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9 Steps to Repeatable, Scalable and Profitable Growth + the Key SaaS Metrics to Track David Skok General Partner, Matrix Partners KEEP GOING FOR DAVID SKOK’S FULL EVENT DECK. DON’T FORGET TO REGISTER FOR OUR UPCOMING EVENTS REGISTER > REGISTER > 9 Step B2B Startup Roadmap Three Topics Fixing Broken Funnels SaaS Business Model & Metrics B2B STARTUP ROADMAP 9 STEPS TO SCALABLE GROWTH Conventional Wisdom Search for Product / Market Fit Scaling the Business Works for B2C BUT B2B FOUNDERS USUALLY DISCOVER… Turn up the spend on sales & marketing, but no consistent results, and a lot of cash burn There’s an important missing step that’s essential for B2B The Missing Step Search for Product / Market Fit Scaling the Business Search for Repeatable, Scalable & Profitable Growth Model Startup Valuations TIME VALUATION Startup Valuations – The Reality MILESTONES TIME VALUATION Startup Value Creation Happens as Key Elements are De-risked “Have we found a problem that the customer really cares about?” “Will many people pay?” TIME VALUATION“Does it actually work?” “Will someone pay?” Credit Pete Kazanjy Key Startup Inflection Points TIME VALUATIONCan we scale profitably? Does our growth process scale? Can we scale without excessive churn? Can non-founders sell this? Will many people pay? Does it actually work? Will someone pay? Have we found a problem that the customer really cares about? Credit Pete Kazanjy Not Only is Risk Reduced… but Focus and Business Motion also Change TIME VALUATIONInflection Points THESE LEAD TO THE SUB-PHASES 9 Steps to Repeatable Scalable & Profitable Growth Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model Test Hypothesis Prove the Value Prove it can be sold Find Repeatable Sales Motion Prove non- Founders can sell Make it Scalable Ensure Customer Success Make it Profitable Hit the Gas and Scale Scale the org & its processes Etc. 1 2 3 4 5 6 7 8 9 10 11 Scaling the Business THE SCALING PHASE: Startup Value Increases Rapidly Can we scale profitably? Does our growth process scale? Can we scale without excessive churn? Will many people pay? Does it actually work? Will someone pay? Do we know what problem we are solving? SCALING TIME VALUATIONCan non- founders sell this? WHY? PROFITABLE SCALABLE REPEATABLE THREE CAREFULLY CHOSEN WORDS Easy to say, but hard to achieve Implies a CASH GENERATING MACHINE …which GROWTH STAGE INVESTORS LOVE Trying to force progress by jumping ahead before completing the current phase #1 mistake Common Variations • Building product before meeting enough buyers to validate the hypothesis • Hiring salespeople before founders have proven they can sell the product • Scaling sales before growth process is repeatable • Scaling sales before solving churn problem BURN CASH & shorten the runway What We’ve Learned NOT PREDICTABLE HOW LONG THIS WILL TAKE Search for Product / Market Fit Scaling the Business Search for Repeatable & Scalable & Profitable Growth Model Conserve Cash until the Scaling Phase Search for Product / Market Fit Scaling the Business Search for Repeatable & Scalable & Profitable Growth Model CASH BURN A Common Mistake… Search for Product / Market Fit Scaling the Business Search for Repeatable & Scalable & Profitable Growth Model Founders remain in burn avoidance mode Fail to invest for fast growth Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model Our Focus Today: The key sign that you’re getting there: Bookings - (NOT Revenue or ARR!) For SaaS: Bookings = Net New ARR (New + Expansion – Churned) Q1 Q2 Q3 Q4 Q5 Q6 Q7 ARR with Flat Bookings ARR with Growing Bookings Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q1 Q2 Q3 Q4 Q5 Q6 Q7 At the beginning: No clear sales path By the end: Well understood path What are we trying to learn? • Which target market? • Who are our ideal prospects (ICP) and what defines a bad