Are marketing and sales at your organization fully aligned? Sometimes, they’re not, despite the fact that the two groups share a common goal: acquiring more customers.
A good place to start to work toward better alignment is with clearer visibility into key performance indicators (KPIs). Certain KPIs are meaningful to both marketing and sales at SaaS businesses. Such metrics help define success and show where the two sides can work together to build upon that success or adjust their strategy.
Sales needs marketing to build a lead pipeline, and marketing needs sales to close or upsell customers. These four KPIs are important for marketing and sales alignment and can make or break a SaaS company’s ability to grow profitably.
1. Customer Acquisition Cost
In a perfect world, leads find your SaaS business and become customers—not to mention current customers purchasing additional services and features—without you needing to spend a dime on marketing and sales. This utopia, of course, doesn’t exist, but it underscores the idea that cost-effectiveness and customer acquisition go hand in hand.
Customer acquisition cost (CAC) measures how much you spend on average to obtain a single customer. It is typically calculated this way:
CAC = (marketing spend + sales spend) / (total number of customers acquired)
CAC matters because, obviously, spending less to gain customers is better—because you aren’t cutting into your bottom line simply to bring in business. Plus, the savings you achieve allow you to devote spend on additional channels to potentially expand your reach and secure even more customers.
CAC is also important because you are marketing through different channels, both offline and digital, and you need to be able to compare channels. Which channels are going to help drive the highest-quality customers within your budget and help you meet your growth goals?
Entrepreneur/venture capital expert David Skok suggests that startups should be able to recover CAC costs within 12 months—which is a good gauge even if your SaaS company is well established. Reducing CAC should be a constant goal for marketing and sales, particularly if marketing can deliver more leads and sales can more effectively close deals.
2. Customer Lifetime Value
Many SaaS companies use recurring billing and have plenty of ways to upsell customers into additional products, features, and licenses. In this way, a single customer continues to contribute to your profitability long after you stopped actively marketing to them as a lead. Even one-time sales are important in determining the effectiveness of your marketing and sales strategies.
Hence, customer lifetime value (CLV, or sometimes LTV) provides a way to measure how much, on average, a customer will buy from you until they decide to no longer be your customer. CLV is typically calculated over a certain time period as:
CLV = (1 / customer churn rate) x (revenue / customers)
Knowing your CLV is vital not only for calculating profits, but also for determining if the amount you’re spending to secure a customer or upsell is worth the profits (or lack thereof) that customer is contributing.
CLV is closely tied to CAC in that if the cost of securing a customer is too high, you’ll struggle to maintain a healthy bottom line. As a rule of thumb, you want at least a 3-1 ratio between CLV and CAC—in other words, for every dollar you devote to marketing and sales, you want to bring back $3 in revenue.
3. Churn Rate
Losing customers, even ones who are a pain in the posterior, is never fun. Not only do you lose revenue, but sales and marketing must also work to replace what’s been lost. Some churn is inevitable, but SaaS businesses must be aware of why they’re losing customers and take steps to mitigate future losses.
Among SaaS KPIs, churn is easily measured—by the percentage of customers, revenue, or recurring value lost. Besides assessing churn for a particular time period (e.g., monthly, quarterly, yearly), the rate can be compared over time to identify patterns and determine if you’re bleeding more customers than you’re bringing aboard.
Taking churn measurement a step further, compare churn rates of customers based on cohort. For example, when looking at churn over time, what is the churn rate of customers who came in from January 2020 compared with the churn rate of customers from July 2019? By comparing trends, you can better predict when churn is more likely to rise within a customer’s overall life span. This can also help you identify certain time periods when the customer success, marketing, product, and sales teams were influential in reducing the churn rate for new customers.
Think of churn as a sieve—the wider the holes, the more customers will fall through. The operations and customer success sides of a SaaS business need to do their parts to narrow the sieve, but marketing and sales can help by identifying and converting stronger leads, promoting upsell opportunities, and providing useful content that gives customers a reason to stay.
4. Expansion Monthly Recurring Revenue
Expansion monthly recurring revenue (MRR) tells us how much new revenue was produced from existing customers. This is where upselling, cross-selling, new products, and special offers come into play—and much of that falls on marketing and sales. A healthy contact database and accurate analytics can help you identify who’s getting the most value from your solution and is more likely to be a good candidate for additional solutions/features.
Furthermore, expansion MRR is a great way to counter churn losses. As already stated, you’re going to lose customers, but if the customers you retain are more fervent about your product and your brand than ever, you can offset the churn and dramatically increase CLV.
These KPIs and others complement a SaaS growth strategy that can propel your organization to greater success. Check out SmartBug’s comprehensive guide to SaaS marketing strategies to learn more.
Paul Schmidt is a senior strategist at SmartBug Media®. He works with clients on SEO, analytics, lead generation, sales enablement, customer success, and inbound marketing strategy. He previously worked at HubSpot, helping develop inbound strategies for more than 200 clients.