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You're listening to Revenue Vitals with Chris Walker.
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Hope everyone had a good Labor Day weekend. Labor Day is a really interesting sort of marker in the year as now this turns over and there's four months left in the calendar year. A lot of people that were on vacation in August, a lot of companies that held off on making a key decision in August because people were on vacation and there were overlaps. The rubber really starts to meet the road starting today. More companies need to start going and executing those decisions. There's a big event schedule coming up at the end of Q3 and early Q4, 2025. Planning's underway and so there is a lot, a lot of momentum that starts today through the end of the year that'll power you into 2025. So looking forward to that. I'll be traveling quite a bit over the next couple of months in Boston twice I'm starting in Boston this week. I'm in Boston again in a couple of weeks for a friend's wedding and some business. The Pavilion Go to Market Conference is happening in Austin, Texas. We're also going to do our Passetto team off site in Austin in coordination with that in October, headed to Miami with a bunch of entrepreneur friends in late October, headed to catch a couple of NFL football games in November. So a lot of travel coming up. For those of you that can see the camera angle right here, you can see my laptop here. And so we're going to be presenting some additional information today. I've gone through the KPI stack and the revenue breakpoints quite a bit. Now today is where the rubber starts to meet the road in terms of. Let's go through a practical example. We have made up data realistic, all the numbers add up, but it's not made up in terms of so that. But you can go through the process and see and say, okay, here's an example case, here's what the numbers looks like. What would I look at next once I see these numbers? Where does that lead me to and what are the conclusions? And for C level executives, this process is so critical, important for several reasons, but one is because when done correctly, you can isolate by far the biggest opportunities in your go to market and in your overall financial plan in days or weeks. Very quickly through this analysis be able to figure out where are the biggest opportunities, where do I need to reallocate investments in dollars? Where are the biggest issues? And so we'll go through that entire process live right now. So people have seen the KPI stack chart. Actually I'll just Bring it up so people have some context. Here's the original. Just so people have it right. So we've gone through this a bunch of times. It starts with investor metrics and it breaks down those compound investor metrics into the financial metrics, performance metrics which then functional leader zone, go to market metrics which sub functions and team zone and then the data model that lays underneath that inside of the CRM and accounting system. And so that's the KPI stack that starts with the things that the company cares about most and methodically breaks those down all the way into actionable insights. So now you have here the report of what it would actually look like in practice. As you saw in the top chart, companies have like CAC to LTV and CAC payback. We've consolidated all of those investor metrics into go to market efficiency percentage which is at the top. And so you can see this company here. Just for context, let's paint a little picture of this imaginary company. 86 million ARR. Probably in the middle of a private equity hold, growing 17% a year, decent growth rate. It's been slowing down quarter over quarter since 2021. Like most companies, their go to market efficiency used to be 180%. But over the past two years to try and keep up their growth rate, they've increased sales and marketing expenses. It has not translated into equivalent growth which has pumped up this number to 375% which is in the red. A target here is about 175%. Keep in mind, lower is better for this number. And they're at 375%. They're almost double. And the data that we went through last week showed that when this number is this high, this company's revenue multiple when equated to a public company would be a median 3.6x of revenue. So you can see the number here. You can multiply that based on this and this company has probably raised more money than what it's worth because of driven down by this number. Now if this number 375% was methodically taken down to 175% maintaining growth rate, this company could be worth somewhere between 8 and 12x revenue. That would make a significant impact on enterprise value into the billions of dollars in revenue. So you have these two numbers. What are the conclusions here? The company's growing at a decent rate. Could they be growing faster? Sure. We probably want that number in the Future to be 25 30%. And then 375% is way too high, which means that the investments across the go to market are not producing appropriate roi. So we need to go and figure out where is the actual issue here if this number. So we have to dig deeper. So the next thing you do is you go to the ARR waterfall which you can see here, you have the total ARR and then you have how it started. For the trailing 12 months they started at 73, added 16 million in a new logo, 4 million in expansion, contracted one and a half, churned 6.63. So you can see what these numbers are, you can see where they ended up. Which when you add Those together, these four numbers you get net new ARR which is 12.8 million more or less which is new plus expansion minus contraction minus churn. So the net effect of all of those things across the go to market, 12.79% NRR less than 100%. So you just as a note here, expansion does not outpace contraction and churn. So NRR is less than 100%. When NRR is less than 100% it means that their post sale ROI is not a number. It means that the post sale is returning a negative number. So you can see here they're spending $10 million on post sale resources, customer success, their user conference account management resources, all these different details. And the net effect of the customers over the past year has been they've lost 3.7 million in ARR. So they have a churn issue. That's one clear thing here on the new logo side, slightly over a two year linear CAC payback period, they got 16 million, they spent 37 million to get there. So you can see that ratio reflected