prospect? • Who in the organization to sell to? • What pain / use case to target? • How can we reach these people, and fill the top of the funnel? • What messaging? • What sales motion? • What pricing? • What new product features are needed? • What is the right organization in sales, marketing and customer success (inc. people specs) • What enablement do they need? (Training, on-boarding, materials, etc.) • Etc. Where do you start? Phase 4 - Find Repeatable Sales Motion Find repeatable Sales Motion “Will many people pay?” Search for Repeatable & Scalable & Profitable Growth Model Ideal Sales Staffing = Founder Led Selling Founders Pathfinder/Trailblazer Sales Director/Rep Find repeatable Sales motion Pathfinder/Trailblazer Sales People • Not like ordinary sales people – who follow a playbook • They have to create and evolve the playbook • Which target market and use case? • Who in the organization to sell to? • What Message? • What Pricing? • What Sales Motion? • Key missing product features? Fire Up an Initial Lead Source Customer Discovery Somewhere north of 50 real buyer conversations Patterns will emerge Goal: Pick one target market … with a clear Use Case Use Case Benefit Brian Halligan, CEO - HubSpot “In the early days of HubSpot, we couldn’t decide which target persona to go after. We argued about it for years. By not deciding: - our marketing team had to serve multiple personas - our product team had to serve multiple personas - our services team had to create multiple offerings Once we finally got focused on one persona, everyone could focus on attracting and delighting that persona.” Find Repeatable Sales Motion – Exit Criteria • Sales to multiple customers • Who fit the Ideal Customer Profile • Happy and realizing the promised business benefits • Using a repeatable sales motion that can be taught to a Sales rep • One target market, one use case • How leads are generated • Who to call • What messages to use • How to engage • Pricing • Etc. Biggest Mistake • Hiring normal (non-pathfinder) sales reps before this step is complete Phase 5 - Prove non-Founders can sell Find repeatable Sales Motion “Will many people pay?” Prove non-founders can sell “Can non-founders sell this?” Search for Repeatable & Scalable & Profitable Growth Model Ideal Sales Staffing Founders Pathfinder/Trailblazer Sales (Rep/Director) Find repeatable Sales motion Prove non-founders can sell 2 Standard Sales Reps Prove that an ordinary sales rep can sell • Founders must step back and take a different role: • Hiring • Onboarding & Training • Managing • Coaching • Building sales tools Can Non-Founders Sell – Exit Criteria • At least one “ordinary” Sales rep selling effectively • Ideally both of the reps • Productivity at > 4x their OTE • Customers remain happy • Realizing the promised business benefits Common Mistake • Founders don’t hand over selling to the reps • Hard to do, as the reps are so much less capable • It’s OK for founders to keep doing a few deals • But that should NOT be their top priority Phase 6: Make it Scalable Find repeatable Sales Motion “Will many people pay?” Prove non-founders can sell “Can non-founders sell this?” Make it Scalable “Does this scale?” Search for Repeatable & Scalable & Profitable Growth Model Ideal Sales Staffing Founders Pathfinder/Trailblazer Sales (Rep/Director) 2 Reps 2 Reps 2 Reps Find repeatable Sales motion Prove non-founders can sell Make it Scalable 2 Reps 2 Reps 2 Standard Sales Reps SUMMARY Prioritize Focus & Actions based on Stage Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model 1 2 3 4 5 6 7 8 9 Test Hypothesis Prove the Value Prove it can be sold Find Repeatable Sales Motion Prove non- Founders can sell Make it Scalable Ensure Customer Success Make it Profitable Hit the Gas and Scale Scale the org & its processes 10 Etc. 11 Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model Don’t Jump Ahead! • E.g.: • Hiring too many sales people before the sales process is repeatable • Expand internationally before you have nailed scaling profitably in the US • Etc. Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model Manage Cash Burn According to Stage Cash Burn [ ] FIXING BROKEN FUNNELS GET INSIDE YOUR BUYER’S HEAD Studying Funnel Blockage Points Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects The Source of most Problems Vendor Centric NOT MOTIVATED TO DO THAT THEY ARE CUSTOMERS WILL DO SOMETHING YOU ARE HOPING YOUR Fixing broken funnels by getting inside your buyer’s head FRICTION CONCERNS Find the worst blockage point in your funnel MOTIVATIONS FRICTION CONCERNS Re-design, or try to use what motivates them CLEARBIT LEADS + DATA ENRICHMENT New Leads Enrich Existing Leads CLEARBIT • Data Quality • Highly skeptical • Seen lots of products like this before • Enrichment data wasn’t good • Data Coverage • Skeptical • What % of our leads would be covered in this database? Buyer’s Key Concerns I have to go through IT to get Salesforce connected FREE TRIAL BLOCKAGE POINT Connect to Salesforce SOLUTION: CHROME EXTENSION Browser connection to Salesforce See enriched data in Salesforce UI Judge quality of data Report shows data coverage % Chrome Extension CHROME EXTENSION • Easy to install • Low buyer concern • Re-write the page’s HTML CLEARBIT CHROME EXTENSION - ENLARGED Freemium, Free Trials, Open Source The Product is your sales person WHAT IS YOUR TIME TO WOW! ? Thanks to Gail Goodman of Constant Contact DEFINING WOW! Thanks to Gail Goodman of Constant Contact A moment where your buyer sees something cool and exciting • Motivates them to continue exploring The moment when your buyer gets excited enough to want to buy Mini Wow! Full Wow! TIME TO WOW! • How many steps? • How much time does it take? • How much FRICTION is involved REMOVE STEPS & REMOVE FRICTION EXAMPLE Salsify: Product Experience Management for Brands • Buyer searches for products on Amazon, Google, Walmart, Target, etc. • Make sure your product shows up at the top of those searches • Make sure your product detail page converts at the highest rate Photos Feature Summary Recommended Accessories Rich description Video Reviews Detailed Specifications Key to Success: Rich Product Content Salsify – Product Content Supply Chain Automation Brands Photos Videos Text Specs Etc. Retailer Portal Retailer Portal Retailer Portal Retailer Portal Salsify’s Original Trial Experience Sign up Wait for email with Account Open the App Learn the UI Import Content Locate & Export Content Export to new Retailer Sign up with new Retailer Landing Page Lots of Fields Next, Wait for Email… Sign In… Now What? • Lots of work still required Get Inside your Buyers Head and Analyze for Problems Sign up Wait for email with Account Open the App Learn the UI Import Content Locate & Export Content Export to new Retailer Sign up with new Retailer Redesign Trial Steps for Problems (Friction, Concerns, & Motivations) Sign up Wait for email with Account Open the App Learn the UI Import Content Locate & Export Content Export to new Retailer Sign up with new Retailer Delay causing major drop off First Step in the Redesign Import Content Locate & Export Content Export to new Retailer Sign up with new Retailer Sign up Learn the UI New Landing Page: JUST YOUR EMAIL Motivation: “If these guys are using it, it must be pretty good…” Still leaves a problem: • Locate & Export Content • Then import to Salsify to have something to play with Then: Land directly in App Major Friction + Other people involved = Long Delays Import Content Locate & Export Content Export to new Retailer Sign up with new Retailer Sign up Learn the UI Offer a chance to start with Sample Data Sign up Import Content Locate & Export Content Export to new Retailer Sign up with new Retailer They now have the MOTIVATION