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- [00:00]
A
You're listening to Revenue Vitals with Chris Walker.
- [00:18]
B
Chanel. What's up, man? Good to see you. Long time no see, man. Interested to hear what you're working on. So, yeah, come on and share some stuff if you're. You're open to it at the end.
- [00:29]
C
Oh, man, I'm doing ops, content, ad strategy, the works. They're all going. Hi, Melissa, good to see you. Melissa and I used to work together in a collaboration back in manufacturing, so way blessed from my past.
- [00:45]
B
Amazing. We got some people coming through here. Nancy, good to see you again. Cool. So we got some good feedback about, like, some of the visuals that we presented last week. And so I'm going to continue to enhance and iterate on this event and try to pull in a lot more like frameworks and visuals and things like that. I think it becomes really helpful for people. So stay tuned for some more of that. In this episode, we're going to just take it a step further. We're going to look at some of the things that we talked about last week and then take it a step further into like a practical situation and what it means. So, yeah, Sidney, if you don't mind, let's pull up the revenue breakpoints just to sort of center the conversation and then the metrics and then I'll get through into the details. Cool. So you can see the, the revenue breakpoints. I can like barely read the stuff, but I have it from my memory. And you can see this range where you see Breakpoint 7, 8, 9, between 10 million and 100 million. More realistically, probably 20 million and 100 million. It's all good. It's all good. Yeah. Between 20 million and 100 million. And then in the center there, you can see number eight, which is, I think, sustainability, but it's also known as unit economics. And a lot of Companies that are 30 million, 50 million, 80 million run into this issue. Companies that we're working with Pesetto, and I imagine if we're working with some, the many others are facing this exact same thing. And so I wanted to talk through if this is your situation, sort of how to think about it where, like the core thing that's holding your business back is the economics around how efficiently you can create pipeline, how efficiently you can deploy sales resources and SEs and all the other jam to close deals, and then what you need to spend on expansion, renewal, that if those economics are out of line, then it can cause you to need to spend two times, three times more on sales and marketing expenditures. In theory, to achieve your growth target, which therefore makes it unrealistic based on the financial guard rails. And so let's move into the metric stack, which I think is the next slide. You can see the top level metrics that you can get from any, like any CFO would be able to tell you the investor metrics and the financial metrics just based on what comes out of the accounting system. And then you get into performance metrics where you start to have this combination of you need CRM metrics and financial metrics. And then below that you have all the CRM metrics in the data model just to catch everyone up that weren't here. Yes. Last week. And in the center here you see unit economics on the left side under performance metrics. And you can isolate as that is the core issue. And then if you're able to break down expenses between marketing, sales, SDRs, other things like that, and then re categorize and re look at it outside of the department silos, you can identify where is the actual issue. Are we overspending on sales and we're not getting enough in like close one revenue, which actually is a many times a pipeline problem that just presents itself in the sales metrics like prp. But you can break down unit economics and look at that. So unit economics is becoming like I, I think for every company they're considering it. But given the revenue breakpoint at this stage, like 25 million to 100 million, this is like a core priority. And so if you take a company for example, right now it's August, let's say their fiscal ends in January or February. So they got like six months left in the year, maybe less than that. And from a like a unit economic standpoint on the creation of pipeline with SDRs and all the marketing investments used to create pipeline, they spend a dollar and then they get $2 in pipe back. Okay, so they have to spend 10 million to create 20 million in pipe. Then they're going to win that pipe at 20%, let's say. So they spend 10 million and they get 4 million back. And then they, that doesn't even include the sales expenditures. So you can see that like spending 10 million or 20 million with you include sales to get 4 million back just isn't a realistic proposition. It's a five year linear CAC payback. And so if they just kept that and said that's okay, like we're not going to make major changes to this, we'll get $2 in pipeline for every dollar that we spend and then they go into 2025 planning. And they think okay, if we're going to spend a dollar to get $2 back, but this year instead of getting 20 million in pipe to hit our growth target, we need to get 50 million in pipe. It means that they need to increase their budget by 250% theoretically to get there. And many companies with these like sort of simplistic models do this. And then they do increase the budget by 250% to try to get to their growth target. It doesn't work out and it's not scalable so it doesn't go out linearly and they spend two and a half times more and they get one to one and a half times back. And it becomes a really, a really difficult situation when you realize halfway through the year in 2025 that that's not actually going to be how it plays out. Then you have sales layoffs, major marketing, major marketing cuts, cuts across the entire go to market and programs and headcount. And so the real focus for the rest of the year for a company like that is to try to figure out how to improve the economics dramatically. And like for a company that's spending $10 million $20 million on marketing and SDRs and they have their sales expenses, big budgets, you can find pretty dramatic gains pretty quickly because there are big chunks of budget like Google Ads or other types of performance marketing, content syndication, large scale events where it's just clear you're not getting the appropriate roi. And so you can reduce those and then figure out things that are working and then you can, if you took the unit economics from $2 to $5 which is a realistic proposition over six months, then when you go into 2025 planning, you say we need to spend the same amount of money we did last year and we're going to get more than the pipeline we got last year and it's, we're going to be able to achieve our growth targets. That's how unit economics can play a massive difference in the, the difference between you need to spend $10 million in marketing to hit your plan versus 25 million and this idea that we take poor unit economics, like let's say the two dollar example and that we just increase the budget dramatically. What happens is you can't spend your way out of poor unit economics. I've said this for in Google Ads before. If your Google Ads don't work at 100k a month, they're definitely not going to work at a million a month. And the same principle applies to go to market. If you can't achieve proper unit economics and proper ROI on $10 million in marketing. Increasing that