x over the last 6 months. As such "Margin + Growth" is much more balanced in 2023.Ted highlighted "expense to revenue" as a top priority at the macro level. This is also a very easy metric to benchmark against the industry. Then you can dive down into more granular revenue growth efficiency metrics such as "Profitability by Sales rep. Other things like the CAC Payback Period which measures the amount of time to pay back the acquisition of a new customer. Net and Gross Retention Rates are also high-priority metrics to understand the efficacy of retaining and expanding revenue with existing customers.What about the importance of changing the mix of revenue growth from new customers versus existing customers? The story varies in every company and depends on company-specific attributes such as do they have multiple products, or do they have a product that can expand usage to additional users, departments, or business units within an existing customer.When I asked Davis the "top" metrics he prefers, they included:Sales and Marketing expense to revenue which tests for every dollar invested in revenue growth, how much is returned on both a new and top-line revenue basis. Davis shared a 35% - 40% S&M expense to revenue as a good benchmark for growth companiesCost of Growth, sometimes known as the SaaS Magic number measures the top-line revenue growth versus Sales and Marketing investment, which has a range of .5 (poor), .75 - 1 (good), and > 1 (best)CLTV:CAC measures the amount of Gross Profit (or Revenue minus Cost of Goods Sold) generated against the revenue a new customer generates over the life of a customer. A CLTV:CAC ratio of 3x is good, though has been increasing over the past 2-3 years. CLTV:CAC ratio is a long-term ROI measurementNext, we discussed the topic of "consistency of metric calculation" when using industry benchmarks. Davis highlighted that for their clients they use one standard metric calculation formula to ensure when they are benchmarking it is an apples-to-apples comparison. One specific example was if you are trying to measure the efficiency of growing new customer ARR versus existing customer growth ARR, things like a "time study" may need to be conducted to properly allocate expenses to the pursuit of each growth ARR type.If you are a B2B SaaS company leader, the discussion with Ted and Davis provides some unique insights and perspectives that only come with the unique visibility they have across hundreds of leading B2B companies.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Matt Wolach is the founder of Xsellus and host of the Scale your SaaS podcast. Matt is one of those guests that have taken over a year to be on the Metrics that Measure Up podcast. Matt has hosted over 250 episodes of "Scale your SaaS" and was one of the inspirations for this podcast.The first question I asked Matt was about the common attributes that successful SaaS founders exhibited. By being a podcast host, Matt found he often learned more than he shares. However, one of the common themes of the most successful founders was the amount of time they invest in getting to know and understand their potential customers. Those discussions to dive into the mind of their potential customers was a key to success, and Matt recommends the goal should be to have about 50 of those discussions, versus the 3-5 that far too many founders conduct.What are the top three challenges that Matt sees early-stage companies face:1) Lead generation/Pipeline which often early-stage companies over-index on one or two channels. Matt recommends finding 4 - 5 channels that work, and then continuously optimize each channel. Matt says there are 18 ways to generate leads in a B2B Saa company, including commonly missed lead sources such as a defined lead referral process with current customers. Other missed lead sources such as influencers and affiliate programs are undervalued.2) Ability to close qualified leads is another inconsistent competency of many early-stage companies, which is especially dangerous if significant money is being invested in Marketing and lead generation activities. Matt suggests fixing the qualified lead to Closed-Won process before investing more in additional lead generation.3) Lead form/demo form to demo completed is surprisingly a big leak for many early-stage companies. Matt shared the story that one of his new customers did not even measure the number of people requesting to be contacted or have a demo. The inbound demo request-to-demo completed ratio is a critical conversion rate that far too many companies do not measure. Matt said that an average of 42% of people who request a meeting or demo actually end up having a meeting with the vendor - meaning 58% of high-intent leads are not actually being followed up with timely.What metric does Matt like for B2B Saas companies in the $1M - $5M ARR range? Matt said the Customer Lifetime Value to Customer Acquisition Cost Ratio (CLTV:CAC Ratio) is one of his favorite metrics. Essentially with the industry standards that Matt shared a 3:1 CLTV:CAC ratio is a good goal, it means that for every dollar you invest in Sales and Marketing, $3 of gross profit is generated. The latest RevOps Squared benchmarks show that a 4:1 CLTV:CAC Ratio is the new benchmark.If you are an early-stage B2B SaaS company, this conversation with Matt Wolach, the founder of Xsellus is a great listen.