to import their own data Play with Sample Data Mini Wow! Learn the UI Eliminate the risk that they won’t find the path to Wow! Learn the UI Import Content Locate & Export Content Export to new Retailer Sign up with new Retailer • High friction • Too much risk they won’t find the path to Wow! Sign up Guided Navigation Human Help available 0 10 20 30 40 50 60 70 80 90 100 Before After Trial Request -> Logged into App Trial Request -> Product Page Trial Request -> Taking action 3x Overall Improvement Uplift - % Conversion, Before and After Next Problem Area… Sign up Import Content Locate & Export Content Export to new Retailer Sign up with new Retailer Play with Sample Data • High Friction • Long Delay Google Shopping Problem Solved – Export to Google Manufacturer Center Sign up Import Content Locate & Export Content Play with Sample Data Export to Google Last Remaining Problem Area… Sign up Import Content Locate & Export Content Play with Sample Data Export to Google • Huge Friction & Delay • Other People involved Scrape publicly available data from existing retailer’s pages Sign up Play with Sample Data Export to Google No import needed Scrape Content for them • They have my content in here already • They’re showing me all the issues Mini Wow! Eliminates Need for Sample Data Sign up Play with Sample Data Export to Google See their own Data Scrape Content for them Final Redesigned Process • Fast Time to Wow! • High conversion rates Sign up Export to Google See and solve problems with their own Data Scrape Content for them Funnel Optimization Meeting Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Funnel Whack-a-Mole • Solve for blockage points • As you fix one, the problem will move elsewhere SILOED THINKING MARKETING SALES CUSTOMER SUCCESS PRODUCT THE NEW GROWTH TEAM MARKETING SALES CUSTOMER SUCCESS PRODUCT USE FUNNEL FLOW CHARTS Website Free Trial Handle other questions Proposal High Level Overview xx xx xxx xx xx xxx MicroFunnels where needed Design a funnel that Delights Entices and Motivates [ ] THE SAAS BUSINESS MODEL AND METRICS Why is this topic so important? SaaS businesses: highly sensitive to small changes in a few key metrics Understanding these unlocks the Levers for Growth The old way of measuring bookings: Size of the order Customer One: 1 month commitment, $1k per month Customer Two: 6 months commitment, $1k per month But what if… Customer One: stays on the platform and doesn’t churn Customer Two: churns at the end of their 6 months Net New ARR Expansion ARR (Existing Customers) Churned ARR (Lost Customers) New ARR (New Customers) The right way to measure SaaS Bookings Key SaaS chart: 4 components of bookings $(15.0) $(10.0) $(5.0) $- $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 Jan Feb Mar Apr May Jun ARR Bookings New ARR Net New ARR Expansion ARR Churned ARR Always look at a chart that shows the trendlines to see if there is growth Funnel Metrics are Essential "IF YOU CAN NOT MEASURE IT, YOU CAN NOT IMPROVE IT." - LORD KELVIN The Key Metrics VISITORS CAMPAIGNS TO DRIVE TRAFFIC TRIALS CLOSED DEALS CONVERSION % CONVERSION % OVERALL CONVERSION % Computing Funnel Conversions requires Cohort Analysis January February March Conversion Rates Visitors 100 Free Trials 40 40% Closed Deals 1 4 5 12.5% Tracking the January Cohort Not all deals will close in the same month they started in the funnel GAAP ACCOUNTING The primary way that businesses are evaluated GAAP Accounting doesn’t work for SaaS • Point in time snapshot • Doesn’t take into account the value of future recurring revenue What’s so different about SaaS? $(7,000) $(6,000) $(5,000) $(4,000) $(3,000) $(2,000) $(1,000) $- $1,000 Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Cash Flow for a Single Deal CAC (Cost to acquire the customer) Subscription payments * GM% Cash Impact of a typical deal $(7,000) $(6,000) $(5,000) $(4,000) $(3,000) $(2,000) $(1,000) $- $1,000 $2,000 $3,000 Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Month 13 Month 14 Month 15 Month 16 Month 17 Month 18 Negative Cash Flow If cash flow is bad for one customer, what happens when we grow, and add many more customers? Cumulative Cash Flow $(3,000,000) $(2,000,000) $(1,000,000) $- $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 Month 1Month 3Month 5Month 7Month 9Month 11Month 13Month 15Month 17Month 19Month 21Month 23Month 25Month 27Month 29Month 31Month 33Month 35Month 37Month 39Month 41Month 43Month 45Month 47Month 49Month 51Month 53Month 55Month 57Month 59Modeling a slow increase in the number of customers added every month The SaaS Cash Flow Trough $(3,000,000) $(2,000,000) $(1,000,000) $- $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 Month 1Month 3Month 5Month 7Month 9Month 11Month 13Month 15Month 17Month 19Month 21Month 23Month 25Month 27Month 29Month 31Month 33Month 35Month 37Month 39Month 41Month 43Month 45Month 47Month 49Month 51Month 53Month 55Month 57Month 59 “The thing that surprises many investors & boards of directors about the SaaS model is that, even with perfect execution, an acceleration of growth will often be accompanied by a squeeze on profitability and cash flow.” Ron Gill, CFO at Netsuite What’s the impact of faster growth? $(10,000,000) $(5,000,000) $- $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 2 more Customers/Month 5 more Customers/Month 10 more Customers/Month Cash Flow Trough gets deeper When your SaaS business is losing money at an increasing rate, how can you tell if the business is going to work eventually? UNIT ECONOMICS A Powerful Tool Unit Economics Can I make more profit from my customers than it costs me to acquire them? Unit Economics Cost to Acquire a Customer Lifetime Value of a Customer CAC LTV A Viable Business Model CA C CAC LTV < But surprising how many Entrepreneurs underestimate CAC Guidelines for SaaS success LTV CAC > 3x Months to recover CAC < 12-18 months Required for Capital Efficiency The Power of Unit Economics applied to Segments Brad Coffey, HubSpot “When we started this analysis, we had 12 reps selling directly into the VSB market and 4 reps selling through Value Added Resellers (VARs). When we looked at the math we realized we had a LTV:CAC ratio of 1.5 selling direct, and a LTV:CAC ratio of 5 selling through the channel. 0 1 2 3 4 5 VSB VARs LTV:CAC 0 3 6 9 12 VSB VARs No of Reps 12 Months Later Brad Coffey, HubSpot The solution was obvious. Twelve months later we had flipped our approach – keeping just 2 reps selling direct and 25 reps selling through the channel. This dramatically improved our overall economics in the segment and allowed us to continue growing.” 0 3 6 9 12 VSB VARs No of Reps 5 10 15 20 25 0 5 10 15 20 25 VSB VARs No of Reps Churn – the number one SaaS Killer Revenue Lost with 2.5% monthly Churn Renewals Lost due to Churn YEAR 3 $3m $7m Becomes harder & harder to replace this with new bookings Renewals Lost due to Churn YEAR 6 $30m $70m Net Revenue Retention versus Customer Retention Customer Retention Net Revenue Retention (NRR) Customer Churn vs $Dollar Churn Customer 2 $50k ARR Customer 1 $10k ARR Customer Churn vs $Dollar Churn Customer 2 $50k ARR Customer 1 $10k ARR Customer 2 $50k ARR Customer 1 Churned 50% Customer Churn 17% $Dollar Churn Customer Churn vs $Dollar Churn Customer 2 $50k ARR Customer 1 $10k ARR Customer 1 $10k ARR Customer 2 Churned 50% Customer Churn 83% $Dollar Churn Negative $Dollar Churn Customer 2 $50k ARR Customer 1 $10k ARR Customer 2 $70k ARR Customer 1 Churned 50% Customer Churn -16% $Dollar Churn Negative Churn Expansion Revenue from Existing Customers Revenue Lost from Churning Customers > Net Revenue Retention (NRR) > 100% Leads to: Basic Edition Features Requires Variable Pricing Axes Users Basic Edition Features Requires Variable Pricing Axes