to 25 million a year is, is going to lead to further degradation and further breakdown of those metrics and literally just make the problem worse and make it harder to unwind at the end. And so we need to be methodical. We need to one, identify what the revenue breakpoint is. For many companies that becomes unit economics. And if you break that down further, it becomes the unit economics around how much it costs us to create a pipeline dollar. That's where the isolated issue is. And then from there we need to be able to measure the unit economics, put together a plan on how to make acceptable, make realistic improvements to that number over a three to six month period of time so that moving forward for the rest of the history of our company that we can continue to move that line forward. Rather than putting our planning models in place with these poor unit economics and thinking that it's going to continue to scale with us. It's really about isolating the problem, the breakpoint that's holding you back and then putting a dedicated plan in place to actually solve that. And so that's just like a little bit of an overview of the real life problem. For most companies around 50 like in that 25 to 100 million range pipeline ROI, they see it in rep productivity or performance per rep or whatever metric they use there. They see a lower number in performance per rep or average quota attainment. But the actual problem is that they spend too much money and they don't get enough pipeline and it just shows up in the sales metrics. We need to make sure that we're able to isolate the problem. In reality, there's a problem on both sides. We have too many reps and we spend too much money to not create enough pipeline. So you have to correct both problems, but how you solve them and prioritize them is a little bit different. And so if there are more practical questions around unit economics, would love to get into that point. As I continue to study this, this is really it for most of us. And the reason that it's it is because for almost like all of history, all of go to market and marketing and sales in the growth at all cost era that was like the late 2010s all the way to 2022 that go to market teams did not take into consideration really the cost element of getting the result. In the growth at all costs area. It was just about getting spending money, whatever is required to get the result and the calculations around how much do we spend to create pipeline or how much pipeline we get from Google Ads against how much we spend or a lot of these other economically driven calculations were not factored in by a marketer or a sales leader or something like that just three years ago. And so there's this needed skill to bring these two dimensions of data together. And then on the other side, the CFO can see, hey, our CAC is way out of line. We're spending way too much money on sales and marketing for the incremental ARR we're getting. But I can't figure out why. And so happy to go a little bit further in unit economics or take it in whatever direction that we want. The show is open to everything, expansion, renewal, outbound, BDRs, other go to market motions, PLG. So anything that people have, happy to cover it. But we're on the topic of unit economics, so we'll prioritize that.
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A
First, yes, we do have a question kind of related to unit economics and pipeline coverage. So I'm going to bring on Matthew, who's also speaking at an event with you next week. So shout out to Matt.
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B
Hell yeah.
- [10:26]
C
Yeah, excited to do that. Yeah, I wanted to talk about, you know, you talk about it a lot of it being a pipeline problem. And you know, I see similar things with clients I'm working with where they're drastically underestimating the amount of pipeline coverage that they're going to need to hit their revenue goal. And it can vary significantly even by product. Or someone made the mention of firmographic segment, which is also true. And also not just that, but where you're basing your pipeline coverage off of like if you don't stage date, for instance, your pipeline stages, you're going to be basing it off of stage one. And you're going to need probably significantly more pipeline coverage than you than you think you do. So I'm curious what you're seeing with the clients you're working with at Petto in regards to what kind of pipeline coverages are they needing in order to hit the revenue goals that they're setting for themselves?
- [11:15]
B
Yeah, 100%. And we can break this down a little further because when you think about pipeline coverage, that's what's sitting in the pipeline right now. So it could include deals that have been aging for a year, but it's still sitting in stage three. So you have like this view of what does the pipeline look present day, and then you have more of a quarterly production of how much new pipe are we putting in every Quarter, which is really the volume of how much you're refilling the bucket. And some people don't look at both, but you really need to look at both. But from a sales forecasting perspective and pipeline coverage, looking at active open pipe is the way to do it. I agree with you. Most companies do not stage date stamp. But when you're looking at active pipeline, you can just look at when, when or wherever the pipeline is sitting at that exact time. So that doesn't cause any issues in reporting. And then I think most companies will pick a later stage because the stage one win rates are so low. Like if you have a stage one win rate of 8%, that means your pipeline coverage has got to be 12x minimum, maybe 15x. And so they'll pick something that's a little bit more reliable. And a lot of companies are more sophisticated around this. They'll use like a Clary or they'll use other, some type of SAS tool that can like help them do this in a more clear way and then even have some analytics around deal by deal prediction. But like most companies are going to center on like stage two or three and that helps on the sales side. But then when you think about the pipeline creation side, that's the other side that I was talking about where you need to be looking at the new flow coming in. And that's when stage date stamps become an important part because you need to know when did that deal achieve stage three? And most companies do not have that. So they can't look at the ongoing flow quarter by quarter. Did we create more, do we move more pipe into stage three this quarter than we did last quarter, than we did last quarter? Are we moving forward? Are we moving backward? If you don't date stamp, it's really hard to tease that stuff up out in Salesforce. At least in HubSpot they have properties that track that. At least they try to. And so happy to go back and forth on this topic, but that's generally what we're seeing. And then companies that don't have stage date stamps, like sometimes you're going in saying like if the you're going from stage one, maybe you need 12x. And then you think about if I needed 12x, what would my pipeline target need to be? And then based on that pipeline target, what are my current unit economics, therefore what would I need to spend? And the number becomes totally inflated and absolutely impossible for the company to spend that much money. And it just shows the breakdown in the core financial planning model.