in this number. And then just to remind everyone, this number of 375% is simply a combination of broken down new logo go to market efficiency combined with expansion go to market efficiency. And then you can see the general sales dynamics here on expansion, revenue opportunities win at a much greater rate because they're already customers. And the typically much later in the deal when the deal gets created, sales cycles are shorter. Incremental ARR is actually really high here. And then you on a new logo side you can see 131k ACV almost a 200 day sales cycle, slightly under a 10% win rate. And then you get to the last level which then takes it from new logo and expansion and breaks it down one step further. So it breaks new logo into investments to create pipeline versus the ones that close new logo. So then you can see the general conversion here. Most companies do not have these Numbers because they don't appropriately track their outbound sales activity. So most of the time these numbers are blank. So they just have a black hole. And what is the process to create pipeline, which is a huge issue for most companies. This example data is filled in for reference. But generally companies don't have this opportunity win rate 10%. When you look at the data quarterly, you can see, and just as a reminder, all of these metrics can be tracked on a quarterly trend. So you can look at what is our opportunity conversion rate, what was it last quarter, what was the quarter after that, what was the quarter before that, what is the progression been? Is it going up or is it going down? Many companies are seeing win rates decline over the past couple of years. So maybe this number was 18% two years ago and now it's 10%. Then you can break down the efficiency a little bit more. So you can see on a sales rep expense, they spend a dollar on a dollar and 41 cents in sales expenses to get a dollar back. So their sales return is okay, not great. And they have a really poor like marketing ROI problem or a pipeline creation problem, which is a combination of marketing investments, SDRs and a couple of other things. And so when you break this down, you can basically see our win rate has been declining. It's creating so much pressure on top of funnel unit economics that it's forcing us to go out and try to create so much P to offset declining win rates that we're bringing in a bunch of poor quality. Our ROI and pipeline creation is going down, our ROI and close new logos going down. The model is breaking down and that's being reflected in the top level metrics here. But if you look when this number was in line 12 months ago, when it was 200%, these numbers were degrading. And so had they been looking at this earlier on, they would have seen these numbers degrade, which would be a future predictor of the things that show up in their investor metrics and board metrics later. And so conclusion, we need to figure out how to get NRR above 100%. That does not happen overnight, that doesn't happen within a year. Usually there's product improvements, there's process improvements, it's maybe changing how you structure your post sale resources, onboarding process data, incentives and accountability. But this has to be a core strategic priority where our NRR is less than 100% which is causing tons of unit economic pressure in the $10 million a year we spend on post sale resources and are getting an effectively a Negative return back on incremental ARR. And then on the new logo side like 227% is not great, but if our NRR was greater than 100% then these numbers would be perfect and we'd be pumped to have these types of numbers on new logo. And so really we have to put together a strategic plan on how we're going to improve NRR methodically over the next 12 to 24 months. And then we need to figure out how to improve the ratio in terms of how much we spend to create pipeline for versus how much we actually create. And then lastly put together a cross functional plan of how we improve Win rates from 10% incrementally to 12, 15, 18%. And those are the three most important metrics and strategy across the entire go to market that fixes this problem and likely makes an improvement on growth rate from 17% incrementally up into the 20s. And so you can see that's the whole situation of how you break it down. We never discussed attribution, we never said did marketing source that or did SDR sort that. We didn't look at how the partner channel performs versus another channel or something like that. This unifies all the data, blends it together across our entire go to market and gives us an objective assessment that is not about marketing sucks and sales is great or sales sucks and marketing is great. It has nothing to do with that. It says across all of our investments what is the performance of this shared KPI across our entire executive team. And it can very quickly help us align on the overall performance of our go to market. In addition to where are our biggest opportunities cross functionally where marketing, sales, post sale operations, all work together to move one number that help us hit our 2025 growth plan and fix this issue and make a big impact on the value of the company in the process. And I'll bring back up the 12 revenue breakpoints to a billion ARR. You can see this company's at 86 million. So they're in this stage between 7 and 10. And you can clearly see that the issue given the really high go to market efficiency percentage, they are in a sustainability cost problem. So they have this type of issue overall. Typically this issue is experienced earlier. So their revenue typically wouldn't get to 86 million before they had to fix this problem. But the problem is or the reality is that during the high funding environment, many companies just grew and grew and grew and spent a lot of money and passed by skin skipped this step and then they have to go backwards and fix it later. Which is what's happening for many companies in the 50 to 200 million ARR that were growing really fast from 2019 to 2022 mini skipped this step, had a 4 year CAC payback. It's fine to have a 4 year CAC payback when you get 20x revenue multiple, but when you get 4x or 6x or 8x it puts a lot of pressure on that efficiency. You can very clearly see they have a sustainability problem overall when it comes to unit economics. And in order to get to the next level, this number has to go down. If you run out the model and say we're just going to continue this thing for the next three