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- [00:00]
A
You're listening to Revenue Vitals with Chris Walker.
- [00:18]
B
Nancy, back to back. Love to see you again, David. Good to see you here. Love the amount of people on video. I can't, the screen's too far, so I can't say, see, see how many people we got on here. But my inclination is to think that more people are showing up live because we're not sharing the slides on YouTube anymore. So there's no Pete. You basically have to be here live to see the things that we're sharing. So I am noticing more people on video and more people showing up, which is amazing. Part of that is just to encourage live attendance. But to be honest, it's because a lot of people copy my and so I don't feel like just putting this out on YouTube for all the hard work that we've done at my company and all the time that's been invested for someone to rip off what we're doing. And so to get into it, Jocko was here last week talking about the revenue factory and revenue architecture. We've been spending a lot of time on some of those things in the past couple of episodes. This episode we're going to be zooming out a little bit. I've been sharing a lot of this information. I've been getting feedback and comments and questions from people and I think there's a couple of really important critical points to clarify here. And then next week at the same time, David Spitz will be joining us from bench sites. We'll be talking about the public company SaaS. Benchmarks go to market efficiency, a very statistical, data driven type of episode, probably with a lot of data and slides next week. So stay tuned for that. So a couple of key points that I want to clarify here and then after that, a real life story example that I think is illuminating at this point. So first, on last Thursday I shared a post on LinkedIn that in essence there was a lot of pros in it. But in essence it said CMOs should care about the ROI of their marketing investments. And that statement was surprisingly met with extreme resistance from people. People coming out of the woodwork saying if you care about marketing roi, it's going to ruin your marketing. And this is blasphemy. And Chris Walker's all about clickbait. And instead of taking the five fucking minutes it would take to understand the perspective and realize that I used to believe all the things that they believe and all I've done is just learn more stuff and so they think I'm two steps behind them in reality. I'm two steps ahead of them and there's nothing wrong with that. I have just really studied the craft that there is a huge difference between go to market key performance indicators like marketing ROI or better framed as the ROI of all of our investments to create pipeline, which marketing has the lion share of those investments but also includes SDRs and partner and other things that there's a huge difference between that and using attribution or other types of things to connect a single investment to a the performance of a channel or something like that. These are two entirely different things. And when you are measuring roi, it is not. We spent money on paid search branded campaigns and we got this much money back. When you think about actualized marketing roi, it is done at the entire department level, not at the program or campaign or channel level, which requires attribution. And so people that push back on this point say oh, if you care about marketing roi, you'll never do brand marketing, you'll never run awareness campaigns. And they couldn't be more wrong. The number one way to run effective brand marketing awareness campaigns, non direct response less trackable campaigns, is to center your company on marketing ROI as the primary metric of success because it doesn't require attribution. And what does brand marketing do and what does awareness type of marketing do? It makes more people aware of your product, it increases win rates, it allows you to increase asp, it creates more people that want to work with you and come to your website and create pipeline. And all of those indicators increase ROI at a lower spend. And I'll give you an example of this because I was consulting 250 million dollar SaaS company yesterday, I'm having a one on one meeting with the CMO. She's responsible for deploying 22 million dollars a year in marketing investments and has faced over the past four quarters since she started at the company a sharp decline in ROI of their marketing investments. And so instead of getting the, you know, expected $10 in pipe for every dollar they spent on creating pipeline, now they're down to like three or four dollars. A significant decrease in efficiency and ROI on the marketing investments that is not in one quarter. This has been periodically happening for the past year. And so you dive a little bit deeper and you look at, okay, now let's go look at the digital part of it, which is about 33% of that $22 million, $8 million a year is spent on digital campaigns, non headcount. And out of that $8 million, 90% of it is spent on direct response lead Generation, the people that get converted there become a customer at.0,3%, which is close to 1 in 10,000 people become a customer. It's highly inefficient from a sales perspective. They get people in the database. And I was talking to the CMO and there a light bulb went off for her when I said this is that the allocation of these investments, that 90% go to lead generation is caused by your attribution model, not the other way around. And that because the attribution of first touch attribution on digital advertising spend means that anything that's spent on a non conversion based activity, awareness, brand marketing, whatever you want to call it, shows up as being completely useless in your attribution model. And so I'm surprised you even spend 10% there because any rational person would spend zero because it doesn't impact their goals whatsoever. And it's not because it's good for the company, it's because it appeases the first touch attribution model, which is one of the worst ways to measure your marketing team. Because what does it incentivize your marketing leadership? VPs that deploy lots of money, it incentivizes them to load people into your database for the first time and then hope they become a customer at some point. That's what first touch attribution as you get incentivized to be the first one to get the email address in the database. And so there's a big lesson here. The first one is we need to be able to split key performance indicators, which should have nothing to do with attribution, by channel or investment. And the goal of key performance indicators is to say how are we performing? Are we going in the right direction or the wrong direction against these critical business level metrics? And then you have attribution, which I will frame in a different way. I'll call it custom diagnostics. And attribution is one method of custom diagnostics. But you could also look by segment, by geography, by, you know, last touch, by first touch, by linear. You can have a bunch of different ways that you look at the data and that there's a process that number one, you need to look at the business performance and isolate what are the metrics that are causing this business performance? Which then leads you to key questions that are driven by the business performance. And those key questions might be why is our marketing ROI so low? Why has it been declining over the past four quarters? Why are our win rates that used to be 18% now only 10%? You get key questions about business performance. And then when you have the key questions, then you do custom diagnostics with a purpose. You are looking at attribution and you are using because there's a million attribution models that you can use, and using one across your whole company is a terrible idea. And so when you have a specific question, you will choose a specific attribution model or a specific way