Users Depth of Usage Examples: - Mailing list size - Database size - Amount of storage used Basic Edition Features Requires Variable Pricing Axes Impact of Negative Churn $400k vs $150k ending ARR Top 2 Factors affecting Renewals On-boarded successfully? Champion still at the company? Annual up-front payment Instead of Monthly What happens if we collect a year’s payment in advance? $(5,000,000) $- $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 $40,000,000 Month 1Month 3Month 5Month 7Month 9Month 11Month 13Month 15Month 17Month 19Month 21Month 23Month 25Month 27Month 29Month 31Month 33Month 35Cumulative Cashflow comparision - monthly payments vs year in advance Eliminates the cash flow trough, and means $35m more cash in this scenario CONCLUSION So much more to this topic. See my blog. [ ] FOR MORE INFORMATION WWW.FORENTREPRENEURS.COM [ ] APPENDIX Goal: Pick one target market … with a clear Use Case Use Case Benefit Recommended Starting Point Make a list of your best ideas for potential target markets Score Them Examples of Target Market Choices TAM Pain level / Urgency and Willingness & Ability to pay Amount of work required to satisfy their needs Enterprises High score here means low amount of work Mid-market SMB Venture Backed HiTech companies Financial Vertical Note these target markets are just examples. Your own list of possible targets will vary. Hair on Fire Urgency is key to success • Buyers resist change • Without urgency you will have: many good conversations but long sales cycles and few closed deals Ideal Customer Profile - ICP Ideal Prospect Characteristics • Industry • Use case • Company Size • Job function • Key characteristics Negative Characteristics Messaging • Business benefits, not product features • Clear • Simple • Short • Explains differentiation from competition Credit: Harvard marketing professor Theodore Levitt: “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole.” Define our Growth Process/Sales Motion XXX YYY Covered in the second topic: ‘Fixing Broken Funnels’ Sales Motion Strangers Customers Sales Motion Promoters Customer Success Playbook Funnel Design Customer Success Sales Middle of Funnel Top of Funnel Strangers Visitors Attract Customers Close Leads Convert Promoters Delight A better way to approach to Funnel Design Buyer Centric Buyer-Centric THE BUYERS JOURNEY THE BUYERS JOURNEY Awareness Consideration Purchase Mismatch: Sales often handle every lead as though they were in the Purchasing phase I’m paid to sell. I better be selling. Likely Distribution of Web Site Visitors Vendor Web Site 80% Awareness 15% Consideration 5% Purchase Different Dialog and Content for each stage Awareness Consideration Purchase • Create Problem & Pain awareness • Discuss how people are solving • Discuss benefits people are seeing • Don’t mention your product • Don’t sell! • Help in choosing a particular solution • Explain how your Product can solve their pain • Free Trial / Demo • Customer stories • Nurture with regular content (Newsletter) • Case studies • Results achieved • How you helped achieve them • Other proof points • Customer references • ROI data • Just lost my data in hard drive crash • Backup software/service • Starting a new software project • Dev Tools, etc. • Performance issues with existing app • APM tools • Difficulties tracking bugs across multi-tier apps • Bug tracking software TRIGGERS Buyer Personae Who is involved in the buying process? Champion Economic Buyer / Decision Maker IT required for sign off Getting to know your Buyer Personae • Identifying Characteristics • Company Profile (your ICP) • Any special characteristics relevant to this purchase • E.g. Developers: • Don't have a budget • Prefer Open Source, and don't like to pay for software • Professional Role • What does a day in their life look like? • Key business goals? • What does their Boss expect of them? • How