- [13:48]
C
Yeah, and I think like People also clients I'm working with, they're not revisiting their win rates either. So how they're looking at it is based off what they were maybe doing 12 or 24 months ago when it was a different economic climate then. And then another thing I'm seeing is, you know, they'll. I like to look at their pipeline coverage to start the month. It's like, okay, what's your goal and what do you have sitting scheduled to close this month? And, you know, a lot of them are sitting there having, you know, 3 to 5x and needing 8 to 9x based on what they've been doing. And there's just not a lot of revisiting of it that I'm seeing either. And that's where I'm seeing a lot of companies fall short on goals. It's just not looking at their pipeline coverage adequately and, and just having a dose of reality about it.
- [14:29]
B
Yeah, I mean, Mike, over the past six or more quarters, most companies are seeing declining win rates. And so if you went from 20% or let's just make it, for sake of round numbers, 25% win rate from whatever you call, consider that forecasted pipeline 25% and it drops to 12%, which is a realistic thing that we've seen happen before. Then all of a sudden you have a growth target of 50%. And then you need to be able to create double the amount of pipeline because of the win rates. Right. If Your win rates 12%, you need twice as much pipeline than if you win rates were 25%. So you apply that factor and then you apply the next level of growth factor. And then all of a sudden you need to be creating 300% more pipeline than last year. And this is the example that I said before. It just, we show this to companies and are basic, like illustrate to them this. And it's like, okay, if you wanted to do this, the return on your spend to create pipeline, where right now you get $3 back to hit your plan for Q4, you would need to get $47 back. For every $ you spend, you need to go from $3 to $47. This is entirely unrealistic. One, almost no company's producing $47 in pipe for every dollar they spend. And the jump from 3 to 47, which is about more than a thousand percent increase, is just highly unrealistic. And so it just, it's a shorthand to identify risks in the plan, which is something that we've been helping companies do because there's certain calculations that you can make that just show like the core economics, just show that this isn't going to work for sure. Yeah. Can't wait. Yeah. And like you got pipeline coverage, which a lot, mostly on the sales side people are looking at or other people on the company that are focused on closing logos. And then you have how much pipe we're putting in, which is more on the marketing and SDRs. And then when you think about it from like a go to market perspective, looking horizontally across the whole thing, you have to be able to understand how a declining win rate is going to impact your planning and your expenses in marketing and how it all flows together. And generally that stuff isn't accounted for at any level right now.
- [16:35]
A
Yeah, One of the things that we see is companies just start pushing volume on, pushing pressure on top of funnel goals of number of ops, number of pipeline, you know, from any source that they can get it from. And then when they actually should be focusing at least some of their effort into fixing the declining win rate and balancing those two objectives and having some key initiatives under there and set plans for how you're going to address both is something that I think a lot of people miss. They just think that we need to need more volume. That's what we've seen it with a couple of recent clients lately.
- [17:13]
B
And the volume play becomes a downward spiral. Our win rates are down from 20% to 12%. Okay, so now we need to create twice as much pipe. Let's go out and do we need more leads, more volume, more stuff? Let's hire more SDRs. They go out and get that much pipe. It's all low quality pipe. Now when rate drops from 12% to 8% but you spend twice as much money, it becomes a really vicious cycle. When you put so much pressure on top of funnel volume, which a lot of people fall into the trap on. Like I was talking to people, I remember this last year at the. I went to Dreamforces almost a year ago because that conference is coming up and everybody's just like, we can't figure out how to get enough top of funnel. And the reality is perhaps you're just spending too much money or you need to figure out how to get higher quality so that it's moving through and improving win rates. I also love the idea in present day of applying marketing dollars against active in pipeline deals. I've been talking about that for a long time, but especially right now I want to do some modeling around what the actual financial impact is. Because the marketing expenditure to do that, like over the top to active pipeline deals which is a targeted set of accounts. The incremental expense is low relative to all the sales, all the solutions consultants, all the other expenses in there. And so if that can even make an incremental improvement to win rates, it would have a high overall ROI on that expense. So I'm going to try and do modeling around that because it feels like a no brainer to me. But most companies don't do it right now.