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Eric Christopher, the founder, and CEO of Zylo is sitting on top of one of the industry's largest SaaS spend data repositories and thus benchmarks, a key reason I knew I needed to have Eric as a guest on the podcast.What was the catalyst for founding Zylo? It started with Eric's experience as a revenue leader in two social media platform companies. Eric realized that by introducing new solutions directly to the Marketing department, it was becoming difficult for companies to manage and govern SaaS spend."A business idea with complexity is worth pursuing" - the words an advisor shared with Eric which was part of the motivation to founding Zylo! Since anyone in a company can be a buyer of a SaaS solution, coupled with the existence of thousands of vendors with very different features and pricing, buying a SaaS product is complex. Moreover, measuring the value is very difficult and often, ill-defined.How does Eric define SaaS Spend Management? "Helping companies manage, measure and maximize value from every SaaS application purchased". The lifecycle of a SaaS solution starts with understanding how to receive the best price, and then how to optimize the value received. Questions to ask include, are employees using the product, are they receiving value, and how does the value compare to other solutions with similar functionality? Zylo uses a "value framework" that starts with understanding every application being used through a discovery process. Next, is being able to manage adoption and usage, which may be as much about maximizing value versus reducing costs. Next, identify opportunities for cost avoidance, while considering the renewal process to know the best terms based on the current utilization rates. Finally, gaining visibility into the existence and usage of every SaaS product in a company materially increases the ability to have the governance and controls in place to purchase, utilize, renew, and purchase the right products in the future.One surprising aspect of SaaS sprawl is that many organizations do not know what SaaS solutions are being used by their employees and the associated expenses! The best SaaS Spend management programs start with the ability to conduct "discovery" to identify all the SaaS tools being used in a company....but when is it the right time to consider implementing a SaaS Spend Management solution?Eric highlighted that when you are hitting $1M - $2M in annual SaaS spend is one milestone. Another milestone is that at 500 employees if you do not have a SaaS Spend Management program in place - alarms should be sounding. ...however, Eric shared that it is never too early to introduce a more structured SaaS purchasing, management, and governance process.Zylo is sitting on a treasure trove of "SaaS Spend Management" data from over $30B in annual SaaS spending across industries including a few of the below :SaaS spend by employee has increased by 50% over the last 2 yearsSaaS spend has been increasing by over 20% per year for several yearsTotal SaaS spend is underreported by 50% due to decentralized purchasing The average company has over 300 "paid" SaaS subscriptionsThis increases to > 1,000 in Enterprise companiesInterestingly, the cost of the SaaS spend may not be the primary opportunity for many companies, it may be minimizing the risk of not managing and governing the flow of data outside of the company!Several new trends in SaaS spend will be disclosed in the Zylo Benchmark report being published on April 4th, 2023!If you are interested in the evolution of purchasing and managing SaaS spend in your company, this product with Eric is a great listen!See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

In 2023 many SaaS companies are searching for what market(s) are going to drive their next phase of growth - and international markets, especially English-speaking countries are often considered by U.S. B2B SaaS companies.Rick Pizzoli, moved to Europe over 25 years ago to launch the European presence for U.S. based software companies. Based upon that experience, Rick and Sales Force Europe has helped over 500 companies enter and/or expand their presence beyond the United States or a single country in Europe.Rick shared that the majority of U.S. companies first start to consider entering the European market in the $5M - $10M ARR range. European companies begin to expand beyond their home country a little earlier, often in the $2M - $3M ARR range due to the more limited breadth of each country in Europe.Understanding your positioning, messaging, value proposition, and efficiency of your "home