years, what will happen is that eventually they'll need to spend more money on go to market than the company gets in revenue. Eventually there will be a point where that changes where they spend more than 100% of revenue on sales and marketing to hit their growth target, which is totally unrealistic and not going to work. You can't spend more on sales and marketing than you actually get in revenue. You could try if you raised a lot of money, but it's not a good proposition. And so if you just play out the financial model with that unit economics, it will fundamentally break over time. And so the only way to get to the next level is to reduce this number while maintaining or increasing growth rate. That gives you a sense. Then you have that number. Then you break it down to new logo and expansion. You get those numbers, you try to isolate the issue. Then you break it down to new logo into creating pipeline and closing new logo and even get further on isolating the issues. And just like a TLDR like these numbers are great to understand the magnitude of the problem that helps us understand the potential impact of if we solve this. What is the potential impact? So that's why we look at this data so granularly. But the TLDR is companies have really poor unit economics at the quote unquote top of the funnel. They spend too much money, they don't create enough pipeline, sales win rates are going down which is putting more pressure on unit economics at the top of the funnel. Those are the two new logo issues that are facing most companies today. And the companies that aren't facing those, what's happening for them is they just have a continuous improvement and generally they're further along, they're in the hundreds of millions of ARR and they're just trying to get incremental improvements on unit economics. Incremental improvements on Google Ads, ROI on events, ROI on sdr, productivity on sales, win rates. But for Companies less than 100 million ARR, sometimes they run into an issue where if it doesn't get fixed, the company will not make it. Especially when you play the VCPE growth at all cost game. You can really crash and burn when some of these metrics aren't in line. So I love the idea of the practical example. We can go deeper into this example. If people have specific questions, they want to look and define certain metrics more deeply. We can spend the whole episode on this potentially. So I wanted to use that as a practical way for people to see how you would go through it, what the numbers look like, what to expect and how to analyze and diagnose it. So with that we can go into questions and discussion. Thanks y' all for being here.
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C
All right, well we got some great feedback in the chat that it was a super easy to understand visual and much easier than a convoluted spreadsheet to understand.
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B
Let's go.
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C
So that's the goal. Nobody likes to be heads down in a spreadsheet. Okay, I am going to bring my new friend I just met today, Charlie.
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D
Thanks Sydney. Thanks Chris. Just wanted to say love the work you're doing and how you're helping to educate the go to market community. And just curious on Go to Market Efficiency, Chris, how long have you been so high on the metric and love the way you kind of even this morning in your podcast you mentioned the go to market efficiency plus growth is a one of the best ways to look at valuation. But both, you know, how long have you been really high on the metric and what was used before go to market efficiency became so popular.
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So I've been high on being efficient in your go to market since 20172016 when I started entering venture funded companies and seeing what they were doing and the metric used back then was CAC Payback Period. CAC Payback Period though only really looks at the cost to acquire a customer, a net new logo customer and doesn't take into account the post sale process where all of the recurring revenue is actually captured and generated. In the SaaS business you don't make money when you close the deal, you make money over time as the customer continues to pay for the subscription. Recurring revenue is a result of recurring impact and so what go to market efficiency does is it unifies the data and it takes all of your post sale investments and all of your new logo investments and puts them together and makes a Calculation across the entire go to market rather than looking at new logo separately from expansion. So that's the reason why it's the most effective today. And then you can obviously break that down to new logo and expansion and calculate CAC payback on new logos. You can still do all the other things, but this just brings it up one level and looks at expansion and new logo together which historically haven't been looked at particularly with unit economics. So that's been something I gotta give credit. I don't know. Winning by Design and David Spitz have published a paper on it a couple of weeks ago that I thought was really interesting. I've been following them track this metric in public companies for three to six months now. We used to reflect this as roi so it would almost be the inverse. In our reports at Pesetto, if you go back to like Q1, we would say you spend a dollar in marketing and you get 76 cents back as a method to communicate ROI. The go to market efficiency is actually the inverse. It's how much did you spend does divided by the revenue instead of the revenue divided by how much you spend. Because if you did the calculation, most companies are well above 100% so if you flip it over and they have a three year CAC payback it's going to be $0.33 and then if they have a two year CAC payback, it's going to be 50 cents. So the difference between 50 cents and 33 cents doesn't feel that big because it's almost like an exponential scale. But it really means a one year CAC payback difference. But it's only 17 cents gross. So instead of looking at it as ROI, we look at the inverse of efficiency which allows the scale scale to go out linearly so that you can really see the difference between 100% and 500% is a lot more meaningful with this, the inverse scale. I hope people followed that. That was a little bit of trigonometry or something. Thank you. Cool. Any follow up there? Anything to clarify?