of looking at the data to answer that specific question. And so, for instance, why is our marketing ROI $3.50 when it used to be $10? It's gone down by almost 67% over the past four quarters. Then you can go and look at the data and say, oh, well, our spend has been increasing quarter over quarter and our pipeline creation has been going down quarter over quarter for the past four quarters. And so we had this mismatch where we're spending more money, but we're getting significantly less results. And then we have to be able to look. So the conclusion of that we're doing a lot of things that aren't driving results. What else is there to say? We're spending more money and getting less back. And so then when you go into attribution, you're looking for what are the things that we're doing that have no impact and how can we eliminate and reallocate them? And the reality is that in B2B companies, oftentimes that question is never asked. Oftentimes the people that are building the reports never look at the data in that way. Looking at, where are we wasting money? Because most of the time is spent figuring out how do we build a report that shows what we're doing is working. The key distinction here is that you should not be looking at attribution until you have business level context, which tells you why you're looking at attribution. And I think, and I feel pretty confident on this point, is that if your KPIs rely on attribution, then you will be handcuffed. Each individual department is handcuffed in what they're allowed to do and what they can do related to the impact on the company. So let's give it a common example that companies do this all the time and they continue to mess it up by trying to split attribution between what did SDR source and what did marketing source? And what's the problem that in every single time that you get a meeting, you need marketing and you need sdr. So what is the point of trying to debate who did it every single time or most often in a B2B sale, you need an SDR to book a meeting. Marketing isn't going to book the meeting for you. And most of the time when an SDR is going outbound, if that person has never heard of your company, they'll go to your website, they're going to review marketing materials that get created and augment the success of that quote, unquote, outbound action. And then to use that and say, we're going to give SDR more compensation. When they get leads that don't come from marketing, when they get meetings that don't come from marketing, we'll pay them a thousand bucks. And if they follow up on a demo request, we'll give them 300 bucks and try and split the comp plan. That way, you're creating misaligned incentives between the company and you're incentivizing your SDRs to follow up with the shittiest leads first and the best ones last. And so this is just one simple example. But I consistently now I'm consulting with companies that are 100 or $200 million in revenue or higher, and their CMO and their CFO spend so much time thinking about attribution that they lose sight of the business KPIs and they are looking for a one size fits all attribution model. I had a conversation with a $200 million company on Monday and they're looking for a one size fits all attribution model to their entire go to market where they just install this thing and it properly does everything. And the reality is that that is fundamentally impossible and extremely limiting to your company to pick one standardized attribution model and then apply it across your entire company. The point of attribution is to be able to diagnose issues, to be able to isolate root causes, and to be able to strategize around what we do next. It is not to be used to segment and try to analyze actual business performance because it slices it down into micro segments where every segment can appear like it's working while the whole machine doesn't work. And so I'm going to do one example here. When we think about a revenue factory, I'm just going to talk through this example of how this works in a factory. Okay, so in a factory at a high level, let's just say that you have the supply chain, you have the incoming inspection, and then you have the final assembly. The supply chain is all the stuff that's coming into the factory. The incoming inspection is the people that look at everything that's coming into the factory and then Decide these things aren't actually good, these things are good. So they're just the sorters of the good and the bad, but they still cost money and it's still humans. And then eventually it gets the final assembly, which are the skilled, expensive people that actually put the thing together and create a lot of the value. Okay, now if each of these different things were operating on their own, KPIs like let's say supply chain is just responsible for getting the most parts at the lowest cost and they're just shoving all this stuff into the factory and all of it sucks. Then the people that are sorting, you need way more people to sort. And most of the stuff that they're sorting is junk. And then you have all these expensive people at the end that don't have anything to build. And it's all because the supply chain, which is often marketing in a factory, is incentivized to bring in a bunch of garbage that doesn't help the rest of the factory and does not have a closed feedback loop to them to say, oh, you're bringing in a bunch of garbage. We need to flag this and change this entire strategy. And so they just keep recycling a bunch of garbage. Having it all be. Eventually SDRs and sales don't even follow up with the garbage anymore because they know that they can do better off just going and finding it themselves. Then you have the, the incoming inspection people, the SDRs that are comped on how many meetings they book. And so then they're going to spend all their time trying to figure out how to get the most meetings, give away gift cards, find ways to hook people in, send random calendar invites to people without even talking to them to try to trick them into a meeting. And then you have the salespeople. And so we must have. It's important and every factory has it is what's called a closed loop feedback system where if one part of the process is doing something that negatively impacts another part of the process, then everybody knows. And we don't have that in go to market. We have each individual function building the reports about how good they're doing, when in reality what they're doing that's good is being detrimental to other parts of the factory. Let me just check my notes. I had a bunch of notes coming in here and make sure that I don't miss any important points here. There's a couple other ones, but I'll save them. So that one kind of went in different directions. The reason that I'm bringing it up is because I see that people are getting, especially marketers and marketing leaders, are getting confused by the idea of marketing roi. Marketing ROI is not measured at the channel level or the investment level. It's. It's measured at the department level. So that's a key distinction. I'm seeing that a special like large, sophisticated companies making fundamental mistakes around how they think about attribution and how it relates to their key performance indicators, and people looking for a silver bullet in attribution instead of realizing what it actually is. It's a way to do custom analytics in your business, to do root cause analysis, diagnostics and strategy. So we need to be using attribution for the purpose that it's built for, which is to look deeper into data to connect it to what's happening at the business level. KPIs. And so with all that said, I don't know how, like if there's specific questions, I do have some visuals and things that we can share if the topics get there. So with all that said, would love your feedback on some of these points. We'd love to see what you're seeing and any questions that you have. Thanks y' all for being here.
