Managing the B2B SaaS Sales Machine — Part 1: ARR and Pipeline

How do you get from seed to raising 10s of millions in venture money? This is a question almost every early stage founder asks himself. This is exactly the stage Senovo specializes on and in this article I am going to share our expertise in establishing the right KPIs and reporting for an early stage sales team. I hope this is helpful and will allow to anticipate some of the challenges ahead and save you from re-inventing what others have tackled already.

Since this is a super complex topic, I will cover this in 3 separate posts over the coming months:

1) Introduction, ARR, Deals, Pipeline

2) Funnel Analytics & Churn
https://medium.com/senovovc/managing-the-b2b-saas-sales-machine-part-2-diving-into-the-funnel-1e295f4c6f18?source=friends_link&sk=bed64d1e5883d8210f6e726d362fda5c

3) How to automate & a sample Excel https://medium.com/senovovc/managing-the-b2b-saas-sales-machine-part-3-excel-model-5c4491b3908e?source=friends_link&sk=5959bebfb4f58e89d1529c1b26876446

Introduction

At Senovo we separate the development of a startup into 3 main stages and each of these of these stages has its own key proof points which need to be validated:

1. Product Market Fit

2. Initial Scale

3. Growth

My observation is that the first and the last stage are quite clear:

In the Product Market Fit (PMF) phase, the key objective is to find customers who are willing to pay for your product. For this you need to have the right features, solve a problem that is relevant to your customer and establish an initial version of the ideal customer profile.

Once you’re at the growth stage, it’s also quite clear: it’s about raising 10s of millions in investment, double down on what has been working, expand to more geographies and to ultimately conquer the world.

But how do you get from PMF seed stage to growth? The obvious answer is: TRACTION. But how do you do that?

Organizationally, it usually means for B2B SaaS startup to transition the go to market (GTM) motion from a founder-led sales approach where one of the founders is supported by 1–2 FTE to an own business area with marketing, SDRs and AEs. But when you do this — how do you measure success and identify areas for improvement? A sales dashboard which gives you a 360 degree view is a crucial tool which addresses these points.

In the following, I will explain the various KPIs to monitor and how they work. The data in the graphs and tables is not benchmark data of best in class processes, but rather some examples which allow me to discuss the areas to measure.

Key Areas to Monitor

ARR Won vs ARR starting

The first chart displays the most critical information: How much your ARR has increased every month. “ARR Won” is counted when you’ve signed a contract and “ARR Starting” means the customer has started using the software (in line with revenue recognition standards). In addition, you see the summed up totals over the period as a line chart.

In this particular case you could see that we are winning less ARR over the year and while the “live” ARR still keeps ramping up, it is clear that there are problems in the future in keeping up your growth rate.

Deals Won

ARR is driven by closed deals. Accordingly, the next table is an an overview of the largest deals won and which Account Executive (AE) was responsible for the deal.

The data shows that Sales Reps 3, 4 and 5 are the ones closing our largest customers which typically pay around 52k ARR +/- 5k. This is a very concise picture which suggests a clear target customer profile and no danger of a single customer dominating our revenues. A further analysis could be what the situation with Sales Rep 1, 2 and 6 is. Are they focusing on other customer groups or are they just less successful?

Quota Achievement, Pipeline and Coverage

Next, let’s get a more complete overview on how each AE is doing. The main KPI by which this is measured is the quota which means the target revenue an AE should achieve. There are three main ways of determining the quota:

a) you google some kind of benchmark for your GTM style and apply that. Typical values are 500k for an inbound tele sales process, 750k for an outbound tele sales process, 1m for a field sales process. You can find a great report with benchmark KPIs here: https://blog.bridgegroupinc.com/saas-inside-sales-metrics

b) a price based approach: you guesstimate / know what a customer can afford and how many leads you can process at the same time. This is usually very hard at the early stage (and we’ve covered pricing in another blog post which you can find here: https://medium.com/senovovc/learnings-from-b2b-enterprise-saas-pricing-strategies-927df7df210f)

c) a unit economics-based approach where the quota is typically set at 3–5x on target earnings (OTE, the total comp a sales employee receives and consists typically of a fixed part and a variable part ). This approach allows to easily factor in different wage costs in different countries and it focuses on scalability of the business (i.e. when a AE pulls in 5x of what he costs you are probably doing great 😉). This is the preferred approach for an early stage company since it guarantees a scalable business and you don’t need to worry (yet) about achieving (at the moment) meaningless benchmark numbers.

Since quota is so important, you should track how much is attained (usually somewhere around 70–80%) and what that means in hard currency. Quota, quota attainment and ARR won per AE are the “rear view” metrics.

Next you should also keep tabs on the forward looking metrics. These are:

• How much weighted (i.e. adjusted by funnel stage) ARR an AE has in the pipeline. As a side note: a proper weighting is usually not straight forward and often only get accurate once you have around 5–10 AEs. As an alternative, you might also use unweighted pipeline if you have a feeling that weighting is too much guess work. “It’s better to be roughly right than precisely wrong”, after all as John Maynard Keynes once famously said. You might also be interested in our post on sales forecasting: https://medium.com/senovovc/best-practices-sales-forecasting-for-b2b-saas-start-ups-16a2a37468fd?source=friends_link&sk=d216912bd859d1cfefb9d58cbb771958
• What the current coverage is. This takes into account how much ARR has been won already in the period and determines the multiple of how often the remaining weighted pipeline fits into the ARR required to make the periods’ target. Obviously, this metric should be >1 and is usually somewhere between 1 and 1.5 if you have a positive business outlook
• Number of open opportunities: This allows you to see if everything just depends on the ominous one large deal coming through or if it is split over several deals which is obviously preferable since it makes the revenue development less choppy.

The analysis of the above chart would be it is very unlikely that Sales Rep 1 and 6 will achieve their quota. They are lagging significantly in terms of achieved quota and their pipeline is far from a good enough shape to catch up.

Sales Rep 3 and 4 had a good start of the year but the remaining pipeline is equally weak.

Sales Rep 2 ramped successfully and achieved his quota. The outlook, however, is similar as with Sales Rep 3 and 4 which suggests that we have an overall lead gen issue. This is most likely due to too few leads or that we are going after the wrong type of customer (was there a shift in our marketing or other lead gen activities?).

Lastly, the above picture could also mean that we have been focusing too much on the bottom end of the funnel in the beginning of the year. The typical scenario is that we have a lot of customer interest and everyone focuses too much on dealing with the existing interest and not investing enough time and effort into rebuilding the sales pipe on the top and mid parts.

Thoughts or questions? Reach out! markus@senovo.vc