Over the last twenty years, SaaS investors and executives alike have done a great job at defining, evolving and managing to Key “Enterprise Valuation” Indicators such as Customer Acquisition Cost (CAC), Customer Acquisition Cost Ratio, Customer Lifetime Value (CLTV), CMRR/ARR, Gross Margin, Gross and Net Churn, and of course, the “Rule of 40”.
Several industries influencers, such as Pacific Crest (Key Bank Capital Markets), OpenView, Insight Partners and KPMG, to name just a few, have done an admirable job of conducting annual research to highlight “Enterprise Valuation Metrics” benchmarks that CEO’s and CFO’s use to evaluate their own company financial performance. CEO’s and CFO’s ensure that every investor presentation, board deck and internal KPI dashboard highlight these core metrics to employees as a critical component of their financial “North Star”, and that their executive team can align their department Key Performance Indicators and objectives.
This is where one major challenge begins, especially as it relates to the Customer Lifecycle including Customer Acquisition, Customer Expansion and Customer Retention metrics and Key Performance Indicators. In the majority of SaaS companies, especially those under $50M ARR, each department establishes departmental Key Performance Indicators specific to their functional responsibility, in an inherently cross functional process. As a result, you see KPI’s and dashboards/reports from marketing, sales and customer success that more often than not only address their portion of the process, and often become the basis for cross functional friction and misalignment. Think about the all too common issue of sales saying that lead quality is low and/or marketing highlighting that sales is not doing a good job of following up and/or converting leads into opportunities and closed deals!
Moreover, many KPI’s are often based upon tribal knowledge and/or experiences of the functional executive responsible for the function, and not based upon external industry benchmarks for “like peer groups” nor do they represent all KPI’s that impact CAC and CLTV. To highlight the challenge at another level, consider a $10M ARR company, selling a point solution to marketing at a price point of $35K ACV with a typical 1 Year Subscription agreement and a $75M ARR company selling a platform to I.T. at a price point of $125K ACV with a typical 3 Year Subscription agreement, which will have very different KPI benchmarks for operational metrics such as lead conversion rates, opportunity source(s), sales pipeline performance, sales productivity, close rates, etc..
The introduction of the Revenue Operations role is a great step in gaining departmental alignment and establishing common metrics/KPI’s (and instrumentation of said measurements which is topic for another article) across functions, focused on the shared outcomes leading to improved CAC, CAC ratio, CLTV and the other key enterprise valuation metrics. Unfortunately, that only addresses internal alignment challenges, and does not allow for bench marking internal operational efficacy as measured against external “Like Peer Group” benchmarks. A common challenge to conduct external bench marking, is where to find industry benchmarks for those cross functional, operational processes that are the primary inputs to the Enterprise Valuation metrics that every CEO, CFO and investor use to measure and value a company?
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