Funnel Metrics and Unit Economics Data that Actually Matters to your CEO with Mckay Allen
In his presentation, Mckay shares the importance of measuring funnel metrics in the progression of your business. Mckay interviewed CEOs and shares his findings of what they do and do not want to hear.
Mckay Allen is Vice President and Head of Marketing at Kenect, a technology platform designed to help you grow your business. Mckay was a news anchor for several years but has shifted gears to leading marketing teams for over 11 years.
“The easiest and quickest way to determine your brand is to sell more stuff”
“Marketers who don’t understand these metrics simply cannot be leaders”
- Mckay’s findings from interviewing CEOs of b2b SaaS companies
- Focus on generating revenue- branding comes second
- The importance of tracking funnel metrics and the effects of a lack of
Hi everybody, welcome to the Demand Gen Summit Spring of 2022 edition. This is the funnel metrics and unit economics one on one presentation data that actually matters to your CEO.
My name is Mckay and I’m the head of marketing VP of marketing at Kenect, I’m excited you’re on this presentation, we’ll try to keep this relatively short, relatively simple. I’ll probably be at 15 to 20 minutes or so. So hopefully this is useful.
First a little bit about me. I was a TV journalist for four years. That’s my background. I worked in Salt Lake City, as a TV journalist at Channel four and then also the ABC affiliate in Spokane, Washington. I was an anchor and reporter covering all sorts of news stories. One of the things I learned really, really early on was the importance of writing quickly and being able to pick a headline out and pick salient, important information out and I think that served me well in marketing. I’ve led marketing teams for about 11 years I ran marketing at a company called Convirza, which was an inc 5000 company for three out of the five years I was there was a content marketer there and then eventually became VP of Marketing, ran the marketing department then transitioned to Avanti which is an enterprise IT software player has now over a billion dollars in yearly revenue. I think when it started, we were around 200 million a year in revenue. Half of our revenue was outside the US, so we manage large teams across the world there. And then now at Kenect, which is a Deloitte fast 5000 company, a top 3% of the Inc 5000 List company. So really incredible growth.
We’re a texting platform for businesses so we allow businesses to send and receive text messages to and from their main business phone number. I’ve also consulted as a fractional CMO to other tech companies for extended periods of time. So, content marketing is my background. But I really became obsessed with metrics as my career continued. I have a real passion for trying to help marketers bridge the gap from traditional marketing metrics that marketers are so worried about, to the metrics that CEOs and boards actually care about. Married with two boys. We live outside of Salt Lake City. We do a lot of sports in our family where there are practices or games most every evening and weekend, when I’m not doing that, I like listening to podcasts and reading books about various history, US history, and world history and then hanging out with the family. That’s a little bit about me.
Okay, so in preparation for this presentation, I did some interviews with a few CEOs of SaaS b2b companies, and I should point out, basically, everything I’m going to share today is focused on b2b SaaS companies and b2b SaaS marketing. Some of this stuff may not apply to e-commerce and may not apply to also the companies that are really large. Like if you’re over 2- $3 billion in revenue, this may not be that pertinent for you, but I’m hopeful that if you’re under 100 million in ARR, that this is really valuable for you.
So, first CEO, I talked to as a SaaS company CEO of a SaaS company based in the Bay with an over $1.5 billion valuation she told me you know, most marketing leaders, most marketers are basically unfamiliar with unit economics they don’t care about the same data the CFO or CEO cares about, CEO number two is a SaaS based in Utah with a valuation over 100 million. This was a really interesting quote. “I’ve kind of lost faith in finding marketing leaders who can effectively think through unit economics and talk about them in a conversant way.” Kind of an inditing statement that this CEO has lost faith. That they can even find marketing leaders that they can talk through this stuff within a convergent way. And the third CEO is a serial startup CEO with some million in ARR. So just getting started but has done a lot of other things in his career.
Marketers misunderstand that their core job isn’t to the company is maybe 50 million in ARR. The only thing that matters is generating revenue. The word brand shouldn’t even be said until that point. Marketers talk so much about brands, that people think they don’t understand the realities of the business and I think what he’s getting at here is that marketers will get into meetings sometimes with other executives with the board and start talking about brand and start wanting to do brand surveys. The easiest and quickest way to determine your brand is to sell more stuff, up to about 50 million in ARR. His argument is and I would actually argue it’s probably higher than that. You should really be focused on generating revenue. Brand is secondary and will come as you produce more revenue.
So, these are the metrics that marketers often share in my experience. Things like social metrics, web traffic leads and things about the brand. Now, I should point out, all of these things are important. I’m not suggesting they’re not important. I’m not suggesting a marketer shouldn’t track them. What I’m suggesting is that marketers should not share them with the C suite, and such should certainly not share them in a board meeting. I wish that every marketer at every level could sit in a board meeting and understand the questions that actually mattered to the financial investors in a business. Because you would see very quickly what data matters and what does not matter to those folks.
