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If you're not using metrics, you're flying blind. Metrics are the measures by which you can understand the underlying activity of a business. With them, you can make business decisions, identify problem areas, and create a strategic direction.
Be wary though. While metrics never lie, their interpretation can be incorrect. For example, let's say revenue grew 100% in the last 6 months. Sounds great, right? But, problem is, there is a line of your business that pays out 75% of proceeds to the referral partner. And almost all of the new revenue you got in the last 6 months came through that partner. So without understanding the underlying makeup of how revenue is calculated, you think you grew revenue 100% which you sort of did, but in reality, you really only grew ~25%.
Revenue Operations professionals are the owners of revenue metrics. They know the ins and outs of how they are calculated. They report them out to broader teams. They conduct analyses on the underlying reasons why metrics look one way or another.
With that in mind, let's discuss which metrics you need to be tracking.
The Most Important Metric
Revenue
Revenue is the most important metric. It needs to be tracked. Everywhere. If there is a team that is supposed to be growing revenue and they are not reporting revenue, a strong question of why has to be asked.
Besides just reporting a broad revenue metric, your leaders and peers should also be able to filter by department, sales team, representative, and manager. This way people can track progress and know how to diagnose exactly who and what teams are performing and who are now.
If your product or service is subscription based, typically revenue is referred to as annual recurring revenue (ARR).
The Next Two Most Important Metrics
Customer Acquisition Cost
What it is: Customer Acquisition Cost (CAC) is the amount of marketing and sales spend necessary to acquire a customer. To calculate, add up everything spent over the past 12 months by marketing and sales including salaries, technology, events, demand gen campaigns, events, etc. Literally everything. Then take that number and divide it by the total number of customers you signed in the past 12 months. The result is your Customer Acquisition Cost.
Why it matters: When you combine Customer Acquisition Cost with Customer Lifetime Value (below), you can understand how much gross margin you are making per customer. This is essential for your revenue funnel because it is the backbone for remaining profitable as a business. If you are spending more to acquire a customer than how much you will earn from that customer, you will never be profitable. Likewise if acquiring a customer is cheap and you make that money back very quickly, you will be exceptionally profitable.
Customer Lifetime Value
What it is: Customer Lifetime Value (CLV or LTV) measures the expected revenue from a client over the lifetime of the business relationship. It is calculated by taking the average revenue from one year with a client and multiplying by the number of years a client typically stays as a client. For example, if a client signs for $10,000 per year and stays for 3 years, then their Customer Lifetime Value is $30,000.
In practice, calculating CLV can be much more difficult. If, for example, you have different pricing tiers, you'll want to understand the difference between CLV in one pricing tier versus another. There are also many instances where revenue can change over years, certain events cause increased churn, or other confounding variables occur. We recommend calculating the average customer lifespan by taking the sum of your entire list of customers and dividing by the total number of customers.
Why it matters: When you combine CLV with CAC, you can understand your expected gross margin per customer and project out profitability. If your CLV is higher than CAC, you'll know you can repeat the process and expect to make money in the future. You can also understand how long it takes to recoup your losses from acquiring that customer. If the payback period is less than 12 months, then you know that you'll need to sacrifice some money today to be paid back in the future.
Metrics for the Entire Revenue Team
Funnel Metrics
What it is: Funnel metrics are a broad grouping of metrics that encompass the count and potential revenue of each stage in the revenue funnel. Typically, this total count and potential revenue (also called pipeline) for leads generated, opportunities created, proposals sent, and closed won deals.
Why it matters: Revenue relies on potential customers (aka prospects) moving through the funnel. If one is optimizing revenue, then optimizing for aggregate count and pipeline for every stage in the funnel is essential.
Funnel Conversion Rates
What it is: Funnel conversion rates track the percentage of prospects that move from one stage of the funnel to another. Typically this will include website visitors to leads, leads to demos, demos to proposals, and proposals to clients. But it will depend on the exact business and stages that are decided to track.
Why it matters: Conversion rates are essential to understand how to build backward toward your revenue target. For example, if an average client brings in $10k and your goal is $1M, then you know you need 100 clients. And if you know that 1% of website visitors convert to clients, then you'll need to get 10,000 website visitors. It's much better than starting from a place of uncertainty.
Also, if you want to improve revenue, understanding where conversion rates are failing and the easiest opportunities for improvement will boost your overall funnel and give you a better opportunity to increase revenue. For example, if you 2x the conversion of proposals to closed won, that will 2x your revenue with all else equal.