- [15:43]
C
Awesome. I'm gonna give people a minute to digest. Some people in the chat said that this talk gave them hives just hearing about the ROI talk. Anyways, we do have a question here and it's kind of in reference to the factory model. So how would you recommend looking at your funnel or your factory? We are trying to move to this approach, but I'm struggling with how to present this to the board. The board is very used to looking at it by department sourcing the revenue. So how would you recommend we start at the board level before department?
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B
Perfect. So within the dynamics of your revenue factory, you have effectiveness metrics which come from financial performance and then lower level in the CRM. And then you have the efficiency performance which comes from the expenses in the accounting system along with the results financially or in the CRM. And so you have these two different variables and indicators across the factory. The whole point of the factory is to strip away the department level silos and look at it as one big machine. Which is exactly what it is. It is one big factory which is a collection of processes, people and technology that happen across multiple steps to complete some type of thing, which in this case is recurring revenue. And so when you have this factory example, my recommendation is to first start with a what I'll call a like a simplified or a V1 data model that uses standard salesforce data that Every company has. Because if you try to implement the winning by design nine month framework one, you're not gonna be able to look at the historical data that way because 99 out of a hundred times you'd never collected it. And number two, it's gonna take you 12 to 24 months to actually implement that system inside of your CRM. So you don't actually feel the dividends, analytics and additional data for, you know, 18 months potentially. And so you need to find a way to be able to get this done and at least have some insight to it now. And the way that you do that is by using standard Salesforce data and properties, which is going to be probably you don't have every time your sales team reaches out to someone, which is what we call a sales trigger for MQLs that you do. Every MQL typically can be tracked. The problem is that 60, 70, 80% of the time that sales is reaching out to someone, it's not from an mql. They're doing it on their own with their own data. And you have no visibility into the effectiveness. What's working, what's not. All you can see is these people do good and these people don't. You don't know why. It's a massive black hole and a huge problem for companies, especially ones that are starting to get to scale and are running into diminishing returns. And then you have closing new logos, so you have creating pipeline, then you have closing new logos. You can just use the opportunity object. Every opportunity has stamped with a created date and a close date. So all you have is just when sales reaches out, which you probably don't have, then you have opportunity created, opportunity closed. Everything at the right side of the bow tie, which is onboarding, expansion and retention, most likely needs to be measured through financial data, not CRM data, because companies don't collect it properly. So again, this is the blending of financial and CRM data into one unified view. And then you can effectively calculate at least the effectiveness of those different parts of the process, the volume, the conversion and the time. And then from there, if you want to, you can segment your expenses by these different parts of the process. Which means that instead of looking at it as the marketing budget and the SDR budget and the sales budget and the operations budget, instead we're looking at all the expenses and saying, what was the purpose of this expense? Was it to operate our entire go to market? Was it to expand or renew customers? Was it to create pipeline, was to close a deal. What was the purpose of the expense. And then all of a sudden, you don't have department level budgets anymore. You're looking at the budget in an entirely different dimension. You can see where your investments are misweighted, where your ROI is very low, and how the allocation should actually be rebalanced to drive better results. And so that gives you like the V1. Every company can do that. We do it for companies very quickly and it's highly valuable. But you could also try to do it for yourself if you so choose. And then secondarily, once you have that and you start getting executives to buy into the process, then you can work on phase two, which would be building a much more complex data model inside of your CRM and giving you a significant more visibility into all the different intermediate steps in the process.
- [20:30]
C
Love it. Well, you've got a bunch of questions.
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B
Love that.
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C
First, I'm going to kick off with Nancy, who's the MVP today. She's been on two of our events. This is great. Welcome, Nancy.
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D
Do I get a price if I ask a third trick question?
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C
Tbd Depends on the question.
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B
We'll send you a prize.
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D
I think maybe you partially answered the question, but my mind was still kind of astounded that I couldn't quite absorb your answer. So you were saying that the ROI should be measured at the marketing department level. But we, as you know, we've always justified ROI at the campaign or program level. Right, to get the activities funded. So how would you begin to do the transition? Because how do you wean people off of having to justify every proposed activity and demonstrating ROI kind of mentality?