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D
No, I'm good. That was helpful. I'm a big fan of Winning by Design. I used to work there, I'm an ambassador. So follow David Spitz for a long time and just appreciate the way you are leveraging the same data driven approach to go to market and it's complimentary and I appreciate your hey, we used to measure this through CAC payback and ROI and you like go to market efficiency more. And so I think it's helpful for me and I think it's helpful for others.
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Yeah, it's important to note they all generally get you to around the same conclusion, but they're just like slightly different angles or breakdowns. I'll use this opportunity as well to announce that we inked our partnership with Winning by Design last week. So we are officially a Winning by Design partner at Pesetto and feel like their book Revenue Architecture and the work they've done lays an incredible theoretical layer on how this should operate and that what's needed is somebody that can actually go and put it into practice. And that's what we're doing at Pesetto, because when the rubber meets the road, there's a lot of unmade decisions in that book around how things are tracked, what objects to use, what data to leverage. So we've made a lot of adaptations from that theory to make it our own, but leveraging generally the same architecture.
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D
Well, your voice in around how to leverage the revenue factory is unique. And keep sharing what you're sharing because there's not a lot of thought leaders out there who are going into this from a marketing perspective and an operation. You know, let's operationalize the bowtie perspective. So I'm excited to learn more about how Passetto can leverage the be able to operationalize across the bow tie in that full revenue funnel and be able to provide that data and track the unit economics that you talk about. So happy to hear about the partnership and excited about what's to come.
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B
Right on. Thanks for being here and I look forward to catching up with you one on one soon.
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C
We had another question of just clarifying some of the metrics of how you went from the percentage go to market efficiency and then broke that out by new logo and expansion percentages. If you could just kind of clarify how those ladder up, that would be great.
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B
Perfect. So you have go to market efficiency right here. 375%. How you get there is you take the total go to market expenses, which is right here, and then you divide it by the net new ARR, which is new OGO plus expansion minus churn minus contraction, you get 12.79 million. 48 divided by 12.79 million gets you 375%. So that's how you get that number across the entire go to market. Then when you look at these two combined, you just are breaking down that 48 million. 37 million gets spent on net new 10.3 gets spent on expansion and then you just break down the net. So the net expansion ARR is 4 million minus a million 4 minus 6 3. So you have a negative net ARR on expansion negative number. The go to market expense divided by this negative number equals infinity, not a number. You don't have an ROI because the it's going backwards. And then on new logo you have that 37 million divided by the new logo ARR which is 16, you get 227%. And then when you take 3710 you get 48. And when you take this plus this you get 12. And so it's just a breakdown of new logo and expansion cost and return put together to one number.
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E
So.
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C
Sounds great. Thank you for that. I'm going to bring on Duke next. We have two or three more questions in the chat.
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B
Let's go. I'm just curious, are you putting the same teams responsible for acquisition and expansion or are those two completely separate roles of responsibilities? When you break it down to functions and sub functions, they end up becoming like different responsibilities. But sometimes a Chief Revenue officer is going to own sales and post sale and potentially marketing as well, or sales, sales and post sale and then the CMO owns marketing. So when you look at it all together, eventually it all rolls up to the CEO and the CFO owning the whole thing. So you need to have that view of the entire thing. But then you generally break down the responsibility by sub function. And then it's important to note that marketing investments can be used across the entire customer life cycle, not only to create pipelines. So deploying account based marketing campaigns to your current customers could be a very cost effective way to drive GRR and NRR up and provide the highest ROI on marketing investments when done appropriately. The problem is that it's sometimes hard to tease out whether the marketing investments are actually making an impact there or whether it's coming through process and other things like that. But that's a couple of the notes on this. So generally, yeah, it does get broken down. There's a chief customer officer or a head of account management or someone like that that's going to own some of the post sale metrics. A VP of sales that ladders up to a Chief Revenue Officer that ladders up to a CEO is going to own new logo. And then retention is arguably its own category too of that's separate from acquisition and expansion. Right? Potentially a lot of companies have customer success and account management resources. I think that that structure was created during the growth at all cost era. We could just specialize a bunch of different functions and involve a bunch of different people in the process where we have an onboarding manager and a implementation manager and a customer success manager and account manager all for a 16k ACV account. And it just doesn't make sense. And so I think that people will challenge the structure of their post sale teams through this process because I think it's exposing some low ROI for companies, especially ones that have less than 100% NRR. Perfect. Thank you.
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C
All right, we've got an anonymous question here that I'm going to read off. So how do you build leadership consensus around go to market efficiency as a metric to track and align leadership for planning and priorities? Some context. We have 80% go to market efficiency but are looking at steep budget cuts and increasing growth rate goals. Based on conversations with execs, it seems like there's a clear disconnect. They see the value in go to market efficiency but think it's not the right time to focus on it. More context. There's some budget cuts. Increased growth rates are to make up for challenges on the revenue retention side and to fund additional engineers for the business. They're working to improve revenue retention this year and next as a strategic priority. But we are pushing aggressive growth goals still. So that's a lot of context.
