There is so much data available nowadays. It’s easy to drown yourself in the options of what you can measure and report on. In this article, I want to guide you - the person responsible for your company's growth and commercial success - and show you the metrics and statistics that I have found to be the most important for someone in your role.
A word of caution
I want to start this article with two disclaimers.
First: not everything of value can be labelled with value. In the world of (digital) marketing, there might be too much focus on measurable elements. Lots of work is valuable but will have a more indirect impact on your success. For example, your brand identity is valuable, but can you put an accurate number on it? Probably not, and that doesn’t matter – it’s valuable, nonetheless.
Secondly, in this blog, I’m focussing on company-centric measurements. While important, they should never overshadow your customer-centric measurements. In his article, Anders details the importance of customer-centric measurements and introduces Customer Performance Indicators (CPIs). Please read his article for context: Customer satisfaction: What is a CPI?
Why measurement matters
A central part of running a successful commercial strategy is, of course, tracking metrics and measuring your progress. This is crucial for several reasons:
- It helps you set clear goals
- It allows you to identify problems more quickly and pinpoint causes more accurately.
- It becomes easier to communicate with team members and highlight issues
- It allows you to prove success more clearly to management and others in the company
- It helps you plan and decide on future actions with more clarity and certainty
This blog will be divided into measuring pipeline success and measuring commercial health. The pipeline success focuses more on the ‘quick’ metrics that you look at on a daily/weekly basis to answer that things are still going according to plan. We could call these operational metrics or metrics to measure success on a tactical level. The parts under ‘commercial health’ go more towards a strategic level; these are not the metrics you would look at daily, but calculating this quarterly would be very beneficial.
Measuring pipeline success
Let’s start with the pipeline measurements. To ensure a predictable pipeline, it’s important to closely understand why customers are doing what they are doing at every stage of the buyer’s journey. The only way to gain this kind of understanding and awareness is by diligently measuring all the relevant metrics.
Here are some of the most important metrics to track as part of your data-driven commercial strategy.
- Revenue. This is perhaps the simplest metric and arguably the most important. It simply refers, of course, to the total income generated by your activities for the business.
- Average deal size. This refers to the number of money customers typically spend on your product or service.
- Pipeline value. This is the total combined value of every opportunity in the pipeline at a given time. Although this can be a useful metric, it’s essential to be consistent and distinguish between qualified leads and those who are unlikely to become customers.
- Close-ratio. What percentage of sales opportunities are closed? A low, close-ratio means high customer churn and indicates a problem.
- Sales velocity. This refers to how fast leads move through your pipeline. It helps you determine how much revenue you can expect to generate over a specific period. Sales velocity is calculated by multiplying the number of opportunities, average deal value, and win rate. Divide this by the average length of your sales cycle, and you’re left with your sales velocity.
- The conversion rate between lifecycle stages. Lifecycle stages refer to where a lead currently is in their buying journey. For example, ‘Lead’ is one stage, another might be ‘sales qualified lead,’ and another would be ‘customer.’ The conversion rate between lifecycles helps illustrate how many leads are progressing from one given stage to the next and helps identify bottlenecks and problem areas.
- Customer satisfaction and loyalty. Although less empirical than other metrics, this can still be measured through techniques like CSAT scores (asking for customer feedback in multiple areas) and Net Promoter Scores (asking customers if they’d recommend your product to a friend).
- Conversion rate between deal stages.
- Conversion rate between lifecycle stages.
Measuring commercial health
While the formerly mentioned metrics are more indicators for your new business growth, they say little about the health of your commercial process. It might be better to pick up your things and leave if you perform amazingly on the above metrics but lack in this area.
So, what are the key metrics to look at when measuring a company’s commercial health? For me, it comes down to just two metrics: Customer Acquisition Costs (CAC) and Customer Lifetime Value (CLTV). Now while these metrics are interesting in themselves, the statistics you can derive from them are even more valuable: M-CAC: S-CAC and CLTV: CAC. Let me explain.
First, let’s investigate the two metrics:
- Customer Acquisition Costs (CAC)
Your CAC is the average amount you spend bringing in one new customer. This is calculated by adding up all your costs for marketing and sales. Ensure to include everything from salaries and the cost of external agencies to ad spend and software expenses within a given period (I find it easiest to calculate this over one year). You now have your total marketing and sales costs. The number of new customers you’ve acquired in that period should also be known. Now divide your total costs by the number of new customers you got in that period; what you’re left with is your cost per acquisition.
- Customer Lifetime Value (CLTV)
Your CLTV is the total value of a customer for your company. Here we mustn’t just think about the initial amount that a customer spends, but about the value they bring over the whole period of their relationship.
How do you calculate your CLTV?
- To calculate your CLTV, you first want to know your customers’ lifetime (how long are they a customer). If this is difficult, try to look at the total number of customers you had in a given year. How many of those customers cancelled? By dividing the total amount of customers that year, by the number of customers that churned in that year, you get the average number of years a customer stays a customer. Now you have your average customer lifetime.
- Secondly, we want to look at the average value of a customer in a year. The simplest way to calculate this is by finding the average purchase value and multiplying it by that customer's number of purchases made in a year.
- Now that you have both the lifetime and average value per year, just multiple, and you have your CLTV.
- If you have a significant difference in the initial and following purchases, it might be worth taking a slightly different approach. For example, with enterprise software, there is usually a significant investment at the start of the implementation. There is only a continued service level agreement purchased in the following years. In this case, you can separate what the customer spends in the first year and then add what is paid the next year – multiplied by the number of years a customer relationship continues.
Now let’s look further into how we can use these two metrics (CAC and CLTV) to create precious insights.
This statistic tells you the ratio between marketing investments (M-CAC) and sales investments (S-CAC) on getting in a new customer.
How to interpret this? Well, if you have a very complex and lengthy sales process, your ratio might be 1:9. If you self-service or low-touch sales process, this number might get closer to 3:1. But if your idea is that you have a low-touch sales process, but your ratio ends up being 1:4, you know that something is going wrong, and you might be over-investing in sales.
Also, seeing the changes over time in this ratio is very interesting. Maybe you see the M-CAC increase from your desired number after you’ve adopted an inbound approach. Does this mean that you are spending too much on marketing? It could mean this, but also, it could mean that sales have been delivering higher-quality leads to sales, and sales were able to save on their part of the Customer Acquisition Costs. This means that it is also essential to understand the broader context of the organisation when looking at this number and explaining why changes happen more powerful than knowing that they happened.
This statistic tells you the ratio between your Customer Lifetime Value and Customer Acquisition Costs.
It wouldn't be profitable if you spent too much on acquiring new customers (for example, 1:1). So, a higher ratio is always better? No, when the ratio is too high, you might want to spend more on Sales and Marketing to grow faster because you are restraining your growth by under-spending and making life easy for your competition. To give some context, investors in growing SaaS companies mainly look for a ratio of about 3:1.
If you want to dive deeper into this, it might be interesting to look at the segments you serve and calculate the CLTV:CAC ratio for each segment.
Interested in what your CLTV, M-CAC, S-CAC, and CAC are? To help you, we’ve created this simple calculator that you can use for free. Just put in some basic figures about the size of your customer base and the customers' behaviour and you'll get the figures you need.
Setting and tracking the right metrics will allow you to understand how your pipeline, commercial strategy, and overall business perform. It will enable you and your team to make evidence-based decisions to improve consistently, discover areas that require improvement and help make the right moves.