As our Founder and CEO, Jim Eberlin, wrote in his blog post ‘Start-Up Guidelines for Building Sales Teams’, “Metrics are very important at this (sustainability) stage. The most important metrics being numbers focused on conversion rates of opportunities and closes. The company must track qualified opportunities and sales process milestones that occur in the funnel”. So what exactly are these important metrics?
Defining and refining the sales and marketing processes of any organization is a daunting task. Failure to move nimbly in a new direction when your company fails to gain traction or loses momentum in the sales and marketing engine is a costly mistake. Many times marketing will answer objections with statements like: “We haven’t given the campaign enough time!”, “We don’t have enough money to create the leads!”, “You haven’t given my team enough tools to be successful!”, or “My dog ate my hard-drive!”.
Similarly, sales will have responses to slow sales growth: “We are missing feature/functionality X!”, “Once we get X, they will buy!”, “The product isn’t fully baked!”, “I’m not getting qualified leads!”, “Potential customer X doesn’t have budget this year, but they are buying in January!”, or “I’m focused on my Fantasy Football team, I don’t have time to close deals!”.
Why talk about marketing though, when sales sustainability is the focus? Because without a rock solid marketing process generating truly qualified leads, sales will quickly turn into a chaotic hunting trip. All companies are looking for a sniper-like targeted approach to sales with a true roadmap for your team to follow. Sure every team has its renegade, a unique individual who gets it closed going against the grain. However, no organization can count on or project sales forecasts without a proven process. For our marketing process, we adhere to Aaron Ross’s Predictable Revenue. This is a tried and true methodology for our marketing machine (sure we have a few tweaks, but mostly based on Aaron’s book).
So what’s the process? TopOPPS (yes, an obvious plug for us) can help you with your process and we can also help guide you to the true sales metrics for your firm. That being said, there are definable global metrics which should be looked at for each industry. We will focus on start-ups in this instance though. As a side note, in the next four blog posts I will define the measurements below in greater detail, as well as give acceptable ranges for each. So, don’t get caught up in the formulas.
Marketing for the Sales Qualified Lead (SQL)
How will marketing turn dollars into SQLs, or more importantly, how is your company measuring its cost per SQL? I will suggest one way to measure this and, while your company may have its own measurement, the goal of all metrics are the same: meaningful information to make informed decisions. The formula that I find most useful to calculate your cost per SQL is:
((Total Marketing Dollars Number of Campaigns) + Allocated Marketing Overhead SDRs or the equivalent should not be included) Sales Qualified Leads.
This will give you your cost per SQL, per campaign. For example, if you spend $300k of your marketing budget on 10 campaigns and partner events with an overhead of 92k, and end up with 35 SQLs then your equation will break out to:
(($300k 10) + 92k)/ 35 = $3,485.71 per SQL
So is your marketing cost efficient? How does it stack up compared to projections? How many SQLs convert to Sales Accepted Lead (SAL)? You cannot know how effective marketing and marketing campaigns are without understanding your SQL cost. I would liken this to buying a subscription to a magazine: You will get something in the future in which you don’t know the true value.
SDRing (Sales Development Rep) for the SAL
Yes, our SDRs (even though we don’t call them SDRs anymore) are the easiest group to measure. Not only can I tell you the number of SALs per SDR, but I can also tell you the cost per SAL, per rep, the commission rate paid per rep, and the close rate per SAL, per rep. You may say, “no kidding, genius!?”. It’s true that there’s no real trick to this, but can you tell me these metrics for all of your SDRs? Can you tell me the trendline and efficiency rate that make a great SDR, or which measure is most meaningful?
SAL to Close
This metric is easily measured and defined. Conversion efficiency is key, so are days to close, days in the pipeline and days in each stage. You should be asking yourself, “Are we measuring this?”, “Can we measure this easily without starting another custom project?” We do it by eating our own dogfood.
The Magic Number or CAC Ratio?
By now, mostly everyone has heard about the magic number. Is it really better than Customer Acquisition Cost (CAC) or CAC ratio though? Is there any difference between the two? There have been great debates in board rooms over these measures and their significance. In the fifth blog in this series, I will tackle this issue and give you my thoughts on meaning and importance of both.
The key take away for your two minutes of reading: There are successful tools and metrics to measure your sales and marketing spending, and they’re not made up of guesses or black magic. First, answer questions in order to define the problem. Then use the proper instruments to fix the problem. Finally, take the additional necessary steps to avoid similar problems moving forward.