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B
All right, I'm gonna. Yeah, that would require a bunch of different questions to try and ask this. So I'm just gonna answer utilization so that people can. Yeah. Get a sense of it. So the first thing, the revenue breakpoints, cost Sustainability is number eight. It shows up somewhere between 10 and 100 million ARR. If you are not in that revenue range and you are venture funded and you have not hit that problem yet, you got other problems you need to face before you focus on unit economics always matter. We can't spend a million dollars and get a dollar back. Unit economics always matter. But it matters less when you're getting going, especially when you're venture funded and planning to burn. And so that's something to consider is that unit economics matter for every company. And while I believe that every company should be optimizing for it, some companies financing structures allow them to be less focused on that during certain periods of time. So the first thing is recognizing is this actually the break point for us or not? Because eventually it will be. And so that's one thing is that maybe this company is 6 million ARR and has 3 reps and doesn't have a unit economics problem and their company executives shouldn't care about this. That's one thing. The next thing, if your company's 100 million in revenue, the way to get people to care about this calculation is to show them this chart and say 80 public SaaS companies measured go to market efficiency percentage and the ones that have high go to market efficiency or strong go to market efficiency are valued three times higher than companies that have average to below average go to market efficiency. For our $100 million company, that would make a difference of $700 million. Is that interesting to us to try and fix that metric or not? Because it probably has the outside of growth rate has the highest impact on revenue multiple. And so those are the two situations. One, identify if it's actually the most important thing, typically for later stage. And as companies move to later stage in ipo, it becomes one of the most important metrics to be tracking for earlier stage companies. Maybe it's not as much of an issue because it's really an issue that presents itself and becomes very difficult to manage with through scale.
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C
I think that was a good solid kind of answer given the anonymous nature of the question. Okay, we have another question here from Steven, so I'm going to bring him on.
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F
Hey Chris. Thanks Sydney. Just curious, for the total GTM expenses, there's always a lag between marketing spend and the revenue recognized from it or generated from it. So I was just curious. You probably arrive at the same answer whether you factor in marketing spend from a prior period, a certain number of days leading up to when the revenue was recognized, or are you just looking simply at what was the go to market spend over the same period of time that we're also pulling the revenue metrics from?
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B
This measurement's typically being made on a company that runs their go to market like a revenue factory. Think 50 million 500 million billions of dollars in revenue where there's not like one day you're just going to triple the expenses and have this big time lag. Like these companies are incrementally improving and growing their machine, not infusing massive amounts of cash into it because those executives run stable businesses and it puts unit economics all out of whack and companies don't do it. And so it's important to recognize at what stage this is made. And then these metrics are calculated trailing 12 months. And when you look at it over a shorter period of time, yes, you can have that impact of time lag where in Q3 you have all these big event expenses and then it just inflates the number in Q3. But when you look at over trailing 12 months you get the real net impact and effect on it. And then what else was I going to Note here. There's another note because a lot of people out there are like, well, our marketing investments have a time lag. We're investing in this now and it's going to create pipeline for us in thousand two years. And I gotta say, if I'm the CEO or the CFO, I'm not pumped to have my marketing team spend $10 million that I might get a return on 24 months from now. Fuck that. Marketing investments, especially for mature companies, should be driving pipeline immediately in period against the ROI target. And it is the CMO's responsibility to deploy the investments appropriately to balance the short and long term return. But making an excuse that marketing takes time and not being accountable to the short term results is the number one reason why I would fire a cmo. We must produce pipeline against the ROI in period. Maybe not if we're a 500k ARR company that's getting off the ground and we got nothing. But when you're $100 million business that has an existing flow of pipeline as a cmo, you need to be able to come in there, grow pipeline, improve unit economics, make an impact on short term metrics. And there's an opportunity to do that in almost every company because a lot of the companies have numbers that look like this. And when the numbers that look like this, it means there's a huge gap between where you are and what high performing would be considered. Which means that there's a lot of low performing investments in there that should be reallocated to higher performing activities.
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F
Great, thank you.
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B
So I'm all for trying to understand the time lag of marketing, but the time lag of marketing does not excuse us from we need to drive pipeline this quarter so our company hits our revenue targets. So let's just look at it then. Just gotta call it how you see it.
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C
All right, we had a follow up question on that rant there.
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B
So.
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C
So how would you recommend balancing adding net new experiments and programs that you know are not going to have direct ROI or be able to have a this channel drove this versus this channel drove that. When really you're adding another program mix or adding another an experiment to like the whole ecosystem to perform better. How would you balance that at an executive level?