- [21:32]
B
So let me try to figure out a couple ways to put this. The actual answer is that the cfo, or the people that make the decisions around how all the budget is allocated, need to reframe their mindset. That's the actual solution. And then if you're a CMO or a CRO, you can be the one who does that, or you can hope that they figure it out for themselves. But the mindset of the people that allocate and scrutinize the investments is the actual root cause issue. Now, let's look at, and let's say, Nancy, let's say that you did something well, you started a company and you got rich, right? You now you have $50 million and you're trying to figure out, okay, now I need to figure out how to invest these dollars so that I continue to have a higher net worth, right? So you have 50 million and you divide it between four different, you know, investments or four different firms that then allocate the investments. And you're looking and overall like you look at entire portfolio, first year you get a 20% return, national average is around 8%. So you're doing way better than anybody else, right? And so when you look at it you say, okay, like everything is awesome, right? Like I'm doing 20, the national average is 8. Everything is all good, right? And then so out of top line you say I'm happy, right? That's what the executives team should be looking at. They should say okay, we thought the national average is this or our previous performance was this. Now we're this across a certain amount of important metrics like go to market efficiency, growth rate, cac, a couple of other ones, ebitda, maybe you have that. Then you can go into each of the four things and you say, oh, this one's returning at 47%, this one's returning at 20%, this one's returning at negative 5%. And you can go deeper and say, okay, now I'm going to reallocate inside of these things. I know I'm already doing good and so now I'm going to go in and try to do even better. So you can look and you can see. These are the low performing, I'm going to reallocate them, right? The same thing could happen if you had 50 million, then the next year you only had 40 and you lost $10 million and you would say, oh shit, I'm doing way worse than everybody else. Now I need to go in and figure out where all the problems are. And you could do that weekly, daily, monthly, quarterly, annually, right? Any type of time horizon to look at that comparison. And my belief, one man's belief is that it needs to happen in that order. For CFOs we need to be looking at, okay, what is the entire go to market efficiency across our go to market, the blended performance? Okay, we're at 175%. It is, you know, high performing relative to all public SaaS companies. And it means our revenue multiple is very high. So at the first cut we're happy with the performance. And then when we look at the four different major allocators of the budget, the cmo, the CRO, if there's a post sale person, operations, we can look at where those different investments are going and then we can say okay, in this part of the process, we gave marketing $20 million. And when you combine the SDR investments and the partner investments and things like that, when you put all that together, we spent $26 million to try to create pipeline this year and we only created 50 million in pipeline, which is going to lead us on a 10 win rate to $5 million. We spent 26 and we got 5. We're projecting to get 5 million back. That is a terrible return. And at that level, you know, the marketing investments combined with the other investments are not producing appropriate return. Conversely, now let's say that you spent the 26 million and you created 500 million in pipeline, which is a 20x ROI more or less and entirely realistic for a high performing marketing team that in that case, who cares what the channel attribution says? You got 22x ROI on the marketing investments. A CFO would, it's using different levels, right? The first level is that level green light, things are going good. And then the CMO's responsibility then is not to justify channel by channel, it's to look at each individual channel with a purpose and figure out how do I make this even better, how do I unlock another 5% growth next year, how do I do those things? But when you get forced to measure channel by channel before you look at the top level, department level roi, you're so focused on the channel level stuff that one, you don't do the most important things because they're not measurable. You get biased into certain places that have the most scalability, I. E. The easiest to waste money and you get lost in this micro game. Companies do the same thing when they do segment geography, product line, they have this macro segmentation in how they think about their strategy. And so analytics, as you get deeper into the analytics, you segment more down, you lose sight of the bigger picture. And that's exactly what's happening in this case. When companies use attribution to justify campaigns and investments directly as the primary way to prove roi. That's the whole issue. I recognize totally that is very difficult for marketers specifically to really wrap their heads around this one because of how long they've been thinking about it in the previous way that I mentioned. And I will say that I have been a B2B marketer for a very long time and I have been an advocate for brand marketing and marketing, for awareness and doing the things that are most effective. And I will tell you for sure that the method of measuring this way on ROI is by far the biggest way to open up creativity in your marketing team, to do the most impactful things and to be accountable to real results and have a clear conversation as a CMO around the ROI of your investments, which most CMOs struggle to do maybe because they don't know how, maybe because their investments aren't producing positive roi. And so I'm a huge advocate for looking at this because it allows marketers to do all the best regardless of attribution. Thanks. You're welcome. Thank you for the question. Getting fired up over here.
- [27:10]
C
Not surprised. This is going to be a good episode. Get some good clips for sure and help. Help a lot, a lot of people. All right, we have quite the lineup here. I've got like four people queued up. So I'm going to go to Morgan next for her question.
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A
Hey, Chris.
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B
Hey, Morgan.
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A
Glad to be here. I'm a closet listener.
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C
Yeah.