So these are the things that I would suggest that you track, maybe talk about internally on your team, but you do not share with the CEO unless your CEO is super interested in it, of course, and certainly don’t share at the board level. So social metrics, things like likes, follow, engagements. These things do not need to be shared with the CEO. They don’t care. Web traffic. This is an important metric for you to track it’s like a red flag it’s an early indicator. This shouldn’t rarely be shared with the C suite. It is very frustrating for a head of sales or for a CEO or a CFO of marketing to come into a meeting and pound their chest about web traffic after a bad quarter. It shows a lack of self-awareness. It shows a lack of leadership from the marketing organization. So just be wary of that.
Leads- This one’s interesting because it’s tough because leads are really important, right? If you focus too much on leads, you’ll realize the leadership team doesn’t care and the board doesn’t care at all, unless it produces revenue stuff about brands. So, one of the things I do as I’ve consulted with businesses in the past, is dig in a little bit of what the current marketing leader or current marketing people want to do and what they think they should do. I had a market leader told me the other day to sub $20 million b2b SaaS. The first thing he wanted to do was hire a consultant and do a brand study. I honestly thought he was joking. He wasn’t joking. The best way to waste money at a sub $20 million b2b SaaS is to hire a consultant to do a brand study. Instead, all you need to do is continue to market, fail fast, learn fast. You will learn more about your brand on the floor of a trade show, or by sending emails about a webinar per month than you will by hiring a consultant to do a brand study.
And then some marketers I think, share things like CPL row as at the executive level. These are important pieces of data especially if you’re doing a lot of PPC. These are important metrics, but there is no need to share that information at that level, unless of course they’re asking for it.
So, let’s talk about funnel metrics first. Now, these are relatively simple metrics that can tell you how effective and efficient your funnel is from the top of the funnel to the close of the deal. I call them funnel metrics. I’ve heard other people call them different things. I think funnel metrics make sense because their metrics to track the effectiveness of your funnel. But I’m routinely pretty shocked by the marketers who don’t track this or who are unaware of this data. As I have interviewed marketing leaders over my career, people who want to get into a director level role, or even CEOs who want to hire a marketing leader, they don’t know this data and they are really critical to know, and I’ll talk about that in the next leg like why these matter.
But here’s the numbers that I think matter: Percentage of contacts that result in a set demo. You need to know how many calls, chats, text whatever your method is that result in a set demo, in other words is your STRS making 10 calls to set one demo where they make a 50. That big difference has dramatic impacts and implications for how much money you get to spend on marketing. The percentage of set demos that result in a completed demo. It’s a really simple metric, but a lot of businesses don’t track that. The percentage of completed demos that result in pipeline or book deals at SMB SaaS, so their deal size is relatively small. We sell the small businesses, so we don’t really track pipeline at the end the traditional way we track from completed demos to close deals.
Having that metric is really important. And then the percentage of close rate either from a demo complete or from pipeline, you have to track this data, every single one of these in order to understand how efficient the funnel is because if you don’t, you’re not going to be able to create a work backwards equation that’s going to say okay, if we need 100 deals this quarter is usually a nice round number. We need 1000 leads. That’s really important to know that data and I’m consistently shocked at the marketers who are either unaware of this or don’t track it at all. Why do these funnel metrics matter? Because they can help you answer really important questions. I’m going to say this in bold here because I think it’s true even though it’s probably controversial. Marketers who don’t understand these metrics simply can’t be leaders, say it again. Marketers who don’t understand these metrics simply cannot be leaders. Now, that may be controversial, but I believe it’s true. Like if you as a marketer are unable to track the percentage of calls. So the number of calls that result in a set demo, or the number of set demos that result in a completed demo. I think that you can’t be in leadership.
So, the questions that these metrics answer: do you need SD artists and can the sales team handle leads? I was talking to a marketing leader the other day who said that his team produced 560 somewhat leads in q1. Right, awesome. I don’t know if that’s good or not for their business. I said how many of those leads had been followed up on and may have been called? He said he had no idea. Get to know that number before you can say yeah, we need to do a trade show in q2 instead of two. We need to do more webinars, or we need to spend more on PPC if you don’t know how many of those leads are actually being called. It’s going to be almost impossible for you to execute and make good decisions about your budget. Need more STRS or your leads being handled effectively. I’m of the belief. The sales team has a really difficult time handling leads and managing a sales pipeline.
I’m a firm believer in the SDR model. I have been for eight years. I’ve seen organizations where it works well. I’ve seen organizations where it doesn’t, but you’ve got to have I believe STRS in order to give the sales team qualified appointments, the sales team just simply is not going to succeed at following up with leads at any scale. Can the organization support more leads? In other words, do you have a lot of STRS and you actually need more leads? Do you have a close rate problem? Do you not have enough sales reps? Are there too many demos, and too many things in the pipeline for your current number of reps to handle? You Got to be able to answer these questions effectively in order to fully understand and appreciate and optimize your go to market organization.