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B
The only time that you should make an incremental investment is when you have something that is already working that you want to push a lot harder. And there's clear obvious signs that you push it harder, you get an appropriate ROI out or everything that you're doing is producing a very high roi. Those are the only two instances. Otherwise, take something that's not working and reallocate. Don't inflate the budget. Keep the budget the same, move money from one to another and get a better return on that investment. And you have no risk of risking the roi, the unit economics going up when you just reallocate instead of increased budget. And then for a large performing company that say has already strong ROI and you want to introduce another million in an experimental program for next year on your $19 million marketing budget. So 5% increase that you need to be able to place that bet in a way that methodically scales the spend, starts with an experiment, proves out the results and increases the spend. Not just spend a million out of the G and hope it works. But the key is leveraging a percentage of the budget that is small enough that it won't impact unit economics if it totally flops. And you need to be smart enough as a CMO to not spend a million dollars that is going to totally flop. And when you add incremental dollars, theoretically all you need to do is have the incremental dollars perform at a higher ROI than all of your existing dollars and that would blend up the ROI in total. But again, I especially at this point I'm much more in the for reallocation than increasing the marketing budget.
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C
We do have one more question. I think this will probably round us out.
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E
Thank you, Sidney. My name is Rajot, first time joining the session but I've been listening for a while and thank you. Thank you for all the work. Your, your metrics, the way you present is really amazing. And efficiency is really the key. It's all about budget everybody's talking about. But the point that you made seems a little bit hard to digest. It makes sense that how do we focus on marketing tactics or programs that are going to result in current quarter pipeline or even progression of that pipeline. Do you have some examples around that? I'm feeling that pressure a lot more given that more recently we've been organized under a sales organization. So we function very much like a sales organization where you have quarterly goals and you need to meet it. But it's marketing being a little long tail. How do you start thinking about that way?
- [32:47]
B
Yeah. And so for a company that's early stage and doesn't have existing data, you're kind of just flying blind. You're using qualitative data and your intuition and customer research and you're just coming up with something and hoping that it works because you just don't have historical Data for the hundred million dollar company that's running that already spends $15 million in marketing a year and creates $25 million in pipe and has a deal decent tech stack. You can go in there and perform diagnostics and say these things are working well, or we have indication that these are working at this level and we have indication that these things are not working and then simply just lean in harder to the things that are working. So for instance, in a company's budget like we did one yesterday, I'm one to always shit on Google Ads, but we did one in Q2 where the company was producing 10 and a half dollars in pipeline for every dollar they spent on Google Ads. And that pipeline was winning at what, 23% or something like that. So they're getting $2.50 for every dollar they spend on Google Ads in revenue. Which is the first company that I've ever analyzed that has a positive ROI on Google Ads at like a 45 at any ACV. But this company was at 45 KCV for reference. As you go lower scale, it becomes way harder to make the math work from an ACV Dynamics. But anyway, we did this analysis on Google Ads and inside of the entire marketing budget and SDR performance, you could just say just go put $200,000 more per year on this and just keep going with that. So when the company has existing data, I wouldn't say that it's easy. We have a process that we figured out that makes it feel easy to be able to go in, identify those things, reallocate the investments by taking things that clearly are not delivering, moving them to things that are delivering, and then potentially introducing new experiments. And that, that is a process that a CMO and a CFO should be going through every single quarter. That's a cycle that should be happening every quarter. Just like if you had a portfolio of investments of $50 million of investments, you'd be checking with your advisor every week, every month, every quarter on the performance of those investments. Whether you're getting a 9% return or a 6% return makes differences in millions of dollars for you. And so that's generally how I'm thinking about investment analytics and allocation when it comes to marketing. You can look at just the overall data and say, okay, this company is performance is not so bad, but we've seen a lot worse. They spent 14 million to create 162 million in pipe. They win it in 10%. So they basically spent 14 million. They're going to get about 16 million back in revenue before they pay their sales team and then they're going to pay their sales team almost 150% of net new ARR. And you put those two things together and you get your new logo CAC. And so when you look at this number, you could say actually marketing's production on pipeline is like, okay, we're getting a one to one back. Do I love it? No. Is it acceptable? Yes. Should we do things to improve it? Yes. But that number overall, before you get into attribution or channels or anything like that, should be able to tell you like is the marketing investment performing just by looking at these core numbers? And then from there you have the context to say, okay, we are already getting high roi. So when we move into the next level of detail, we're going to be looking for what are those super high ROI things? Can we push them any harder? And where are we going to place new net new experiments for new programs? And if the ROI is super bad, then you're going to go into it with a whole different thing where you're looking for the lowest performing investments and you're in cost cutting mode and then reallocation. And most companies don't measure those top level numbers so that when they do the diagnostics there's no purpose to it. But when you know your ROI is really low or you know your ROI is really high in advance of doing that analysis, then you go and you do it with a purpose. You find the right things.
