Metrics that Matter to the GTM Executive Team “Chief Revenue Officer Edition”

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Go-to-Market is the latest, most popular term for the strategy, organizations, and processes encompassing the customer lifecycle. This includes Customer Acquisition, Customer Retention, and Customer Expansion.  

I still remember when I first started talking about “Revenue Operations'' and founded RevOps Squared in 2008. The “way to early” concept had the same goal as the current GTM label, which was to enhance alignment across the Marketing, Sales and Services organizations.  In fact, my primary goal of founding RevOps Squared (not Benchmarkit) was to use Key Performance Indicators (KPIs) and metrics as shared goals across the three GTM functions to create alignment and dare I even say, integration of the functions responsible for optimizing revenue across the Customer Journey.

Over the past three weeks, Dave Kellogg, my co-host on the SaaS Talk ™ with the Metrics Brothers podcast, discussed and debated the top metrics for the Chief Revenue Officer, Chief Marketing Officer and Chief Customer Officer in a B2B SaaS company. 

I thought the Top Five CRO Metrics would be a good place to start.

Chief Revenue Officer: Top Five Performance Metrics

The evolution of the Chief Revenue Officer (CRO) over the past few years has been met with a wide variety of perspectives, responsibilities, role definitions and organizational structures.  If we are being honest, the majority of CROs are primarily responsible for the Sales organization (54% of the time). The CRO sometimes has responsibility for Marketing (18%) and Customer Success (12%) but not in the majority of B2B SaaS companies.

For the purpose of this edition of the SaaS Barometer newsletter, the CRO has responsibility, and goals (metrics) that span across the customer acquisition, retention and expansion processes.  This statement holds true regardless of the specific organizations under the Chief Revenue Officer's (CRO) purview. As a key member of the executive team, the CRO's primary goal is to boost the overall enterprise value of the company.

#1 CRO Metric: New and Expansion ARR Bookings (Actuals vs Plan)

Let’s face it, if you are a CRO, the top criteria to keep your role is meeting the revenue (bookings) plan. I called out bookings, because most sales organizations are responsible for ARR bookings, and the GAAP revenue is a result of the bookings value over the revenue recognition period. 

Some will argue the CRO owns holistic ARR growth, though I consider the impact of ARR churn and down-sells as a discrete, separate responsibility and thus the resultant Net New ARR growth metric should be viewed independently.

#2 CRO Metric: Pipeline Performance

With the premise that the CRO owns or at least shares responsibility for the entire customer lifecycle, pipeline is a top priority focus regardless of where the pipeline comes from.

Pipeline performance is impacted by multiple variables, and as such, the primary metrics for pipeline performance include multiple inputs that I segment into three discrete categories: 

1) Pipeline Generation 

2) Pipeline Conversion 

3) Pipeline Return on Investment

Here is a deep dive into the primary metrics for each segment.

Pipeline Generation:

• Total Pipeline Generated (New and Expansion)New ARR Pipeline Generated (# Opportunities and $)Expansion ARR Pipeline Generated (# Opportunities and $)
• Total Pipeline Generation by SourceInbound MarketingOutbound Sales DevelopmentAccount ExecutivesPartners/ChannelCustomer Success (Expansion)

Pipeline Conversion:

• Pipeline Coverage Ratio
• Stage by Stage Pipeline Conversion (by source)Qualified Lead to Sales Qualified Opportunity (SQO)SQO to Closed-Won (by stage)

Pipeline ROI:

• Cost per Sales Qualified Opportunity (Total and by source)
• Cost per Dollar of Sales Qualified Pipeline (Total and by source)
• Cost per Closed-Won Opportunity (Total and by source)
• Cost per Dollar of Closed-Won ARR (Total and by source)

#3 CRO Metric: Net Revenue Retention

Aligned with the CRO being responsible for the entire customer journey,  Net Revenue Retention (NRR) is the ultimate compound metric. NRR measures the amount of revenue generated by a customer cohort in the current annual period versus the previous annual period.

