A couple months ago, I came up with “A Sales Operations Calculator To Help SaaS Businesses Focus” when faced with the challenge of helping a business zero in on the sales operations numbers that actually mattered to them. As a result, I created a visualization around it to make life easier for the operations managers trying to convince their bosses to pay attention, or the account executives struggling to figure out where to focus their attention.
It turns out, as revenue generators in SaaS, we all actually operate within this specific set of four numbers, even if we don’t proactively think about how these four play off of each other. Though I’m not the first to write about them, here’s my take and calculator on the four most important numbers that matter to ops managers, account executives and VP’s of sales alike, while forecasting sales and achieving your ultimate goal (revenue):
- Number of Opportunities In Your Pipeline
- Average Contract Value
- Deal Cycle Length
- Close Rate
While the concept of how these work together to affect your bottom line is simple once highlighted, the actual execution against these metrics can be difficult, especially early on. You can hit your goal without all four in harmony, but it’s much less stressful when you plan for each of them and balance them together. So let’s break it down.
Number of Opportunities in Your Pipeline
This is not the number of leads tagged under your name, nor is it the number of people you’ve reached out to about your product, or even the number of prospects that have said “Sure, that sounds interesting,” after one interaction (ironically, most people know that this reaction translates to “that’s not really that interesting”). This is the number of qualified opportunities you have created, that you are now actively working in your pipeline. If you don’t have a deal qualification framework, you can stop here before attempting to boost this metric and figure that out first. Otherwise, proceed.
Spoiler alert: before you optimize your top of funnel and pump more qualified deals into your pipeline, understand that this metric tends to have an inverse relationship with your close rate, at least after a certain point. Mature sellers (and organizations) need to understand the maximum numbers of deals they can handle in their pipeline. Why? Because past a certain point, it starts to adversely affect the quality of interactions and value an individual can dedicate to bringing each opportunity in their pipeline until it closes successfully. Furthermore, understanding your “pipeline barometer,” as I call it, allows you to dedicate more time to prospecting, lead generation, or marketing when your opportunities number feels low, or more effort to tending to your pipeline, hiring your next seller, or opening up procedural bottlenecks when you’re continually maxing out your pipeline. Which leads us to our next pillar of the big four metrics.
What percentage of deals in your pipeline close as wins? That’s this number. Mistakenly, I believe, people always think a very high close rate means they’re very successful. Unless the number of deals in your pipeline is maxed out, this is only somewhat true. Is it better for your bottom line to have a pipeline of 5 deals and a close rate of 80% or a pipeline of 20 deals and a close rate of 50% (assuming the dollar amount attached to the deal is the same)? Remember, this number sits like a finicky sibling in the family tree of sales ops metrics next to the number of opportunities in the pipeline. If you have fewer deals to concentrate on, your close rate will likely go up as you dedicate more interactions that bring value to your clients on those deals, but you won’t necessarily increase your bottom line. So with that in mind, think about how you qualify deals to get there in the first place, and the valuable interactions you take (demos, trials, customized insights provided to address client pain) during your deal cycle to increase your chances of closing the deals.
If your close rate is too high without a full pipeline, then you may actually be disqualifying potentially good deals or not working hard enough to bring them in. If your close rate is too low, you’re bringing bad deals into your pipeline, which is a waste of everyone’s time. Alternatively, there may also be something else wrong with how you’re approaching your deals, in which case, I would examine your CRM to see where deals drop out of your funnel and work on fixing that step in the process. Ultimately, I actually usually aim for somewhere between a 40-60% close rate to make sure all of these things are in balance. On to the next one.
Deal Cycle Length
Deal cycle length is the dark horse of metrics you should work on when it comes to increasing your overall revenue. Confucius said “It does not matter how slowly you go as long as you do not stop,” and while that’s one of my favorite quotes for most things, it’s a difficult pill to swallow for a business with burn rates, first mover advantages, and an average sales rep tenure of just over two years. Many people will justify going slowly by saying, “well who cares if I close that $200k deal this month vs two months from now. It’s recurring revenue and the important thing is that I just close it eventually (assuming it’s not the end of month or quarter).” After the gut-wrenching feeling in your sales ops manager’s stomach over this statement passes, they should illustrate that simply shaving days off your average deal cycle can increase the total revenue you bring in for the business and yourself astronomically.
This is due to the first two metrics we discussed. The quicker you can move deals out, the quicker you can move fresh deals in without overburdening yourself and decreasing your close rate due to lack of quality maintenance of your pipeline. This comes down to having a tight process of two way communication with your opportunities (use sales automation tools when appropriate, a system of tasks in your CRM, scheduled pipeline reviews to strategize on where to push the needle, etc), and continually creating compelling, valuable reasons with your buyers to move the deal forward (re-aligning yourself with your customer’s priorities, highlighting ROI that’s being lost everyday they’re not using a solution like yours, providing strategic concessions on the deal in exchange for moving faster, etc). If deal cycle length is the “dark horse,” than this next one is the “red herring” which distracts us from perfecting the others.
Average Contract Value (ACV)
As humans, we psychologically have an eye for shiny objects, so don’t be too hard on yourself if a big ticket deal is your shiny object. People love to focus on individual deals that bring in six or seven figures and don’t get me wrong, they’re very important to your business. But what if you set a team goal around increasing ACV by just 10% while also marginally improving your close rate, deal cycle length, and number of deals in your pipeline? As one example, this is often a reality that mature businesses face when they decide to start addressing an SMB market more intentionally, while creating a scalable machine around it. It can be extremely powerful. I’m not discounting larger deals, and in reality, they’re usually easier to service on a dollar for dollar basis down the line, but what I am saying is, always think about how ACV interacts with the bigger picture of your key sales metrics…your time and effort to optimize it can sometimes be better spent elsewhere.
With that said, to increase this key metric on its own, figure out the behavior of how your buyer’s purchase and their business priorities and further tailor your offering to that. Additionally, put strategies in motion to bring together key stakeholders on the customers end (organizational mapping), and perhaps specialize your reps to focus on different segments of ACV which warrant different interactions. Also, for the founders, treat your first 100 customers like gold and listen very carefully as to what they want (you don’t always have to give it to them, but listen). They have a tendency to guide your solution towards more of their spend, which is hopefully allocated towards more of their business problem, and they will advocate for you to other customers in exchange for your ears. That’s one easier way to get more deals at a higher ACV.
Bringing it All Together for Our Calculator
It should go without saying that I believe it’s important to always track these four numbers in tandem, on an individual and team-wide basis. For the business at large though, you might want to set goals around optimizing each of them on top of your overall revenue number. You should also look at these honestly when hiring new revenue-based team members, raising your next round, or choosing what product line to double down on developing, because they all underpin your bottom line.
In summary, I started off this post by talking about the calculator I set out to create to guide new sales teams on how to get rid of the noise and focus on what matters. I’ll give a shout out to TAS Group who have a solid version of this calculator and thoughts on this as well – check them out. When you put all of these things together you have a tightly packaged sensitivity calculator that helps you optimize your sales ops, hiring, and more. If you’d like a copy of this for your sales operations planning, simply comment “Yes” on this LinkedIn post that you’d like a copy and I’d be happy to send it to you. You can see it here:
If you liked “A Sales Operations Calculator to Help SaaS Businesses Focus” and want more content on how to scale your startup, check out other relevant blog posts from the Bowery Capital Acceleration Team.