- [36:23]
E
No. Thank you. Can I ask the follow up question? Of course, yeah, I think that definitely makes sense. And I think one of the challenges that we've been facing and you've addressed that is that we had growth at all cost, 2020 up till 2022 maybe. And then that's how the metrics were and that's how the budget was. And when we start to look at last two years, the numbers are very different and the story starts to change really differently. So how do you start to make decisions based on that historic data when market is changing per se?
- [36:52]
B
I'm not sure what people have put on on the time window of growth at all costs, but I remember working for a company in 2016 that had a ridiculous CAC payback period and definitely was in the growth at all costs era. So it's interesting to think that maybe since the Great Recession in 2000, when we came out of that in 2011, 2012 is actually when growth at all costs started. And a lot of that money early on was going to direct to consumer e comic growth at all Costs. Spend all your money on Facebook ads. See if you can make the cacti LTV equation work. A lot of companies flamed out and then somehow that made its way and you see high gross margins in SaaS and the scalability and then that makes its way into software later down the road. And the realization of when it's happened for that long is most executives are not used to doing this. They do not have a process for it. They haven't done it before. There's not a lot of experience around it, not because they're not capable and smart, but because they've never been forced to. And so it's an entirely new dynamic to not only go out and get 6 million in new logo revenue, but you need to get it when you only spend 12 instead of spending 50 or 30 and it completely changes your strategy and the companies. When you think about this number then you start to realize that the over segmentation of having CSMs and onboarding managers and implementation managers and account managers for a 20k ACV customer doesn't make sense. You can't make the math work for that, that having SDRs to sell a 4K ACV deal is never going to work. That running a PLG motion. And get there's just so many things that when you look at the unit economics you realize that the traditional strategies do not fit into the unit economics. And I'll explain this in another way. Maybe the math worked in 2013 when a marketing manager costs 60 grand and SDR costs 45 grand. Ote you were paying a, you know, middle market sales rep 120, something like that. And then the ad costs were way lower on Google Ads, maybe $2 a click instead of $35 a click or whatever. And then over the past 10 years all the costs have inflated. An sdr doesn't cost 45kot anymore. They cost 120k fully loaded. Middle market AES now at 180k. A marketing manager used to be at 60, now they're at 120. You put all these things together in a big company that cost inflation doubles or triples cac, then all of a sudden growth rate slows down. It creates even more of an amplified effect. And the the model, the predictable revenue model. Spend a bunch of money, get a lead for 50 bucks, convert that lead into a meeting at 1%, pay the AE 20%, start to involve partners. There's just too many people eating a slice of the pie where eventually you just don't have any profit left. And so I Think that one just as a take home, this is a new environment. Executives have not been challenged to look at these metrics as hard as they need to right now. And number two, the models and how companies, the top level way that they plan and prepare their go to market and how they plan their resources is built for the growth at all costs. Sarah. Not to deliver profitable, efficient growth or sustainable growth. And we need new models, new ways that we allocate resources. And that's some of the work that Winning by Design has done. I think that they create a really strong theory around how to get that stuff done.
- [40:09]
C
Thank you.
- [40:10]
B
Thanks for being here. Hope you can make it again.
- [40:11]
C
We got some more questions in the chat. There's two I think direct questions we can get to. One's from David, so I'm going to bring him on quickly.
- [40:20]
A
This has been awesome. That PDF vitals chart. I imagine every CEO COO would like a copy of one of those to their company and they probably don't have all the numbers at their disposal to be able to calculate it. So I guess there's a fair amount of putting the data together that becomes part of the problem. I don't know if you're able to answer this question, but for your clients, when you do this for them, how long does it take you to go through, capture the data, figure out where it's found, derive what needs to be derived and put together a table like that, that PDF for company X. How long might that take to expect?
- [40:57]
B
We're trying to do it start to finish in less than two weeks. And I'm pushing the team to figure out how to do it start to finish in less than 48 hours.
- [41:04]
A
That's assuming the data is available to be done. I mean that's, that would be awesome.
- [41:08]
B
You're getting data from the accounting system, expense and revenue data from the CRM system. Usually the biggest holdup is waiting for them to export the CRM system. We'll build an integration, we'll get over that relatively soon. So yeah, I think that if executives knew this was available and they could get this in 48 hours, I think that and for a CEO or CFO that's figuring out how, how to allocate $80 million in sales and marketing expenses next year for their $200 million company. Yeah, I think it would be a no brainer to buy this and I think it would be a no brainer to buy it minimum every quarter and then get it reviewed quarterly in line with your QBR process.
- [41:42]
A
Right. I imagine creating the Data, getting the data, doing it once with an expert allows your internal rev ops team perhaps to learn what it is, where it came from and so forth. No pressure.
- [41:53]
F
Yes.
- [41:53]
B
All right.
