SaaS Sales and Marketing Metrics and Conversion Benchmarks

You’re closely monitoring the impact of your sales and marketing efforts, but how do you know which numbers to really pay attention to? And after zeroing in on the important metrics, how do you judge your team’s performance? David Skok, general partner at Matrix Partners and author of startup blog For Entrepreneurs, recently sat down with OpenView to discuss several key SaaS metrics and conversion benchmarks (listen to the full interview here).

Keeping it Simple: Measuring Your Sales Efficiency

Assessing the efficiency of your sales and marketing processes is a two-step endeavor, Skok says, and it starts with breaking down the three basic stages of your funnel.

First, look at the top of the funnel to determine which channels are most effective at acquisition — getting visitors to your website, connecting with prospects at trade shows, etc. Next, examine the middle-funnel stage to find the rates at which those prospects turn into qualified leads. After that, look at the bottom of the funnel to find the percentage of opportunities that actually close.

Once you have a complete funnel breakdown, Skok says it’s time to focus on two metrics for each stage: conversion rate and the total number of prospects, tracked over time. The rate at which you turn visitors to leads to customers will help you spot leaks in your funnel. The raw totals at each stage in the funnel will also give you an idea of whether or not your marketing channels are performing more effectively as you refine your messaging and buyer personas.

Skok recommends graphing both conversion rates and total prospects at each stage to see right away where you stand.

Determining Your Sales and Marketing Needs

To land on the right marketing budget and sales team size, Skok suggests that you work backwards from your revenue target. Consider your average deal size, and that will tell you how many new customers you need to reach your revenue target.

Next, to determine how many opportunities you need to reach that number of new customers, factor in your average close rate. You can continue working backwards with this process using the conversion rates that you calculated in your funnel breakdown, until you land on the total number of new prospects you need to acquire at the top of the funnel.

After landing on the number of prospects you need, Skok says that most companies are faced with the reality that they do not have enough leads to reach their revenue target. If that’s the case, you’ll be forced to address that with more marketing. The key is to zero in on your most effective channels and lock down a proven, repeatable process to get as close as you can to your target.

The total number of prospects your company needs will also inform decisions about the size of your sales team. Look at how much an average sales rep is able to close every year to determine how many reps you need to reach your revenue target.

SaaS Conversion Benchmarks

At a high level, Skok says, there are no one-size-fits-all benchmarks, since metrics vary so greatly from company to company. Depending on your model, however, there are certain thresholds that companies should reach to ensure that they are moving in the right direction.

One example Skok provides is the conversion rate for a free trial model. “If the trial conversion rate is less than 10%, that’s a bad sign,” he says. “It’s an indication that only a tenth of the people that decided to put their time into doing a trial are finding that the product is good enough to meet their needs.” Typically, unless you’re landing closer to at least 12% – 15% chances are you’re staring at a product market fit problem.

For enterprise-focused companies like Netezza (acquired by IBM) that have a more complex sales model during which they perform a real proof of concept for a customer, then Skok expects to see a conversion rate between 80% and 85%. Short of that, he recommends examining product fit and your lead qualification process.

So, How Much Should You Spend?

Skok points out that there is no easy answer to the budget question, since every company is different. Instead, he suggests going back to the two most important metrics for a scalable sales model he discussed in a previous post: the lifetime value of your customers, and the time it takes to recover your customer acquisition costs.

“Once you strike the right balance between those two numbers, you will automatically end up in the right range of sales and marketing as a percentage of revenue,” Skok says. “And you’ll have a viable business model in the long run.”

For more on building and optimizing an effective SaaS sales and marketing machine, check out Skok’s complete guide at For Entrepeneurs.

David Skok is a five-time serial entrepreneur turned VC at Matrix Partners. Read more from David on his blog For Entrepreneurs and connect with him on Twitter @BostonVC.

 

Photo by Taylor Bennett