market" customer acquisition motion as measured by metrics are critical foundational elements to planning for an entry into a new country. If a company has not captured and documented the keys to success in its home country, it will be impossible to be successful in a new country.Another key factor to consider when entering into the European market is do you have a "lighthouse" account in a country you can build upon, and/or do you have a product that is localized for countries beyond English speaking? Rick's perspective is conducting market research to determine the "best" initial country is a better strategy than just saying let's just go to the United Kingdom, as it is the most like the US market and they speak English. At the same time, the UK market, especially in London is probably the most competitive market to enter, as so many U.S. based companies use the same "we similar" mentality.Bringing on local talent that understands the local market, has relationships in the local market, and can translate the "messaging and positioning" that works well in the U.S. to the local European country. There are nuances of the "talent profile" that works in one country versus another, which suggests having a local team with local leadership will yield a faster return on investment than parachuting in one or two resources from the home country.One key to success is seeding the market awareness and engagement with top-of-funnel activities beginning with a digital marketing strategy 3-6 months before having a local, on-the-ground presence. Having local Sales Development resources in place for at least 3 months before having a local Account Executive will also increase the productivity of those first 1-2 AEs. Having a local presence shows a true "commitment" to the local market and will make the majority of in-country buyers more comfortable with purchasing from a recent entrant to the local market.Should a company start with a single or at least two resources when first entering into a new country? Two resources are always better, and could also allow for additional language skills for the second target country that is being considered in a pan-European presence. It also eliminates the "resource" vs "market" specific challenges.If you are considering or just beginning the evaluation process to expand your U.S. or single European country B2B SaaS company into or across Europe, this conversation with Rick Pizzoli and Sales Force Europe is highly informative.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

SaaS Spend Management is an emerging and rapidly evolving category - yet Ryan Neu, Co-Founder, and CEO of Vendr has a unique vision for how the category needs to evolve.Ryan has a background in public accounting, and then transitioned to software sales, including a role in the early days at Hubspot. During his career selling, he realized that selling great products is hard, takes too much time and the distribution is quite inefficient - thus the catalyst to founding Vendr in 2018.Vendr was created as a new way to buy and sell software....and it is the "SELL" comment that is unique amongst SaaS Spend Management See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

If you have ever been frustrated with the forecasting process and accuracy at your company - this episode is for you!Guy Rubin is the founder and CEO of ebsta, a leading provider of Revenue Intelligence - the next generation of forecast management.Guy founded ebsta to automate the logging of sales rep activity directly into their Customer Relationship Management (CRM) like Salesforce and Hubspot. Over 50,000 companies have used ebsta in this environment which is when the breakthrough happened to begin scoring target buyer relationships - essentially a "relationship score".The strength of relationships is a key factor in an opportunity's probability to convert into a new customer....and thus making the revenue forecast more accurate. More on that later in the episode.Back to the core problem, ebsta has been solving for years - having timely and accurate account, contact, and opportunity data in their CRM. Since most of this data is captured in their email, and/or calendar. By using technology to capture every email, event, and meeting with an account or opportunity, it can be automatically imported into the CRM. Then, a company can use AI to determine the frequency of communications with an opportunity and begin to create an "opportunity score" based on the recency, frequency, and level of activities with specific opportunities.What about including insights from "conversational intelligence" platforms? This is another signal that ebsta uses to evolve the "engagement score", but Guy highlighted that CI is only one signal that informs their platform.Intent data is another signal that ebsta uses to inform and evolve their engagement and thus opportunity score. In a recent research report that ebsta published, one of the challenges is to determine what is the actual impact of intent data on