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3 Surprising SaaS Sales Metrics Startups Need to Track

By Ryan Law on Thu, Sep 15, 2016

Some SaaS metrics are pretty ubiquitous: I challenge you to find a SaaS dashboard that doesn't have some kind of passing reference to MRR or Churn.

Others, however, are less common; but in the case of these 3 overlooked SaaS sales metrics, no less important to track.

1) Lead Velocity Rate

Many of the metrics we use to assess (and predict) our growth are actually stuck in the past.

In the same way that light from distant stars shows us a picture from millions of years ago, most sales and revenue metrics reflect deals that were created months and years past.

In other words, if you're trying to use current sales deals to predict future sales, you're using outdated information, and obsessing over opportunities created by your old sales and marketing strategies, not your current approach.

Lead Velocity Rate (also known as Lead Momentum or Qualified Lead Growth) is a quick and simple way of measuring the month-on-month growth of your lead generation:

$$\text{LVR}=\frac{\text{Qualified Leads}_{t}-\text{Qualified Leads}_{t-1}}{\text{Qualified Leads}_{t-1}}\times100$$

For example, if we generated 100 qualified leads last month (t-1), and 110 this month (t), we'd have a lead velocity rate of 10%:

$$\text{LVR}=\frac{110-100}{100}\times100=10\%$$

Instead of trying to draw conclusions about your current approach to sales from old data, it offers a real-time view of the efficacy of your current strategy: allowing you to predict future lead generation and sales more accurately as a result.

... hit your LVR goal every month… and you’re golden. And you’ll see the future of your business 12-18 months out, clear as can be.

Jason Lemkin, SaaStr

2) Sales Commission:ACV

When it comes to scaling your sales team, there's a simple mathematical constraint in operation: sales people need to sell more than they cost.

When you're working out when it's time to hire (and how much for), you need to balance the costs of salary and performance-related pay on the one hand, and the sales productivity of your salesperson on the other.

One of the best ways to do that is to monitor sales commission as a percentage of Annual Contract Value (the value of a contract over a 12-month period):

$$\text{Sales Commission:ACV}=\frac{\text{Sales Commission}}{\text{Annual Contract Value}}$$

For example, with a sales commission of $500, and an Annual Contract Value of $5,000, sales commission would be 10% of ACV (or 10:1):

$$\text{Sales Commission:ACV}=\frac{500}{5000}\times100= 10\%$$

The exact "perfect" ratio for your business will vary with average deal size, sales cycle, visitor to MQL to SQL conversion rate, customer churn and so on. For a rough benchmark though, median sales commission in SaaS is equal to about 9% of ACV.

I've worked with salespeople, who come from large organizations, often demand commission rates in the 20%-25% range.

Unbeknownst to startups, these rates aren't "market" in the SaaS world. In fact, that median sales commission is roughly 9% of Annual Contract Value (ACV) for the past two years.

Ryan Fukushima, VC, Lightbank

3) Sales Efficiency (aka the Magic Number)

Sales efficiency is a simple SaaS performance metric designed to provide a clear, high-level view of the return generated by your sales and marketing strategies.

$$\text{Sales Efficiency}=\frac{\text{Revenue}\times\text{Gross Margin %}}{\text{Sales & Marketing Costs}}$$

For example, if a SaaS company generates $1.25 million in revenue with an 80% Gross Margin, and spends a total $500,000 on sales and marketing, they'd have a sales efficiency of 2:

$$\text{Sales Efficiency}=\frac{$1,250,000\times 80\%}{$250,000 +$250,000}= \frac{$1,000,000}{$500,000}= 2$$

The "magic number" is effectively the inverse of the payback period: the length of time it takes for customers to "pay back" the costs of acquiring them. For a good benchmark to aim for, a magic number of 1 means that sales and marketing expenditure will be earned back by customer revenue in the next four quarters.

Most SaaS companies operate around the 0.8 mark, meaning the business pays back the cost of the revenue and sales expense in the 5 quarters of the customer.

Tomasz Tunguz, VC, Redpoint

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