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A
But listening to you for a while, so thanks for having me. You kind of started answering this already from the top down perspective. But when you're looking at marketing ROI taking departmental, I'm assuming headcount, so total cost in over total pipeline, regardless of attribution, where that's coming from, we kind of follow a four horsemen model. So I agree with you, that needs to go out the window because at the end of the day everybody's touching pipeline. So my question is this, do you have two layers that you're looking at from an ROI perspective? One being marketing return on total pipeline and two being total go to market cost versus return on pipeline. And how are you looking at those two things differently?
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B
Yeah, first, Sydney, let's just make a note after this question to just talk about the four funnel model a little bit and the flaws because we see a lot of companies implementing this and it doesn't solve the problem, unfortunately. It almost creates the same problem. And so when you think about the layers and we went through this, I think it's episode 2 11. It's not the most recent one, but it's the one that's just been published. Before that I went through this entire stack which just starts with two metrics which are growth rate and go to market efficiency percentage. Go to market efficiency percentage combines all of the post sale and all of the new logo into total go to market expenses and net new ARR and gets that equation. And then you can break it down between new logo and post sale. And then within new logo you can break it down between pipeline creation and then the closing of that pipeline. And so when we talk about marketing roi, it's actually better defined as the investments used to create pipeline, which a majority end up being marketing investments. But you would exclude your user conference, for instance, which is target, and you would move that marketing investment into the Post sale area. Right. And for SDRs, even if they fit into the sales budget, SDRs are used to create pipeline, not to close it. So SDRs would then be moved into pipeline creation. And you can see how quickly this breaks down the department level things and looks at it more like a factory of keep different processes where there's different teams cross functionally working on the projects. But generally like marketing is 80% or more of the investment used to create pipeline. Typically, unless it's a company that's heavily, heavily surrounded around outbound cold calling. So that's how you would break it down. And then when you look at the the quote unquote roi, right, you have the total spend on that which is the combination of those investments and then you have the overall pipeline created which then is normalized for win rate. Right. Who cares if you create 500 million in pipe win rates 2%. And so it, it must be normalized for win rate to effectively look at like what should the actualized target be. So I, I've been saying $10 in pipe for every dollar that you spend to create pipe. But in reality that equation requires a 25% win rate on opportunities in order for the entire math to work downstream. And so if your win rate is 10% then all of a sudden your target becomes $25 for every dollar spent. And that becomes, you know, as the win rate goes down in sales, it puts a lot more pressure on pipeline creation. And then when that happens, generally you'll put a lot more of garbage. Pipeline win rate comes down some more and sort of spirals out of control.
- [31:01]
A
Makes sense. That's helpful. Thank you.
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B
Do you have a follow up on that? I feel like I sort of answered, but I feel like I might have missed some nuances that you wanted.
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A
I feel like you got it. It's really the Measurement of Creation vs Post Sale Follow up. And if you can categorize in those two, I'd imagine you can figure also pinpoint to your point where some of the leakages, whether that's post sale or in your close rate with your current pipeline.
- [31:25]
B
Yeah, if you go back and re listen to that episode, there's no visual published but you'll be able to follow how you start all the way at the top and then consistently break down the layers. And then yeah, like new logo CAC is simply a combination of your ROI on pipeline creation combined with your ROI of closing new logos. Like those two things combined =CAC. And then there's certain expenditures like Salesforce or like you could argue like rev ops and other things like that that are should be evenly spread across the entire go to market. From an expense standpoint, I'm not big into like Those investments were 20% for pipeline creation and 80% for closing new logos. I don't like making that allocation at like an investment level. But there are certain expenses that should be attributed across the entire thing. Not to one specific area specifically. Some types of technology, some operations resources, product marketing, most likely headcount for product marketing impacts the entire including retention and expansion, closing new logos and creating pipeline. So there are instances where expenses should be spread out across the entire go to market and allocated that way.
- [32:32]
A
Yeah, I think that makes sense. Thank you.
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B
Cool. Thanks for being here.
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C
All right, we've got a lot of questions queued up if you want to keep rolling or if you want to touch on the four funnel thing now or later.
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B
I mean, yeah, I wanted to give you the opportunity because you encounter this a lot. Like why don't you get it started? Because it was mentioned by Morgan, she's mentioning it and we're seeing clients do it. Someone's pushing a lot of companies to consider this model. So why don't we just talk about some of the problems that companies run into when they do this.
- [32:58]
C
Yeah, so for the four funnel model, for maybe those that are not familiar, basically what a lot of companies are doing is they're saying, okay, this is coming from marketing, like website inbound. So we're going to say that's marketing sourced funnel. Then we've got our AES which are outbound. If they have an outbound quota, then we have our SDRs which may be inbound, outbound or mix of both as a different funnel. And then you might have a partner channel. So those are kind of like the four core funnels. And the reason that companies are trying to create these funnels based on these essentially departments is because they want to answer the question where should I invest my dollars more? Should I give more dollars to marketing? Should I deploy more SDRs? Should I hire more AES that have an expectation that they're going to source 30% of their own pipe? Because that's effective, like where do I source this? And this is really a question coming from a lot of CROs who oversee marketing particularly is what I found. And so that's really the four funnel model. But again you are going back into the departmental level view and then you're trying to segment what gets credit, where, what expenses go into where and you miss the insight of how is the business actually Performing. And that's again that top level stack that Chris has been mentioning. And that's number one of the reasons why we always start at that top level. How is the business doing? Regardless of how you look at a funnel, regardless of what your thoughts are on attribution, regardless of how you report to your board, how is your business performing is step one. So that's kind of a little bit of like why the full funnel model and any, any other attribution model really breaks down at that concept. Because it doesn't answer the core questions of how is the business performing holist, even when we just look at new logo. So anything you want to add there, Chris?