- [18:36]
A
Okay, we got a couple other questions that we're going to jump into. This one was submitted actually last week from follow up but the question is what are some ways to improve the go to market efficiency quickly while also driving growth. I don't want to just reduce budget so that next quarter I hit a higher go to market efficiency metric that you outlined last week and then miss growth. So what recommendations would you might have at a macro level?
- [19:03]
B
Cool. Yeah, let's just pull up that the metric stack one more time just to sort of remind everyone because go to market efficiency is a relatively new calculation. Cool. So we're pulling this up here again. When you think about go to market efficiency, one person's belief it reflects this CAC payback in the top investor metrics but it's more objective because it just looks at what did we spend and then how much incremental air we get and it's not making assumptions around the customer lifetime, the expansion potential, other things like that. So I just think it's more objective when you think about comparing company to company and then making decisions off of it takes all the assumptions out. But it sits in that top layer five of investor metrics that the CEO, CFO and board are looking at. And it's effectively comprised of total go to market expenditures, operation, sales, marketing technology and tools, cs, am, any specialized other sales resources, all the management layers, everything that we we spend to acquire, retain and expand our customer base and revenue, all the expenses compared against how much incremental ARR we get which is new logo plus expansion minus churning contraction and you just get a ratio there of this is how much money we spent and this is how much incremental ARR we got. I think the public SaaS medians at least like for the companies that have reported so far are out and around 200% which means that companies spend $2 in sales and marketing costs or go to market costs to get $1 back in revenue. The general like shorthand is you should be a one to one but honestly we almost never see a company that's achieving a one to one. So public SaaS at 200%, but there could be more private companies that are closer to 300, 400, 500%, which means that now all of a sudden you're spending $5 or $4 to get a dollar back. And it that's not a good proposition. And so the question was, how do you make improvements around this in a short period of time? So the first one is to look at the result and understand what is the gap between where we are and where we either need to be or want to be. If that gap is small, then you have a certain way that you're looking at it. If the gap is large, you're going to look at it a different way. So some of the companies that we analyze are at, let's just say they're at 500%, which is more or less a five year CAC payback. And everyone sort of knows that that's not acceptable. When you have that number, you realize, wow, there's a ton of money going to places that is not effective. That's the only way that that can happen. And so when it's that gap is that large, then you basically look at all of our biggest expenses across go to market and then you break it down one more layer by either like vendor or channel and you're going to have Google Ads, large scale trade shows and events, sales, headcount, SDR, headcount. You basically have all the different headcount areas and then try to isolate where are the places where a lot of money is being wasted in those types of environments. Generally it's Google Ads is one of the main offenders and one of the places that you can most easily correct. Because when people think about like cost cutting or reducing expenses to improve unit economics, they think if I spend less then I'm going to get less. And that is not necessarily true and oftentimes not true that there's a lot of money that gets spent on Google Ads. Keywords that don't drive a dollar in pipeline don't even drive a form conversion. It's total waste. And for companies that are spending a million, 5 million, 10 million, there's a lot of them. And so just going in there like we did a company in Q1 in this exact situation where we identified $6.7 million a year in Google Ad spend from the previous year that was going to be planned to spend again next year, that drove no pipeline. So all of a sudden you cut 6.7 million and you drop it into the bottom line and go to Market efficiency goes way up and you have no impact on, on growth or pipeline and that you get a dramatic increase even just going through, if you spend a ton of you go to 20 events a year, just methodically going through it and just going down to 15 can make a huge impact given the cost of the events. And so just to sort of reiterate a process as I talk through it myself, one, make the measurement. Two, evaluate the gap between where you are and where you need to be. Then you can basically go in and say, okay, well how much money do I need to find? If, if I need to get from 250% to 200% and my budget's X, that means I need to find $7 million in expenses that are producing low ROI or no ROI out of our 50 million dollar budget and go to market. And if you take that approach, generally you can go out and find things that are being, money is being spent that isn't producing any tangible ROI that doesn't impact growth rate. And then from there once you start to center and align on get unit economics back in line, then you can look for the scalability. Then you can look how do we increase conversion from stage one to stage three or how do we increase the percentage of the times where our SDRs are working a contact until we get a meeting which could be one out of a thousand, how do we get that to be five out of a thousand? And so then you can look through at these efficiency and throughput improvements in addition to taking that 7 million that you saved and maybe taking a million of it and saying let's go put a million more on something that we're already doing that's working even better or a gap that we found inside of our like I call it a portfolio. Now if you're a CFO and you are responsible basically for approving and allocating the $50 million in sales and marketing expenses every year, you're a portfolio manager, you're managing a $50 million portfolio expecting to get an ROI on that. And you have to have specific investments in different companies, I. E. Departments, programs, things like that in order to get that result. And so thinking about it at the top level, it's difficult for sort of like a budget holder, like a demand gen leader to really think that way just given their focus and their KPIs. But as a CFO, being able to look at it that way and say, wow, we have all this different availability, this is where the gap is, I think is a strong process for getting them back in line without causing negative consequences.