the opportunity "win rate". In this report, ebsta was able to identify the level of influence that intent data has on win rates.Forecast accuracy is a challenge for every company. Initially, Guy felt the "ebsta" internal forecasts were superior to those of a "bottoms-up" process that begins with the AE or front-line sales manager. Those customers still require the ability to include the sales "bottoms-up" forecast, the ebsta automated forecast is typically within a +/- 5% error of margin - which is superior to the 69% of companies that miss the forecast by +/- 10% or greater.If you are involved in your company's "forecasting process" this conversation with Guy provides great insights and ideas to enhance your forecast accuracy!!!See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Friday, March 10th, 2023 - a moment in B2B Technology and Start-Up ecosystem history that many will never forget and hopefully provides a foundation for learning the risks and rewards of venture-backed, early-stage entrepreneurship.Todd Gardner founded SaaS Capital in 2007, the industry's first "recurring revenue credit facility". Before names like Salesforce, Workday, and Snowflake were well-known names, Todd experienced the financial crisis of 2008 and experienced firsthand the impact of a systemic banking issue including the meltdown of his financial partners.Our goal for this episode of the podcast is to provide practical insights and advice that SaaS founders, CEOs, and CFOs can apply to decrease the risks associated with their financial related decisions and banking decisions.We started with the basic, summary facts surrounding the collapse of Silicon Valley Bank (SVB):December 31, 2022, SVB financial disclosure: - $209 B in total assets - $175.4B in total depositsMarch 8th: SVB disclosed a $1.8B loss on the fire sale of $21B in long-term assetsMarch 8th - 10th: ~ $42B in deposit withdraws were made by SVB customersFriday, March 10th: SVB was declared insolvent and closed by U.S regulatorsSunday, March 12th: U.S. government including the FDIC, US Treasury, and Federal Reserve announced that all deposits (100%) would be backstopped - made good because SVB had more than enough assets to cover the outstanding liabilities, primarily customer deposits. Essentially the US government is managing the risk which is primarily a "time-based" issue versus a balance sheet issue.Todd next provided an industry backdrop that lead to the run on SVB. Due to the accelerated ramp of venture capital investing in 2020 - 2021, the deposits on hand at SVB doubles. As standard bank operating practice, SVB invested a significant portion of those deposits in long-term bonds and treasuries, which had a low return due to the low-interest rates of the moment.During the second half of 2022, interest rates began to increase dramatically, and the result was that the value of the long-term bonds decreased in value. Simultaneously many customers were moving their deposits at SVB into higher interest-rate instruments outside of SVB - forcing SVB to sell some long-term assets to support the decrease in deposits.Due to the above macroeconomic interest rate dynamics, coupled with the short-term issues created by a handful of Venture Capital firms quietly recommending their portfolio companies move their deposits out of SVB.We next discussed the "financial ecosystem" that has been the foundation that fueled the amazing growth of the technology industry which includes: - Over half of the technology start-ups banked with SVB - Over half of Venture Capital firms in technology banked with SVB for Capital Call - Line of CreditHaving the primary source of assets and liabilities from the same industry ultimately becomes a material issue for SVB.The above is a backdrop to the insights and advice that Todd shared for how this experience can inform future financial and banking decisions by SaaS founders, CEOs, and CFOs which include:#1: Diversify banking relationships including checking, savings, and credit facilities          - have at least 2 banks and/or treasury based money-market account#2: Understand the banking relationships that your payables and payroll firms use#3. Maintain fiscal discipline throughout the start-up journey to change the narrative from "cash runway" to ongoing operating profit as early as possibleIf you are interested in learning more about the Silicon Valley Bank collapse and what it means to the financial strategy of SaaS CEOs and CFOs going forward, this conversation with Todd is a great listen.