- [35:05]
B
When you require marketing to source things, you drive all the investments in behavior into trackable things that can drive the source. And again, losing sight of what is the most effective way to lower cost of acquisition or improve go to market efficiency, which is the objective of marketing investments, you lose sight of that objective and you look for trackable leads that you can say came from marketing. And then all of a sudden the $20 million that go to marketing get allocated an entirely different way just by how you built your financial model and you scrutinize the success of it. And that's the fundamental issue. And then secondarily, as Sidney mentioned, all the teams are just basically competing with one another for the same pie. So like you have a hundred buyers, you actually need 200. But nobody's focused on trying to figure out how we need to go get a hundred more buyers. Everyone's saying how do I go get credit for the hundred that already exist? And I think that it's fundamentally flawed and causes instead of like, when you look at it as a revenue factory rather than like, here are four different suppliers of my supply chain to my sales team that you realize that there's a very different way to model and plan that I think aligns the team significantly better. And so I get it. Every company has departments, they have budgets. They're looking for the simplest, clearest way to get a perfect answer around, like, how do I spend my additional $4 million on go to market investment next year? They're looking for one chart with one attribution model that tells them that whole story. And the reality is that that is impossible and not reality. And that the ability to look at data, look at the business metrics and create a strategy that connects the tactical work to the most important KPIs in the business. That is a true skill. I hope a lot of people that are on this zoom are really learning this skill because it is a massive way to drive enterprise value. And if you are good at being this as an employee or consultant, you will make a lot of money in the future because we're talking hundreds of millions of dollars of difference for mature companies in terms of value that gets created by solving and looking at the data in this way. So I think the companies, if they're debating this, should be thinking a lot more like a revenue factory than in this, like four, four funnel type of. It's basically four separate demand waterfall models put together. That's what it is. And the reality is it's very clear that demand waterfall model doesn't work. It was built in growth at all cost. It got combined with the predictable revenue model. The unit economics don't work for most companies. The model breaks down. It's not efficient. Like, all we're doing here is just making a more complicated demand waterfall that was created in the mid-2000s. And so I'm recommending people think about it as a revenue factory instead. Sorry, Morgan, because I know you're in the process of implementing it, but that there are. We see a lot of challenges with companies that try that.
- [38:07]
A
No, it's been an adoption. I guess I've inherited it, I should say. Now I gotta go break it down.
- [38:14]
B
Cool, let's keep going with questions.
- [38:15]
C
All right, Nick, gonna bring you on.
- [38:19]
E
Yeah, thank you. You actually answered a few of the thoughts that I had around this question just organically through that four step funnel process and actually through Morgan's question. But I came from a company that had complete misalignment in marketing and sales, and I was curious if you could provide any examples. Cause you mentioned a little bit earlier in the show that sometimes it feels really good for a department to hit certain goals, but it doesn't translate for the actual business or across revenue teams. And so without getting too lost into all the nuances, is there any, like, oversimplification or an easy way to just understand that when we're looking at how you're measuring success across the entire company's.
- [39:05]
B
Marketing initiatives, totally throughout the process, we should be monitoring volume, cost, efficiency, and quality. And then quality becomes the feedback loop. All three of them can become the feedback loop, more or less. And so back in the day, like I used to communicate the idea that marketing should be accountable to the definition of pipeline that exists when your sales team wins greater than 25%. Because what would happen is that marketing would put in a bunch of. They would give away a thousand gift cards and get a Thousand meetings. And those meetings would go nowhere and they would crush their pipeline target and the sales team would miss quota by 50%. And there is a fundamental misalignment between the KPI that marketing optimizes for, which could be low Quality Pipeline MQLs sales, anything that doesn't have a quality control. Right. And so when you look at it that having marketing be accountable, when you combine the data together, you have volume and then you have conversion and then you eventually you get cost efficiency. And conversion is effectively the quality quality metric. Right. So companies will that run a big MQL machine might convert one out of a thousand MQLS into a customer. And so if that was your situation, you'd be pretty like who wants to have to call a thousand people to get one deal? Nobody. And so you'd have an immediate flag of hey, the quality here is unacceptable. So either we need to adjust the definition of pipeline mql, whatever that definition is, or something else is wrong here. And so I like looking at it in those three dimensions because in any of those cases, right, we don't create enough volume of opportunities, those opportunities do not win at a good enough rate or the amount of money we spend to create those opportunities is insufficient. If any of those flags go off, then it should be an issue for the factory that marketing ends up being mainly responsible for. So the thing that factories learned a long time ago that go to market hasn't figured out yet is called a closed loop feedback system that later stages in the. It's like when somebody talked about it in advertising, right. Instead of Google Ads algorithm optimizing for a conversion, you would rather feed it data from your CRM about your Close1 customer. So the algorithm optimizes for a Close1 customer rather than a form conversion. The same thing exists in go to market where unfortunately the marketing KPIs do not have a closed loop feedback system. So they're just over here, MQL MQL MQL 50 bucks for the MQL. Things are going great. They don't see, oh, the conversion to a meeting's 0.1%. Something's wrong here. We need to go and fix the strategy so we get higher quality. So it's really the lack of a closed loop feedback system and also a lack of holistic monitoring across the entire factory by a C level executive or strategist.