Unweighted and Weighted Pipeline
What it is: Unweighted pipeline is the total dollar amount of open opportunities. Weighted pipeline is the total dollar amount of open opportunities multiplied by the probability of closing. To calculate weighted pipeline, take each open opportunity's revenue and multiply it by the probability that it will close based on the stage it is at. Then take the sum of each weighted opportunity.
Unweighted pipeline shows the hypothetical revenue if every deal in the pipeline were closed. Weighted pipeline shows the likely resulting revenue from the pipeline today.
Why it matters: A robust pipeline is essential for converting opportunities to revenue. If there are not enough deals (or not enough revenue) in the pipeline, then it will be impossible to hit revenue targets. Looking at weighted pipeline is an easy way to forecast what revenue is expected.
Forecast Accuracy
What it is: Forecast accuracy is a comparison of a previously projected funnel metric (like revenue) compared to the actual result. To calculate forecast accuracy, track what is anticipated and then do a "look back" where you compare what was anticipated versus what actually happened.
Why it matters: Forecasts are essential for projecting revenue and planning. If forecasting accuracy is good then planning is relatively more straightforward. However, if forecasting is inaccurate then planning is more difficult because plans could be executed perfectly but the ultimate metric is still missed.
SaaS Magic Number
What it is: The SaaS Magic Number is a metric to measure sales efficiency. It measures the efficiency of a dollar spent on sales and marketing toward revenue growth. It is calculated by taking (Current Quarter's Revenue - Previous Quarter's Revenue) x 4, and dividing that by the Previous Quarter's Sales & Marketing Expenses.
Why it matters: The SaaS Magic Number is a great indicator of whether you are ready to invest in sales and marketing to grow the business. If the magic number is below .5, then the business is not ready to invest in sales and marketing because every dollar spent is leading to less than a dollar of revenue. If the SaaS Magic Number is between .5 and .75, the company should evaluate because every dollar spent is not currently returning a dollar in revenue, but if the average customer lifespan is long or there are upsell opportunities, the revenue will more than offset the cost. If the SaaS Magic Number is greater than .75, it is commonly accepted that the company should invest more in sales and marketing to increase revenue.
Net Promoter Score
What it is: Net Promoter Score (NPS) measures the customer experience of your brand. It is calculated by asking "On a scale of 1-10, how likely are you to recommend this product to a friend or colleague?" 9-10 are promoters and each count for 1 point. 7-8 are passives and each count as 0 points. 0-6 are detractors and each count for -1 points. Take the sum of all points and divide by the sum of all respondents to get NPS. The range of possible NPS scores is from -100 to +100.
Why it matters: NPS is widely considered the best metric to understand customer experience. NPS varies by industry, but if you are at 50+ then customers are largely satisfied with your product. According to Survey Monkey, the average NPS score is 32.
Marketing Operations-Specific Metrics
Marketing Generated Leads
What it is: Marketing generated leads refers to the number of Marketing Qualified Leads (MQLs) created by marketing. Leads are prospects who show an interest in products or services. Typically this is by taking an action like downloading a whitepaper, scheduling a demo, or signing up for a free trial.
Why it matters: The number one target of marketing should be to create quality leads efficiently since that is the number one way marketing can influence revenue. The aggregate count of leads is one component of that objective.
Pipeline Generated
What it is: Pipeline generated refers to the total potential revenue created from marketing activities.
Why it matters: Whereas leads generated refers to the total count of leads, pipeline generated shows the exact potential revenue created by marketing. At the end of the day, marketing is optimizing for revenue.
Marketing Qualified Lead (MQL) to Sales Qualified Lead (SQL) Rate
What it is: The rate at which MQLs convert to SQLs. Marketing qualified leads (MQLs) face a lower barrier to qualification than sales qualified leads (SQLs). Generally, a marketing lead is qualified by taking some action toward showing interest in the product like signing up for a demo. Sales qualified leads, by contrast, must meet a series of more stringent qualifications, usually known as budget, authority, need, and timing (BANT).
Why it matters: MQL to SQL conversion rates show the quality of leads that marketing is creating. If MQLs cannot meet the sales qualification criteria then marketing is sending low-quality leads to sales and a lot of time is being spent on prospects that are not a good fit for the product.
Cost Per Lead (CPL)
What it is: Cost per lead (CPL) measures the dollar spend to get a lead.
Why it matters: Marketing's number one goal is to create quality leads efficiently. Cost per lead measures the efficiency of acquiring leads. If CPL is high then the team is not acquiring leads efficiently.