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Over February and March 2023, we spoke with several founders, CEOs, and executives at SaaS Spend Management vendors.In this episode of the Metrics that Measure Up podcast, we discussed the evolution, best practices, and ideas on how to introduce a SaaS Spend Management program with Brad Van Leeuwen, Co-Founder and COO at Cledara.Brad stated that his own experience as an entrepreneur with the challenges associated with SaaS spend was the catalyst to founding Cledara. When a company is small, a manual process such as using the founders' credit card for all expenses is fine, but when you scale to 100+ employees that process does not provide the level of control and capital efficiency required to build a sustainable, durable growth company.Spend management solutions have been around for 20+ years - why is SaaS Spend Management so popular in 2023? First, the technology solutions have evolved significantly, and are much easier to use. Secondly, almost every company requires technology (software) to operate efficiently so the demand for SaaS solutions has exploded. Third, no longer is IT guarding the "data center or servers" so the procurement of software has become a decentralized process.SaaS Spend Management goes far beyond issuing a "corporate credit card" for all purchases, and includes a more proactive identification and then usage monitoring of the most relevant and used SaaS solutions in a company - thus providing centralized visibility and control.When should a company evaluate introducing a SaaS Spend Management solution - early on the focus needs to be 100% focused on developing and selling your product to establish Product Market Fit. Then, as a company evolves to 30 -50 companies, a general spend management tool centered on corporate credit cards is a good place to start. Once a company hits 50 - 100 employees, the SaaS Spend sprawl becomes harder to control and is a good time to consider introducing a corporate SaaS Spend Management solution.One of the key benefits of a SaaS Spend Management solution is that decentralized buyers can now have access to a pre-approved list of solutions. This empowers the employee to engage with the solution category of their choice, and the approved vendors without having to deal with a difficult procurement process. One of the trends in SaaS pricing and billing is the increased use of "Usage-Based Billing". One of the benefits of using a SaaS spend management solution is to have real-time insights into billing trends measured against budget and provide an early warning signal or even stop the use of a specific solution when the costs exceed the budgeted or contracted amount.One other benefit of SaaS Spend Management is to provide a pre-vetted list of vendors and the associated "realized pricing" that should guide a new solution purchase and/or renewal.If you are interested in learning more about how your company could gain increased visibility, control and reduced costs of your SaaS Spend while improving your employee experience in buying new SaaS software - this discussion with Brad Van Leeuwen is a great listen.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Planning in 2020 continues to be chalked full of uncertainty based on the current macroeconomic reality. Assuch, being a finance leader in 2023 is even more challenging, and unpredictable -  but developing an operating plan and budget is an important and critical component of the CFO's job.First, is being "hyper-realistic" is the theme of the year, especially on top-line revenue. Understanding revenue drivers like pipeline generation and conversion is critical to informing the 23' budget and operating plan. Factoring in longer sales cycles closed lost - no decision and buyer hesitancy is part of the art in building the 23' plan.Second is being "hyper-responsible" in managing costs. Third is "running multiple scenarios" highlighting the goal of profitable growth, which should always be in style, but even more imperative in 2023. Though Net Income is always interesting, in the B2B SaaS industry revenue growth is still a key driver, while EBITDA and Free Cash Flow are key indicators of profitable growth.Fourth is "obsessing on the leading indicators" impacting revenue trends.How have the relationships between CFOs and CROs changed heading into 2023? Dan highlighted he is lucky as both his head of revenue and head of customer success are metrics focused, and they collaborate closely on planning and forecasting - using over 80 metrics to continuously monitor their progress toward their operating plan.Next, we discussed the challenges of forecasting - especially in today's uncertain environment. Dan shared that hitting a +/- 5% accuracy is probably best in class, while Planful targets 3% - 5% forecast accuracy. Then we discussed the "triangulation methodology" which evolved into using Machine Learning and Artificial Intelligence. However, Dan started by ensuring front-line sales professionals need to see forecast accuracy as a priority. Dan shared a few tips to improve forecast accuracy. First, sales managers should provide a weekly forecast update as they are the closest to the pipeline, Second, Finance should be monitoring pipeline generation and conversion rates to continuously update the forecast. Third, using AI to capture the signals that impact opportunity conversion rates to provide an automated forecast to be combined with the first and second manual forecast management