- [25:19]
A
I have a follow up question from this person. They're kind of at a point where to say, you know, they got the unit economics, they saw some improvement going in the right direction, so they did correct some of that spend. They don't have any core programs that they could easily scale or anything without seeing like pretty high diminishing returns. So her question is she wants to think about launching one to two new programs with a reasonable budget that is appropriate based on the percent of their total budget. But how do you think about launching new programs while still focusing on unit economics?
- [25:59]
B
So I think in terms of a process, if you look at it like the bowtie framework or horizontally across the whole go to market, the first step is identifying where is the biggest opportunity. And so you could find that in renewal and expansion, in closing new logos or in creating pipe. And that should be one of the prime primary indicators of where that investment is going and the objective of these additional investments. So like in the example we talked about earlier, if win rates are 12% and they used to be 20% and that's becoming a big issue in planning and unit economics, that having dedicated marketing investments going to improving the win rate from 12% to get it higher through direct mail curated micro events, putting some type of reference program together where people that are in pipeline can talk to your happiest customers, running over the top digital to the buying group, there's plenty of different things that you can do. And that set of accounts is small. What most companies have between 50 and a thousand accounts in pipe at any one time. So the audience is very small, which means the expenses are relatively small. And then you can go and deploy that investment and get a really high ROI of just moving the win rate from 12 to 15% for instance for 5,000, 10,000 bucks a month. So that's one is I is identifying where is the biggest opportunity across the entire go to market. Many times it's also on creating the effectiveness of creating pipeline. And so in that case, when you think about new programs, I think that to me a lot of this comes down to experience, to be honest. And then when you think about just not putting unit economics out of whack when you launch a new program is by starting with a. It's almost like if you're the portfolio manager, you're not going to go. If you have a ten million dollar portfolio and then go and put ten million dollars on a penny stock, you're going to think about like okay, this is something that could win. It's an experiment, I'm going to put a low investment in it. As it starts improving, I'm going to continue to increase my basis. And so in that case it would be having a small, relatively small, that's not going to impact the unit economics experimentation with clear measurement around the impact of it. Run those things for three to six months, evaluate the improvement of unit economics, conversion rates, throughput, whatever you're trying to improve and then grow and scale from there. It's basically like the revenue RNG framework I talked about two or three years ago, which is basically to start small, look for the signals, look for the measurable roi, make it repeatable and then start to continue to increase spend. It just forces you to prove that it works before you go out and deploy a million dollars on something. We were consulting a company earlier this year and they were thinking about going out with some like we were given an extra million dollars in marketing expenses, our marketing budget for this year because our unit economics are in line and we're trying to hit a growth target and things like that. We're going to make one video and run a TV commercial with a million bucks is what their thoughts were. And the reality is that 90% of the time you're going to swing and miss there. It could even be higher. Like you could spend 250k making the video and then 250k managing in 500k in TV media and you could literally put up a zero on that or a very low ROI. And so I think giving yourself in a low cost way more opportunities to figure it out. That's why I think experimenting on YouTube, pre roll or connected TV or even LinkedIn video ads before you move to big time TV I think can be another like a stepping stone to experimentation. Sydney, you got anything to add on that one? You do a lot of this?
- [29:37]
A
Yeah, I think the like percent of budget that you're going to allocate towards an experiment is really important and you need to set the expectations so that it doesn't you have enough spend to actually give it a shot. But it's not going to risk the unit economics if it throws up a zero. Right. So if you have an annual budget of $50 million, you're not going to go blow $5 million on an experiment. Maybe you'll start out with like 500,000 four month, five month experiment where you're spending slowly and learning and iterating and kind of proving out the concept before you invest a lot more into that. So it's interesting that people just want to say like, well, it's an experiment, so we have to like do it at this level. And even brands that are. Their brand is not at that high enough level to probably even be doing a TV commercial, but they think that they need to do that versus just spending $50,000 on CTV and seeing what learnings you can get from that.
- [30:42]
B
And I think that there's a lot of cases where a company would launch an experiment and that in reality the experiment is actually working. It's actually delivering value to customers, it's delivering value to the business. It's achieving appropriate roi. But they're so caught up in attribution that they say, oh, this isn't working after six months because they're measuring the wrong thing. And if they were centered on the unit economics as the core KPI, most adjustments to advertising strategies actually are the, the main driver, especially the ones that I talk about are built to improve unit economics. It's built to reduce CAC and be more efficient and get a better return on your investment. You may not see that in attribution. And so I think that it's also another important thing when we think about these experiments, especially when you're playing at a bigger level, when you're playing on a big stage, that we have to be centered on the right things. And so using we're setting up this experiment with Connected TV where we're going to invest 500k and we're expecting through that that our unit economics will improve by X, Y and Z over the next six months because of increased conversion and win rates or better brand affinity or whatever you, the story you want to make up to communicate the ROI of the investment and then actually looking at that as the core number about whether or not we move the needle, not how many leads we have attributed to tv. I think that is also a really important point when we think about experimentation today.
- [32:07]
A
Yeah, we could probably go down the attribution train for multiple episodes, but maybe.
- [32:13]
B
We will next week or this week. Who knows?