Effectively, NRR measures how a cohort of customers grows on an annual basis, even while factoring in the ARR impact of churn and down-sells in addition to organic expansion, cross-sells and up-sells.

Best in class companies  will have a NRR of ~120% or greater. This says that a company with $20M ARR at the end of the previous fiscal year can forecast that the same cohort of customers will have $24M ARR at the end of the fiscal year.  Any growth from new customer acquisition will be in addition to the $24M ARR generated by existing customers.

If you would like to learn more about calculating Net Revenue Retention – you can visit the SaaS Metrics Standards Board NRR standard by clicking here.

#4 CRO Metric: CAC Ratio

Anyone who follows me on LinkedIn knows that my favorite revenue growth efficiency metric is the CAC Ratio.  The high-level definition of the CAC Ratio is the amount of Sales and Marketing Expense required to generate one dollar ($1) of new plus expansion ARR:   

One of the advantages of the CAC Ratio over other revenue growth efficiency metrics including Sales Efficiency or SaaS Magic Number is that it does not factor in churn or down-sells – thus providing more granular insight into the cost of acquiring and expanding ARR.

The CAC Ratio has multiple versions, that allow a CRO to understand how much Sales and Marketing Expense is required to acquire both a dollar of ARR from a new logo customer (New CAC Ratio) OR expand a dollar of ARR from existing customers (Expansion CAC Ratio).

If you would like to learn more about calculating the CAC Ratio - visit the SaaS Metrics Standards Board CAC Ratio standard by clicking here.

#5: CRO Metric: Customer Lifetime Value to CAC Ratio

This one is my wild card metric for a CRO, that many will say is a metric for the CEO and CFO.  I select this as the #5 CRO metric because it combines both customer lifetime value which requires good customer retention and expansion performance, while also measuring it against the investment required to acquire a new customer and the associated ARR.

The primary reason I include the CLTV:CAC Ratio as a top five CRO metric is that at the end of the day, I believe that a world class CRO thinks and acts more like an owner of a business, than purely being focused on revenue growth at the exclusion of efficient, profitable enterprise value creating revenue growth.  I use the CLTV:CAC ratio metric to highlight the point.

If a company has a CLTV:CAC Ratio of 4X, with a customer lifetime value of $400,000 it indicates a Customer Acquisition Cost of $100,000. If we use a fairly standard Gross Revenue Retention Rate of 85% (equal to an ARR Churn Rate of 15%), it indicates that an average customer will be retained for 6.67 years.  

What investor would not be happy with an average annual rate of return ~40%?

CRO Metrics are not the same as metrics for a VP Sales!!!

By now, you may be asking what about sales metrics like Win Rate, Average Contract Value, Quota Productivity and Sales Cycle time?  The reason I do not include those important, leading indicator Sales metrics is that I do not believe a Chief Revenue Officer should be measured or incentivized as a SVP or VP of Sales.  Yes, Sales metrics should be measured, and the CRO should understand how each of those Sales metrics impact their high level, outcome metrics that directly create Enterprise Value

If the Chief Revenue Officer is being treated, measured and/or acting primarily like a Vice President of Sales, then they are a CRO in title only. If the CRO in your company is really a VP Sales, the above TOP 5 CRO metrics are not aligned with the role.

A clear theme in this newsletter is my strong belief that every member of the Go-to-Market executive leadership team should be aligned with the key performance metrics that the CEO and CFO present to the Board of Directors and investors, as these have a direct and significant impact. 

Achieving company-level goals, such as New ARR, Expansion ARR, CAC Payback Period, Net Revenue Retention, and CAC Ratio, necessitates alignment, coordination, and cross-functional execution across the GTM executive team. These goals are most effectively met when every GTM stakeholder takes shared responsibility for reaching these targets,

Next week’s edition of the SaaS Barometer Newsletter will focus on the top five metrics that matter to a Chief Marketing Officer.  

For the love of SaaS Metrics!!!

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