does our product help them achieve those? • Motivations / Aspirations? • What would make their job easier? Getting to know your Buyer Personae • What pain do they have that we address? • Is it latent pain, or obvious pain? • How do they describe the pain and what they are looking for? • (Helpful for messaging) • Is solving this pain a high priority for them? • If not, what features would make it a higher priority? • What are the triggers that cause them to buy? Getting to know your Buyer Personae • Are they searching for a solution? • If yes, how do they go about doing that? • Who influences them? (Sites, organizations, and people) • (Helps us figure out how to market to them) • Most important features? Decision criteria? • What are their reactions to our product/company? • What will they like? • What will they not like? • What are the main questions and concerns they have? • What competitors will they also evaluate? • What will they like or dislike about each of those? Designing a Growth Process to match Buyer’s Journey Strangers Visitors Attract Customers Close Leads Convert Promoters Delight Awareness Purchase Interest Post Purchase Top of Funnel Drive the right traffic that matches your ICP and convert to raw leads Middle of Funnel Convert raw leads into MQLs Sales Convert MQLs into closed deals Customer Success Onboard, support and ensure customer success as measured by a customer KPI Designing a Growth Process to match Buyer’s Journey Strangers Visitors Attract Customers Close Leads Convert Promoters Delight Credit: HubSpot Awareness Purchase Interest Post Purchase Top of Funnel Inbound Marketing Paid Marketing Website Strangers Conversion Event Raw Lead Outbound SDR’s Account-based Mktg Targeted Strangers Mktg Qualified Lead Qualify? Account Based Marketing • ICP powers all marketing • Ideal Customer Profile • Build lists of matching accounts • Discover.org, Lead Fox, ZoomInfo, LinkedIn Sales Navigator, etc. • Track who is in buying cycles • Visiting G2 Crowd, Bombora • Track which companies are on your website • Targeted outreach • Aircover from Ads Thanks to Eric Spett, Terminus Middle of Funnel • Most of the raw leads you have captured are not ready to buy • But they may be ready to buy at some point in the future when a trigger happens • Some will never buy • Avoid sending the wrong leads through to Sales, as Sales touch is very expensive • Requires that we score and qualify leads somehow • Pass the right leads to Sales • Nurture the rest of them Middle of Funnel Raw Lead Lead Scoring Lead Nurturing Database High Low Nurture Webinars, events, newsletters, etc. Enrich Use software like ClearBit to enrich the email address to identify company, job title, etc. Segment Identify interesting segments based on attributes (verticals, job functions, etc.) or actions Mktg Qualified Lead Yes No Qualify? Mktg Qualified Lead Sales – Lead Stages Qualify Sales Qualified Lead Customer Close Discovery Call Opportunity Ready to buy? Sales interaction Note: Your process will likely be different, and there will be more Opportunity stages in your CRM pipeline [ ] FUNNEL DESIGN GET INSIDE YOUR BUYER’S HEAD Initial Guess at Growth Process Website Free Trial Map Buyers Process to Your Steps Research Shortlist Vendors Check Review Sites Evaluation Website Free Trial BUYER VENDOR ROI & Justification GET INSIDE YOUR BUYERS HEAD How are they reacting as they go through our funnel steps? What are they thinking as they go through their process? Research Shortlist Vendors Check Review Sites Evaluation Website Free Trial BUYER VENDOR ROI & Justification Optimize Your Steps to Fit Research Shortlist Vendors Check Review Sites Evaluation Website BUYER VENDOR ROI & Justification Free Trial ROI Calculator Competitive Features Matrix Optimize Your growth process to Fit Research Shortlist Vendors Check Review Sites Evaluation Website BUYER VENDOR ROI & Justification Free Trial ROI Calculator Competitive Features Matrix Incent customers to do reviews ADDRESS ALL DECISION CRITERIA Address Security Concerns 3rd Party Security Audit & Whitepaper BUYER Is this a safe vendor to choose? • Customer Stories • Safe Channel Partners Treat your Buyer like a Bank Account Make a deposit before you try to make a withdrawal Selling can be the worst way to sell Build Trust Consult Sell First Contact First Contact Build Relationship Bookings Top of Funnel Lead Flow Conversion Rate Average Deal Size Example: Touchless Self Serve Visitors to Web Site Sign up for Free Trial Closed Deals Funnel Metrics are Essential "IF YOU CAN NOT MEASURE IT, YOU CAN NOT IMPROVE IT." - LORD KELVIN The Key Metrics VISITORS CAMPAIGNS TO DRIVE TRAFFIC TRIALS CLOSED DEALS CONVERSION % CONVERSION % OVERALL CONVERSION % Computing Funnel Conversions requires Cohort Analysis January February March Conversion Rates Visitors 100 Free Trials 40 40% Closed Deals 1 4 5 12.5% Tracking the January Cohort Not all deals will close in the same month they started in the funnel Not all Lead Sources are Equal Visitors Trial 5% 10% $5,000 Customer Google Ad Words FaceBook Ads Visitors Trial 2% 20% $8,000 Customer OVERALL CONVERSION % (BY LEAD SOURCE) Cost per lead LTV ROI by Lead Source A quick reminder of what we discussed earlier… Bookings without Sales people Leads Simple linear relationship Conversion Rate Average Deal Size x x But when you add in Sales People… Ramp Time Sales Capacity Limit Growth comes in discontinuous units Bookings No of Sales People Productivity per Rep (Average) x PPR Remember this? One of the most common reasons for missing plan Didn’t hire sales people fast enough Two Graphs 0 2 4 6 8 10 12 14 16 18 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Number of Reps versus Plan Reps Plan $0 $500 $1,000 $1,500 $2,000 $2,500 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Assigned Quota vs Plan Assigned Quota Plan $k $0 $500 $1,000 $1,500 $2,000 $2,500 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Assigned Quota vs Plan Assigned Quota Plan $k $500k Lost Bookings potential due to slow hiring Compare Actual Bookings to Assigned Quota $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Assigned Quota Bookings $k 85% Over Assignment of Quota needed to hit plan =1/85% Monitoring PPR Charts 3 PPR over time $100 $110 $120 $130 $140 $150 $160 $170 Q1 Q2 Q3 Q4 Average Productivity Per Rep New ARR booked -$k / quarter Productivity Per Rep (PPR) Rep Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 John 120 165 180 145 80 110 195 Mary 80 110 135 155 150 145 Fred 60 35 75 40 55 Alice 85 145 160 180 145 Joe 60 110 85 130 145 Mike 155 170 145 190 Sarah 35 45 70 45 Sue 80 145 175 165 % of Reps at Quota 30% 40% 50% 60% 70% 80% 90% 100% Q1-16 Q2-16 Q3-16 Q4-16 % of Reps above 75% of Quota 30% 40% 50% 60% 70% 80% 90% 100% Q1-16 Q2-16 Q3-16 Q4-16 % of Reps above 100% of Quota The other thing that drives PPR Adequate Lead Flow THE MAGIC OF FUNNEL MATH Raw Lead Marketing Qualified Lead Sales Accepted Lead Opportunity Closed Deal 20% 80% 25% 20% Funnel Math Raw Lead Marketing Qualified Lead Sales Accepted Lead Opportunity Closed Deal 20% 80% 25% 20% Closed Deal 1 Opportunity 5 Sales Accepted Lead 20 Marketing Qualified Lead 25 Raw Lead 125 Reverse Funnel Math Compute Leads Required per Rep x No of Closed Deals = Reverse Funnel Conversion Rate Marketing Qualified Leads Required This becomes the Contract between Sales & Marketing Marketing Qualified Leads Required Sales Marketing SDR’s LTV - Importance of Gross Margins LTV = ARPA Gross Margin % $ Churn Improving Gross Margins • Greatest cost is usually people costs in implementation and on-boarding • Solve by: • Simplifying the product • On-line training courses • Provide in-product training videos and walk-throughs • Charge a one time fee for implementation