- [32:16]
A
Definitely. Okay, I did have another question here. So this is another follow up from last week, but I love the concept of the go to market missions in the factory. Been following kind of the revenue architecture book that you recommended. How do you suggest getting my executive team like aligned or like thinking this way without buying them the book and telling them to read it?
- [32:43]
B
It's funny because the real recommendation is have them read the book. So ways that you can improve the chances they do that. The book has YouTube presentations. If you go in and search revenue factory or that type of stuff. In YouTube you're going to find stuff as well. So go and find stuff and then take the YouTube link. You can timestamp it so that when you send it to them it doesn't start at minute zero, it starts at minute 10 minutes and 13 seconds of the most important point and say, hey, watch this for three minutes. If you like it, this book is here too. And sometimes that just is going to take three or five attempts before an executive realizes they should do it because they've got. You have to imagine as an executive There's 20 people, especially if we're a CEO, there's 20 people doing the same thing that you are sending them information and they have to try to sort through and prioritize. So you just need to figure out how to get that spark to get their attention. Relating it to the discussion. The topics discussed in the board deck can also help a lot if you want to get a CEO or CFO's attention. So if the topic of conversation was CAC payback period at the previous board meeting, then try and do a, you know, link to something that's related to CAC payback period in the factory. I think in that example, I think can also be an effective way to get attention in this type of thing. This is a while some people would consider this transformational, I don't really consider it transformational. I consider the. The change from looking at like the demand waterfall to a revenue factory I think is just a big leap incrementally to what they're doing. I don't consider it transformational, but when you're doing a change like this, you really need someone to be educated on the why and the situation. And then that situation that that change solves also has to be a key priority to the company.
- [34:24]
A
It's also something to note that this is definitely going to have to come from the executive team to make this strategic shift in the company. Of course it can be bubbled up, but if the executive team, cfo, CRO, CEO, coo, the whole CMO team, it has to be in a line from them. You're not going to change your data architecture and way of thinking about your go to market motion and measurement without that.
- [34:50]
B
Just a follow on point to that. To Sydney's point, Rev Ops wasn't in that thing you actually like. People think that Rev Ops could be driving this and I wish that that could happen, but just organizationally how it's set up, it's not going to happen. You need sea level buy in and I actually think you need either CRO, CFO or CEO. Occasionally a a marketing leader can get it done, but I think that it's rare. And so I think that you need one of those three key stakeholders to be able to champion and drive the rationale and connect marketing, sales operations, customer success, post sale, onboarding, implementation. If you have professional services, connect all those things and say this is why we need to do this across the whole thing. So just Another note, while RevOps might bring this up or bubble it up as an opportunity, if it's not championed by the sea level, it's not going to get the legs that it needs to actually get done. It's too big of a change cross functionally.
- [35:48]
A
Yeah, good call out there. Okay, this question is from Tony. They're thinking about kind of creating a role at the executive level or senior leadership level that's focused on go to market strategy. His question is what should this role be responsible for and how would they be measured in your opinion?
- [36:12]
B
So the way that I look at this like this role and I'm continuing to iterate as I talk to people on how this really works, but effectively it's most likely an individual contributor role that is connecting all the different parts of the go to market. So you have sales, marketing operations, SDRs, they fall into their own department but they normally fall into marketing or sales and then all the post sale work. And if you do have like a professional services you have all of those diff. And finance like the finance connection is actually like one of the most critical at this point. And so in bringing all of those things together to basically your objective is to make key improvements to growth rate or unit economics. Like those are the two metrics that you want to move that then get created through all the lower level metrics that we talk about in the KPI stack. And what are they actually responsible for? Defining, monitoring, measuring the core KPIs in the business? I think defining is a really big one because most times when we're consulting like we are changing the core KPIs that are being measured or at least recommending the changes to them, being able to monitor them and then diagnose issues, set strategic priorities, scenario, model, plan things like that with finance do like the FP and A work and then actually ensure that the strategic initiatives are being prioritized and done cross functionally, like just off the cuff, like those are some really big picture items that this person or this role I think should own and take on. Which right now if you think about the things that I talked through, there's not a clear owner of almost any.
- [37:53]
A
Of those things and the ownership does quite vary by company and org structure and just probably historical ways that they have been doing it in the past from what we've seen.
- [38:06]
B
Oh yeah, it could be perceived as self serving. It's not for that reason. I just think it's better for a suggestion for companies that aren't totally at scale yet that having somebody that's external, having a firm or something like that that's external to play this role and help connect the things because they're really just helping you with a process and framework to extract the expertise that you already have. So I think leveraging external people or pairing an internal go to market strategy with external help can be a really effective way to get this done.
- [38:36]
A
Okay, we've got one or two more questions before we wrap up today. This one is submitted by Corey. So they are restructuring their teams and they're doing a deep dive on what teams are growing pipeline and his question is how do you plan how much pipeline and revenue should be sourced from which go to market motion. I've historically seen averages and things by department. You know, marketing 33%, sales 33% and partners 33%. But I'm trying to switch to moving away from departments and forecasting by go to market motions, but don't have a ton of historical data due to our data architecture. Any advice or tips on how to approach this?