All right, let’s talk unit economics. A funnel metrics are the metrics we just discussed. Unit economics is what we’re going to talk about now. So, unit economics are used to measure the efficient growth of a business as it scales. So, within a SaaS business, this is basically tracking how adding or losing a customer will impact the business. This is vital for investors, your PE firm or VC firm, your board is going to care about this to a dramatic degree and if you’re bootstrapped, the people who buy you at some point, are going to ask about these metrics. You should ask about them in job interviews on both sides of the equation. If you’re interviewing a director who wants to come to your company, they need to understand this data. If you are interviewing with a company and your CEO that you’re interviewing with doesn’t understand or have this data that should help you make your decision, you should also make decisions about when to leave a role based on these metrics. And of course, these will differ based on the stage of the business. I’ll talk more about that in a second.
So, the basics of unit economics now I hear some of you saying gosh, there’s 30 more things we can track. There’s a rule of 40, there’s 1000 other things, I totally get it I agree. For time we have I wanted to highlight these four. So the first one is the cash cost to acquire a customer. Basically every cost associated with adding a customer including sales tools, marketing tools, headcount programs spend, everything, is totaled up and then divided by the number of customers added on a monthly or quarterly basis. For example, if you spent a million dollars, added 100 customers for the US and a quarter or a month, whatever it is. Your CAC would then be $10,000 your cost to acquire a customer will be 10,000.
That’s actually pretty darn good. If you’re ACV. If your deal size is $100,000 Right? If your deal size is $5,000 and you can’t spend $10,000 to get a customer, it doesn’t work. You have to make sure you understand what your CAC is. And then the second metric is, I think, the most important metric. I have used this at previous companies to make a decision as to when to leave when this number starts to get too high. So, CAC is also called CAC. Payback. So it’s the cost to acquire customer recovery or payback rate. How long does it take us to recover the cost it took to add a customer for example. Here’s the same example from above if we spent a million dollars and added 100 customers, your CAC is $10,000. Your contract values 100,000. Your CAC recovery would be less than two months which is excellent. Right? So you could spend far more than $10,000 to get a customer if your deal size is $100,000 Because you’re really making that money back in two months. If your ACB is 5000 and your spending 10000 its going to take you 24 months to pay that customer cost to acquire the customer back. Twenty-four months is bad.
Rule of thumb -Anything under 10 months is elite. Your 10 to 16 months are good 16 to 24- you should probably start making changes with your model. If you’re over 24 months Start looking for a new job or make some real significant changes with your model.
If it’s taking you two years to pay back, your cap that’s that LTV lifetime value of customer this one’s pretty obvious but it’s difficult to track in the startup world because you’re so new like you don’t know how long your customers are going to stay but you should make attempts to track this and you need a CAC. This is a ratio measuring LTV, by cost to acquire a customer. the higher the number the better. So, if you’re eight or higher, you can actually spend far more money in marketing and sales. If you’re under fiveish, you probably need to spend less.
So these are good efficiency metrics that allow you to determine how much you should be spending in marketing and sales and if you need to pull back or spend more. There’s also other numbers like I said, so the number of MRR divided by full time employees net dollar retention gross margin. There’s something that battery ventures call the magic number which is an efficiency metric that they use. So every VC and PE is going to have different metrics that they believe are most important, but I think these for you are a really good idea and again, use these as you interview for new jobs, throw these numbers out. Use them as you interview people for your job. And if you’re at a place right now that isn’t tracking this, start tracking it, be the leader and track this. So how can you make the transition from talking about social media followers to tracking caviar? That’s kind of the question here, right? Instead of sharing how many followers you got, go ask the CEO, the head of ops, the CFO whoever’s tracking it, if you can start tracking. You can start tracking CAC and CAC R and LTV. Now they might be tracking it just not sharing it with you but ask if you can track it if they aren’t, and if they are asked if you can have access to it. And the thing about tracking your budget not as a percentage of revenue but as a tool to stay under a 12 month CAC recovery rate.
Now, if business is a billion dollars a year in revenue that probably doesn’t apply. You can probably use a straight flat percentage should go towards marketing but in terms of if you’re in a growing SaaS b2b business, it’s probably under 50 to $80 million. You should ask for a budget based on if that budget will produce enough deals for you to stay under 12 months and CAC recovery. Use marketing metrics as leading indicators only; they should not be used to talk about how well marketing is doing. You should never go into a board meeting and talk about social media followers as a way to track if you’re succeeding in the marketing department at a b2b SaaS you should use them as leading indicators to guide your tactics as a team. Start just throwing out unit economic data in meetings. It will drive the business to better results and by the way, it’s going to be good for you tracking them yourself if you’re not and then ever you’re in a job interview, talk in terms of unit economics. And it will help you see red flags if you’re interviewing with businesses that are tracking those and it will help you get jobs if you talk about them more.
Now, if you disagree with me, if you have any questions, if you have any thoughts, feel free to reach out to me. My email is firstname.lastname@example.org. You can also call or text me at 435-668-4397. That’s my personal cell. Probably dumb for giving it out. But I wanted to, so thanks for taking the time. I really appreciate it.
Thanks, everybody. And thanks for being a part of the Demand Gen Summit.