processes.What are the top 3-5 performance metrics that Dan is focusing on in 2023? Dan highlighted ARR growth is still a top metric. However, Dan focused on "leading indicators" including outbound pipeline development trends - including the pipeline from SDRs. Other leading indicators Dan tracks include outbound connect rates, conversation rates, opportunity conversion rates, and sales team acceptance rates. Start by looking for "trends" which can serve as very important pipeline trend insights. Next, looking at the opportunity funnel conversion rates in concert with analyzing conversational intelligence insights is very helpful to understanding "early signals" impacting revenue growth.A strong financial operations capability starts with instrumenting the infrastructure that can quickly surface leading and lagging indicators to inform decision-making. Dan highlighted the importance of technology to compress time from activity to insights to a decision. Being buttoned up on the CRM infrastructure and data are table stakes to fully leverage automated planning, forecasting and reporting.At what stage of company evolution should a SaaS company start the "instrumentation and automation" journey for planning, forecasting, and metrics reporting. "Complexity" of business operations is a critical factor to determine when to begin the automation journey.  If you are considering how to increase your planning and forecasting accuracy, the conversation with Dan is very insightful and full of great ideasSee Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

How does writing a 400-page novel lead to founding a SaaS Spend Management company? It was the start of David Campbell's journey which including breaking into B2B technology sales where he saw the challenges companies of all sizes have with buying technology.What is the definition of "SaaS Spend Management" according to David? David defines it as "spend management for the most important asset category in business today and tomorrow". Most companies are becoming software companies, and thus why SaaS spend management will become the top spend in most companies.Where investors focused primarily on revenue growth over the last few years, today the focus is now on efficiency and profitability, and as such "procurement and efficiency is the new Sales". A hot take, but a comment that is intentionally provocative to move the pendulum closing to an equal balance of revenue growth and profitability.Over the past 12 months, Tropic has grown over 3x, due to the outsized demand for "efficiency levels" beginning in 2022 and continuing into 2023. One of the trends David has seen, is that company CEOs and CFOs were so focused on revenue growth, that they were comfortable with outsourcing SaaS procurement management to a third party.There are three components to a successful SaaS Spend Management deployment:1. Identify SaaS products in use today and optimize current spend2. Deploy an infrastructure and process to increase visibility and control 3. Ensure the process uses automation to make the SaaS procurement process easier not more difficult for employeesMaking the process of buying a SaaS tool needs to continue to be decentralized and easy, but powered by a process and infrastructure that also centralizes control and visibility into the SaaS purchase and usage analytics.When should a company implement a SaaS Spend Management program? David suggests 100 employees is a good place to start. By implementing a solution early, the culture of a structured SaaS procurement process is much easier to scale as companies hit 500 and 1000 employees. Attempting to introduce a formal SaaS Spend Management below 50 employees is most likely to meet significant resistance..In today's evolving world, software is often either the number two or number three expense category after compensation and benefits. For companies in this category, introducing a SaaS spend program prior to a full fledge "procurement function" can provide early financial wins without needed to invest in a larger purchasing infrastructure and organization.SaaS spend management does often include a "managed buying service" and technology to automate SaaS purchasing while simulatenousy increasing ease of purchasing and control the on-going expense and risk of SaaS sprawl.Procurement Paradise is the primary goal of Tropic.ai and is a unique approach to gaining company wide adoption of a process targetted at providing greater control of the SaaS spend, while empowering every employee to purchase sofware that increased their job productivity within the approved framework and process of a well defined SaaS Spend Management program.If you are responsible or interested in controlling SaaS spend in your company, or a B2B SaaS sales professionals looking to sell into companies with a formal SaaS Spending Management program in place - this conversation with David Campbell provdies a good lens into procurement paradise.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.