Cost Per Click (CPC)
What it is: Cost per click (CPC) measures the dollar spend per click on an advertisement.
Why it matters: CPC is a leading metric for driving traffic to your website and product. It is one of the most important metrics for creating a sustainable top-of-the-funnel strategy.
Click Through Rate (CTR)
What it is: Click-through rate (CTR) measures the ratio of people that visit a web page through a link compared to the total amount of people who view the link on a web page, email, or advertisement.
Why it matters: CTR shows the interest of your audience. If your CTR is low (<1.5%), likely, your content is not compelling enough for them to click through.
Sales Operations-Specific Metrics
Sales Generated Leads
What it is: Sales generated leads refers to the number of leads that are created by the sales team independent of marketing.
Why it matters: Sales is responsible for outbound sales activities and generating business is a key factor. A healthy balance between sales activities and marketing activities is essential for any revenue team.
Opportunities Created
What it is: Opportunities created is the total number of new opportunities over a given period.
Why it matters: The sales team's number one objective is to convert opportunities to revenue. For the team to convert opportunities, there needs to be enough in the first place.
Pipeline Generated
What it is: Pipeline generated is the total amount of potential revenue created over a given period.
Why it matters: Similar to opportunities created, the sales team needs enough pipeline to meet their revenue targets. If there is not enough pipeline being generated, it doesn't matter how good they are at closing deals, there won't be enough revenue to hit their targets.
Activities Completed
What it is: Activities completed refers to the number of emails, calls, meetings, and all other sales-related activities that take place.
Why it matters: Actions drive results. Without making emails and calls, a team cannot generate leads or opportunities. And by extension, they won't be able to meet their revenue targets.
Average Sales Length
What it is: The average sales length measures the average amount of time from first sales contact to closed won opportunity. Average sales length can be calculated by taking the time to close for every closed won opportunity and dividing by the total number of closed won opportunities.
Why it matters: Average sales length dictates the level of effort and work needed to close a deal. If sales length is short (less than two weeks) then sales reps should not waste immense amounts of time chasing deals that extend for months. That said, if sales lengths are longer then reps will need to nurture relationships for a greater period and need support with automated outreach.
Marketing vs Sales Originated Pipeline
What it is: The ratio between potential revenue generated from marketing activities versus potential revenue generated from sales activities.
Why it matters: Both the marketing and sales teams are responsible for generating pipeline. If the relationship becomes too one-sided, then one team is not holding up their end of the bargain.
Customer Success Operations-Specific Metrics
Average Ticket Resolution Time
What it is: The average time to resolve a customer support ticket. Take the total time to solve all tickets and divide by the number of tickets to get average ticket resolution time.
Why it matters: Customers submitting tickets are generally facing a problem and have the potential to be dissatisfied with the product. If tickets are resolved under 24 hours then customers are less likely to become upset with your product.
First Contact Resolution Rate
What it is: First contact resolution rate measures the percentage of customer support tickets that are solved on the first interaction with the customer.
Why it matters: Generally, the fewer interactions with the customer, the better. Customers will be more satisfied when their tickets are solved quickly and the customer support team will spend less time per ticket.
Time to Live
What it is: The average amount of time needed for a customer to begin using the product.
Why it matters: For some companies, onboarding can be an arduous process. The faster a customer is up and running, the more likely they are to become satisfied with the product.
Average Contract Value
What it is: Average contract value (ACV) measures the average revenue per customer per year. ACV is calculated by taking ARR and dividing by the number of customers.
Why it matters: ACV is important for knowing the average customer revenue for the year to anchor toward prioritization of customers and calculating the ratios of clients to total revenue.
Net Dollar Retention
What it is: Net Dollar Retention (NDR), sometimes called Net Revenue Retention (NRR), measures how much your annual recurring revenue (ARR) or monthly recurring revenue (MRR) has grown or shrunk over time for a specific cohort of customers. It is calculated by taking the percentage change between last period's revenue and this period's revenue.
Why it matters: NDR is essential to understand how successful your business is at retaining and expanding with existing customers. If NDR is greater than 120%, typically that means the company is doing great and anything over 135% is excellent.
Churn Rate
What it is: Churn rate, most commonly known as churn, is the number of customers that cease using the product or service over a specified period.
Typically, it's the number of customers you lose from your customer base in a year though it can also be measured by month. So you take the customers you lost throughout the time period and divide by the customers you had at the beginning of the time period.
Why it matters: Churn rate shows how many customers are leaving your product. If the number is high, you will not be able to sustain your revenue base. For more, read our article on churn.