- [39:23]
B
So if it's not clear already, I think that dividing it by department just doesn't make sense anymore for a variety of reasons. One, then you spend most of the time debating the attribution model instead of actually trying to make everything better. That most of the time you need marketing and SDRs to get a meeting. So why are we saying that a demo request came from marketing? The SDR still had to prospect, follow up, get the meeting, have the meeting be held, converted to qualified. So saying that all came from marketing and the SDR did something, did nothing, doesn't make sense either. And so when you look at it more like a factory and less like departmental level silos to deliver leads, you see that you need all of these pieces to properly deliver. Then when you think from a motion standpoint, which just to remind people on the motions, you have a no touch motion which is self service. A lot of people would look at it as plg. You have a low touch motion, which is plg. And then like either AI chatbot type of sales, like very low touch sales. Then you have medium touch which is the traditional like 30, 50k ACV velocity sale run a lot of advertising and Demand gen, have SDRs, follow up, have AES, you have a high touch motion. High touch motions would be for a smaller set of accounts and maybe you have like a solutions engineer or solutions consultant that plays a part in that and that your you know, marketing or pipeline strategy would be more targeted maybe in more of like an ABM format to a thousand accounts, something like that. And then lastly you have dedicated touch for likely million dollar plus a year accounts where you have people maybe more than one person assigned to only that account. So there's big companies that maybe are trying to get into the top 20 CPG brands where they have a six person team, sales SDRs, marketing people, evangelist or content person only focused on proctor and gamble. So you can just see there's. And then as you go up, go through that list, every time you go from no touch to low touch or from low touch to medium touch, there's usually a 2 to 5x increase in the cost to run that motion because you're adding a lot of humans to the process. And so just to break that down for people now when we think about how much should come from which one, the real only way to look at it is look at the historical performance, deliver a strategy, do the FPNA work and then make projections based on the strategy about where we think we can get it to. So a lot of companies will have like one motion. Here's a good example, like the company gets to 8 million ARR through a self service PLG motion. Or maybe they have like some chat bot for their enterprise customer that pays them 20k a year or something like that. So they've gotten that far. And then they say well we've our growth is slowed or something like that, we're going to bail on the PLG and we're going to go to try and only get these 20k enterprise customers and they have no infrastructure and no process and no historical data around how they get enterprise customers and they turn off the one because they want to go all enterprise and they mess everything up. And so there's a balance between what do we want it to look like in the future, what do we want it to look like in a couple of quarters versus how does our past performance have a huge influence and dictate what the future is going to look like. And so there really is no like some people are like oh it should be 30 marketing and 40 BDRs. There's really no numbers for that. For the different motions, because it's totally dependent on what motions you've chosen, what your historical data is, how many motions you're running, which one you started with versus the one that you added recently, how long the motions have been running. There's just way too many variables to say no touch should have 20%. In some companies like Miro or Canva, no touch is probably like at least 50%. But for a company that doesn't have a no touch motion, it'll be zero. Or for a company that's just launching it, it might be close to zero. Sorry I couldn't be more helpful on the benchmarks, but I hope that explanation helps you sort of work through the problem you're working on.
- [43:27]
A
Yeah, I think that's hopefully helpful for him and maybe he'll come back next week for a follow up. Another question, earlier in the episode we're chatting about like in pipeline acceleration tactics and how that could yield potentially a high ROI if executed. Well, how would you measure something like that just based on increased win rates or how do you measure the effectiveness.
- [43:51]
B
Of that in the current metric stack and how companies look at it? You wouldn't be able to measure this appropriately for what you're trying to do. And so what you need to do first is decide based on every single go to market investment, what is the objective of the investment, not what department it falls into, but what is the goal. And so the goal of this specific thing would be to close new logos, pipeline acceleration for new business. And so if you look at a company's budget, like sales, solutions, consulting, things like that all go into this closed new logo. It's probably the most expensive part of the entire process in the factory. So for a company that has a bunch of reps, Maybe they're spending $20 million on trying to close new logos in terms of sales, headcount, tools, all the other stuff that goes in there. And then you bring a $10,000 a month budget to do direct mail and over the top advertising to the top 20 people that work in those companies. So you bring $10,000 a month, which is 120k a year, which is like a half a percent increase in the budget of the $20 million, but you're able to move that and close more deals. You get this, you spend 120k additional in the year, but you get this incremental benefit across the entire 20 million. So when you think about advertising, in a lot of cases the goal of advertising is to blend down the cost of acquisition that when we make the whole process more effective. It blends down the entire cost because we spend a small amount over here, but we spend a huge amount on everything else. And that small amount gets an incremental ROI that's much bigger than everything else. So to do this, we would need to look at what are all the investments that we spend to close pipe, which could be from stage one to close one or stage three to close one. However you define it in your company, how much investment goes here? What would this incremental investment be if it returned a 2% increase in win rates? How much revenue would we get over the next four quarters? What is the cost benefit here? And I think if you did the cost benefit for a developed company, you'd see that that small investment targeted at those accounts that are in pipeline relative to a realistic impact on it, on either win rates or cycles or things like that, would deliver a meaningful roi.