- [41:54]
A
Thank you. Appreciate that.
- [41:54]
B
You're welcome.
- [41:55]
C
Right, Steven's back with another question about Google Ads.
- [41:59]
F
Yeah, just you hit on a couple of reasons then maybe those are the main ones. You know you mentioned C level executives haven't been challenged like they have in the growth at all cost era and the metrics were designed for the growth growth at all cost era. We're still using those today. But are there any other excuses or reasons you hear from companies as to why they continue to pour tons of money into Google Ad spends when the.
- [42:23]
B
ROI doesn't justify it, their investors don't care or their investors don't put pressure on those numbers like you're a series B series C PLG company. Your investors are telling you to blow the money as fast as you can and aligning on to be honest like vanity level metrics usually sign up growth number of free trials like trying to get our growth loop going usage based pricing where you don't even have it proven out that the customer is going to pay you a certain amount of money over time. It's free until they upgrade and you make an assumption around that upgrade path and you pour a bunch of money into it assuming that the spreadsheet's going to play out and if it doesn't play out the whole thing is fucked. And so I think that investors not putting pressure on the number based on the stage series B and C they're just throttling it up, scaling volume and they're going to create their own cost efficiency problem. And I think the investors are basically like we'll figure it out after the next round. Let's get to the next round as fast as possible. Our CAC's going to go through the roof. We'll figure it out at series D. I don't know that that's what people are doing. No one's told me that directly but that's my inference and hoping that the growth rate improves enterprise value enough to make up for the the inefficiencies. The other one this is crazy to say is that people just don't know a CFO or a CEO can't challenge the agency or demand gen persons influenced revenue report that says that Google Ads is influencing $7.9 million last year and they we only spent 4.2 and we influence 7.9 like everything's good here. The problem is that the Influence revenue report is taking credit for things that would have happened anyway. Most that's coming from branded. It doesn't show you where all the waste is. It doesn't show you all the headcount and other programs that are required to close that deal. It just assumes the Google Ads the only thing that mattered. And a CFO can't go back and challenge at that level to say no, this is the way that we're looking at it. And we look at it this, it shows our ROI is terrible, we're going to reallocate dollars. And so until finance can see, just like I've said for a really long time, they can see it in the top level numbers. They can see new logo, CAC is too high, go to market, efficiency is too high, growth rate slowing down. But they can't get into the numbers with marketing and say these are the things that we need to change or I'm going to challenge these things. So it relies on the marketing team using the right reporting to make the right business decisions aligned to the business outcomes. And marketing's just not using that stuff. Usually they got their own marketing tools and their own MMM and all the other stuff. And the problem with influenced revenue reporting, great in the growth at all costs era, terrible in this era because influenced revenue has nothing to do with unit economics. It has nothing to do with how much we spent and what was the actualized impact of that spend. It says we got a touch, somebody at that account saw our LinkedIn ad. So I guess our $9 million in LinkedIn ads last year was a great investment. Influenced revenue reporting is incredibly dangerous which is why we need these top level KPIs to be able to flag big things and then allow influenced revenue reporting signal analytics W shaped cut by geo, cut by segment, cut by go to market motion, do all the custom diagnostics afterwards. Once you have an assessment of the top level performance and that's honestly what's missing in go to market teams that all of the QBR reporting happens without the context of business performance and so all the reporting is not around. How do we solve this business problem and get this metric on track? All the reporting is around. Look at how good our department did. So yeah, I think that's the end of my rant for right now.
- [45:53]
F
Apparently hit on two hot button topics. So thanks for bearing with me.
- [45:56]
B
Yeah, appreciate it. Yeah, thank you. Yeah, let me try and recap. Some people just don't know or can't challenge the marketing reporting related to Google Ads or any other marketing investment for that matter. And the other one is investors at certain stages or certain types of investors don't put pressure on those numbers like a pre IPO or private equity buyer would. Investor would. Right on. All right, everybody, we're coming up to a close next week. Jocko from Winning by Design is going to be joining us on this call, so feel free to join in for that one. We're going to be presenting around the Revenue Factory. Jocko actually wrote the book, so I mean, I've been Sidney and I and the team have been interpreting the book and making it our own. So it'll be interesting for him to present and us to share what we're learning. And I think there'll be a lot of value delivered here That'll be live next Tuesday, September 10th at 12pm Central Time. So if you can make it look forward to having you here live. I've made the decision. We'll see. Sometimes I go back on my decisions, but for now, I've made the decision that we're not going to share the screen shares of this episode of these events. So if the people that come here really get the value that other people don't, they people that attend live. So the audio will continue to be released, but we're not going to release the slides and the visuals. That's the incentive for people to join us live. So appreciate your continued participation and attendance. Hope it's valuable. And we'll see you again next week. See you, everyone.
- [47:13]
A
Bye, Sam.