- [41:56]
E
Yeah, it makes a lot of sense. That was coming from something that is less of like a product led growth. Like it's not product led at all. We were running events and selling about a thousand, sometimes 2,000 tickets to acquire maybe 15 to 20 customers outside of the event itself. And, oh, I'm just pulling parallels from like the model that you're typically talking about where even though this was more service based and there was marketing and consulting behind it, it just didn't make a lot of sense. The way that we were driving leads and we were doing everything that you are teaching against more SDRs, more BDRs, more salespeople going like it was just insane. I just didn't have a good way to kind of look at that. But I do feel like it translates and that's what I was trying to figure out. Does what you're saying translate to something like event based marketing? And I feel like it does. So thank you.
- [42:47]
B
Right on, right on. Thanks for being here.
- [42:49]
C
Gonna go to Mitchell next and then Charlie is on deck.
- [42:54]
F
Thanks, Sydney. Chris, great discussion as always. Bit of a macro question. I've been thinking more and more to solve the problem that we're discussing. Obviously we need to unify to go to market, but to unify, obviously we need people to work together. And so I'm starting to feel that culture and sometimes bad behavior and specifically how, you know, how sales kind of work through the CRM and how people are comped might be actually the issues to resolve versus the actual data. Because you can get the data in front of people and sometimes it's not enough. I know you've talked about compensation that being the last thing to touch and I agree with you. So maybe incentivize is the better word, but I wanted to get your kind of up to date thoughts on that.
- [43:41]
B
Yeah, you read my mind. So compensation is the visible form of incentives which then ladder up to what is the KPI that the company's trying to direct you towards? Right. And so the actual fix is fixing the KPIs, and when you fix the KPIs, all of a sudden what's the CMO is reporting on about their MQLs and cost per MQL and how much brand value they're getting. No longer matters. It doesn't. It's like. And the whole game changes. And then all of a sudden you are putting your CMO in a position where they must execute a marketing strategy that delivers business results or they do not hit their KPI. The same thing with the CRO. Right. And then all of a sudden, like part of the KPI is we can't spend $3 in sales headcount to get a dollar back. We haven't even spent money on marketing or anything like that. And for a long long time the VP of sales would just do whatever you have to do to close the deals. It didn't matter how much we spent, it didn't matter if we have 40% quota attainment. It's cool, we'll go as far as we can. Then we'll lay off a bunch of reps like whatever. And that's the KPIs that are in place at the functional leader level, the department level, marketing, sales and then one layer lower demand gen events, the VP layer across the entire go to market the KPIs that those people are measured on that then level up to how does the CEO and CFO allocate all of the budget across these departments? That is the actual problem. And if you look at a hundred million dollar plus ARR company and how much time is totally wasted on their QBR process, they have a hundred people that are involved in putting together a deck every quarter that is filled with hundreds of slides and no actual insights. And it's just a reporting exercise that a lot of people do. It's administrative. I watch companies do it. And all of it is because they don't have a foundational set of KPIs that layer through the organization. So everyone's just building their random reports and we must. I think we've gone long enough where the CFO and the CEO can't intelligently scrutinize the investments and the strategy of each individual functional department. I think we're past that point. And at this point now CFOs and CEOs must have a process to scrutinize those investments across departments even for functional areas that they are not an expert in. I think that leveraging third parties is also incredibly valuable to get an outside perspective and to get a fresh perspective. So that's some of the thoughts here. But I've just studied this for a significant amount of time and tried so many different things in order to get a company to look at it in this way which is effectively thinking about ROI in a much more like real way in terms of your investments. And just the KPIs is actually where it breaks down because it allows all of the behaviors at the department level to happen without scrutiny or flags. There's no way that a marketing team should be able to spend 14 out of their 20 million dollar marketing budget on Google Ads and not get a have a terrible return on total marketing investment and have that happen for four to eight quarters. It's totally unacceptable. And it happens In a lot of companies, believe it or not. And so those types of instances like, should be immediate, flat. Like if the KPI system does not flag that major fault and issue immediately, you have the wrong KPIs. That's the point of executive level KPIs. As I studied it more, I believe that that is truly the fundamental flaw that the KPIs are do not drive alignment, they are not unified. And that when you actually get into the details of the strategy, there's a breaking point on the reporting where you rely on manager and director level people to create the insights and those people miss the top level performance and therefore the insights aren't aligned. Any follow up there? That was a, a pretty deep question. You mentioned compensation. I think you know my stance on that, so I'm happy to keep.