- [46:07]
A
Awesome. Thanks for breaking that down. I think we have our last question here from Skyler.
- [46:12]
D
Hey, Chris, so what I was asking here, we're both familiar with the book and it's I work with folks who have ownership model, so it's traditional manufacturers, things like that. And we've been talking more lately about potentially evolving into having some sort of subscription type offer that they maybe sell off the back end of the equipment that they sell. I've got my own thoughts on it about ways to, you know, it's easy to say on paper, right. And it's like, how do we actually execute this and convince the market to want it? Right. Various things like that. And it's not something you can just do overnight. But wanted to see if you had any thoughts or opinions on that phase shift.
- [46:53]
B
Sydney, you want to pull up the revenue breakpoints real quick. Again, the reason I bring this up is that the revenue model is like the most foundational part of all the different phases of the factory. So whether if it's an ownership model, like I really. All the things that we talk about here are really built for a recurring revenue model business, but can be applied in some ways to the things that you're working on. But when you think about the revenue model, and you said the word shift and there was a topic either one or two weeks ago where it kept coming up that the idea of changing isn't. I'm not sure is really the answer here because you put a lot of risk on the existing business to move to an unproven model. And so that's the risk. I'm trying to think another like tip for you Because I don't have anything off the top of my head. But this has been played out pretty frequently in B2C already. A company that sells something that used to be 500 or a thousand bucks or even higher that has now changed it into a subscription model with some type of software that's attached to the hardware. So you should go and look for examples of companies that have made that transition or just B2C companies that already have that existing business model. And then lastly, it would be like really treating it like an alpha, like, go out, find 10 customers, talk to them individually, don't like, market it, see if you can sell them on it, have them use it, see if they can get value on it. I'm like, it depends on how big the company that you're talking about is. But like in some scenarios, I'm inclined to say this should be a different company. And then roll it in if you want later once it's proven, just given the risk mitigation. I think that running two companies with two different business models in one company can be really challenging. And then trying to have, oh, this, the old model of the owned model is the old thing, even though it delivers us 50 million in revenue. But this new thing is so cool. This is the hot thing in our company, but it delivers us a million in revenue right now. It creates this like, competition that I think is, can cause a lot of issues.
- [48:55]
D
Yeah, I agree completely. It's. There's a lot of these companies I work with, they have some sort of software component along with their, the equipment they sell. It's in robotics, things like that. And you know, they think they can just begin to offer some sort of subscription model to this, to the market before they've even validated messaging or is the market even receptive to this? Like, you know, it's different than I think some of the environments that we live in. Right. Like it's, we're more conditioned to it. Right. So I'm like, you can't just rip out your revenue model and add a new one in like overnight. And if you are going to add another one, like, like you said it is, you're effectively trying to run two businesses underneath one.
- [49:34]
B
Here's a different approach that could work, it's a little bit like financial engineering, but build the subscription cost into the owned fee and then just amortize it across the lifetime of the customer and use that as the, like, the phase one to get it into market, see how customers respond, prove it out. And that like, you have to run the Economics to know whether that's going to jump your price from 200,000 to a million or if it's going to make a small incremental jump that you can sustain. I was going to say, why don't you just include it for free at the beginning? But actually increasing the cost on the own model and then just amortizing it would get you the same way and actually get you the revenue for it and be able for you to recognize that revenue but collect the cash up front. So actually, as we talk through it, I think that would be the appropriate way to approach this because then you don't. You're not really changing your sales process. You're really just changing your price.
- [50:23]
D
Right.
- [50:23]
B
Yeah.
- [50:24]
D
Yep. Which is a lot easier to do.
- [50:26]
B
Sure is. Yeah.
- [50:27]
A
Yeah.
- [50:28]
B
Cool.
- [50:28]
D
Great.
- [50:29]
B
Way to close. That was an interesting question. Skyler, let us know what you, what you find as you keep working on that. I love having some, like those, like, deeper business consulting conversations every once in a while. It gets me stimulated. Cool, everyone, thanks for being here. If you are engaged with this and you're here every week and there's certain things like topics that you want to discuss or you're going through the revenue architecture book and you're like, hey, Chris, can you like break down this thing? Shoot me some dms. We're going to have like some of this content has been kind of like off the cuff or unplanned. I'm aiming to by September that when you show up for this event in advance, you know what you're going to get. So the topics are planned, it's more structured. So if you have things that you want to get covered specifically, please do that. We'll always include the Q A and there'll be open Q A. But for people that are like, trying to continue to advance the learning, I want to make sure that the, that it's clear what the topics are going to be covered in advance. So we'll. Thanks for bearing with us. We're four people at Pesetto, so we've still got a lot going on. I'm trying to, like, manage this all on my own. So I appreciate you bearing with us, but we're going to continue to make this better as we go. So thanks again for being here. Hope you guys and gals have a great rest of your week and we'll see you soon. Bye.
- [51:55]
D
Sat.