- [47:50]
F
Well, I, I would just say that, I mean, I know we're running up on time, but we all know that things need to be driven top down sometimes and the new KPIs would allow us to kind of do that. So yeah, I think we're aligned.
- [48:03]
B
Yeah. And just to be really clear with people like, I never recommend at a large mature company to come in and rip apart your entire reporting process and your Salesforce data and your attribution and just build something entirely new. It's a massive organizational challenge for a mature company and that is not the way to implement it. And so the strategy is to measure and understand the data at the executive team level for multiple quarters to start to try your planning process or at least to mirror your planning process and fact check and risk mitigate the plan against these metrics, to start to reallocate department level budgets and investments and recalibrate investments at the executive level against these metrics and you can make big impacts on company performance without ever having a VP see these data. It's true. And then two to four quarters later then start to have it involved at the VP level. All of a sudden now you have your salesforce data working. You can make senior directors or directors start to be accountable to some of the lower level data in the model and have it be a transformational change that happens over 12 to 24 months. Where you make progress consistently like that is from my perspective, from a mature company, the only way to do it. And I think people significantly undervalue how much impact you can make. Just when five people on your executive team have this data at their fingertips, you can make massive impact just at that level.
- [49:33]
C
All right, we're gonna go get one more in from Charlie because he's impatiently waiting.
- [49:39]
G
All right, well, thanks, Sydney. Thanks, Chris. And just wanted to maybe take us down into the. Didn't mean to take us down to the tactics, but Chris, you've been mentioning reporting across the revenue bowtie funnel, the horizontal funnel. And I know with Passetto you have a custom object that can capture a number of things. Are you aware of standard properties in Salesforce that can allow you to look at days and stage time metric across the funnel as you want to see how long did it take to. For each opportunity. And I know you can do that with snapshots, I know you can do that with custom objects, but just wanted to see if there's any standard approach to be able to look at time across the funnel and what you do at Passetto that allows you to have this visibility perfect.
- [50:31]
B
So at a general level, the way to determine the time between two things happening is to know what time something started and then what time something ended. Right. And then, then you have the start and the end and the time between the two steps. Right. So that requires you to stamp custom data of when it entered stage two, when it entered stage three, when the SDR followed up, when the SLA was met, when they, whatever the data stamp that you need. And the reality is that basically no company is stamping that level of data. Maybe 10% of companies have the sophistication that they do that intelligently and have done it where they have a lot of historical data. So basically all they have is opportunity created. Maybe they have a forecasted pipeline date and then they have a, a closed one or a close date. So that's one part is stamping the data. And then it's easy to use calculated properties or a SAS tool to calculate or a BI tool to calculate the difference between those. The second thing is that when the data is spread out between a lead, a contact, an opportunity, an account that oftentimes you don't have full visibility because it's spread out over a bunch of disconnected data and objects. You can't actually calculate the time between when the SDR followed up and some other data point that you have, because one data point is reported on the lead object and the other data point is reported on the opportunity object. And when you try to connect that at scale, it becomes very complex and dysfunctional. And so there's two key components. Date stamping is one of them. And then the real point of using a custom object is to connect the entire go to market or factory process from start to finish that currently gets spread out across four to eight different Salesforce objects.
- [52:11]
G
Okay, good. Yeah, that's. I thought. I didn't think there was an easy way to do that. I'm familiar with snapshotting and being able to go back in time and report on those changes in status, but it's hard. So. Thank you.
- [52:24]
B
Yes. And we've spent a lot of time looking at the Salesforce type of history reports and using SQL or some type of other software to be able to process through all those state dage. State changes. The problem is if you ever change one of your stages, the historical data is totally messed up if you ever make one stage change. So it used to be stage two was meeting book, but then all of a sudden stage two became meeting sat four quarters ago. And then you go and run that analysis and things have changed. Or you introduce stage zero at some point. Any change to that because all you have is a bunch of random numbers that are reflective of the different stages. So any historical change to the sales process or if something moves forward or skips a stage or moves backward creates all these different challenges. Not to analyze one deal, but when you do it at scale automatically, it creates a lot of data integrity issues. So the real way is to have the foresight to realize I'm going to need this data, or to have a data architecture that tells you you're going to need all this data and then implement exactly what you need so that in six months when you need it, you. You have it. Yeah.
- [53:31]
G
All right, thanks.
- [53:32]
B
Cool. Thanks for being here. Again. Appreciate you, repeat visitor, just like Nancy and David and some other ones. Appreciate you being here. Casper as well. Cool. Everyone, we're coming up on time. Action packed episode. A lot of hot takes in here. If you have any thoughts around some of those things or you have your own perspective that you want to share in private, I invite that type of stuff. Shoot me a DM on LinkedIn. We'd love to hear what you thought. Something that you disagreed with, something that I could learn from. So with all that, I appreciate y' all being here. We'll be back here next Tuesday with David Spitz at 12pm Central. Thanks, everyone. See you. Bye.
- [54:21]
C
Sam.