Alexander Group's guest appearances

Alexander Group

Alexander Group's Revenue Growth Model Podcast

Conquer Local Podcast

Metrics that Measure Up

Sam Jacobs

Jamie Shanks

David Dulany

Matthew Pollard

Gretchen Rubin

Andy Paul

Viveka von Rosen

Chris Walker

Patrick Campbell

Doug Landis

Heather Monahan

Robert Davis

Chris Montgomery

Bob Wright

Nick Mehta

OwlTail

The Alexander Group works with many of the leading companies in the B2B SaaS industry, and I was recently joined by Ted Grossman, their co-lead of the technology industry practice, and Davis Giedt, Director of Research and Analytics.Based upon Ted and Davis' unique insights and understanding of B2B SaaS due to the discussions and data from over one hundred customers, coupled with their historic Sales Compensation research and benchmarks with has become an industry standard.My first question was how has the use of SaaS metrics evolved. Ted's perspective is the core metrics have not changed that much over the past few years - rather it is the weight that is placed on specific metrics, especially growth vs profitability. As an example in 2021 and the first half of 2022, the weight was much higher on growth rate versus profitability metrics. One example is the Rule of 40 has increased in importance as measured by R-Squared by 3x over the last 6 months. As such "Margin + Growth" is much more balanced in 2023.Ted highlighted "expense to revenue" as a top priority at the macro level. This is also a very easy metric to benchmark against the industry. Then you can dive down into more granular revenue growth efficiency metrics such as "Profitability by Sales rep. Other things like the CAC Payback Period which measures the amount of time to pay back the acquisition of a new customer. Net and Gross Retention Rates are also high-priority metrics to understand the efficacy of retaining and expanding revenue with existing customers.What about the importance of changing the mix of revenue growth from new customers versus existing customers? The story varies in every company and depends on company-specific attributes such as do they have multiple products, or do they have a product that can expand usage to additional users, departments, or business units within an existing customer.When I asked Davis the "top" metrics he prefers, they included:Sales and Marketing expense to revenue which tests for every dollar invested in revenue growth, how much is returned on both a new and top-line revenue basis. Davis shared a 35% - 40% S&amp;M expense to revenue as a good benchmark for growth companiesCost of Growth, sometimes known as the SaaS Magic number measures the top-line revenue growth versusSales and Marketing investment, which has a range of .5 (poor), .75 - 1 (good), and &gt; 1 (best)CLTV:CAC measures the amount of Gross Profit (or Revenue minus Cost of Goods Sold) generated against the revenue a new customer generates over the life of a customer. A CLTV:CAC ratio of 3x is good, though has been increasing over the past 2-3 years. CLTV:CAC ratio is a long-term ROI measurementNext, we discussed the topic of "consistency of metric calculation" when using industry benchmarks. Davis highlighted that for their clients they use one standard metric calculation formula to ensure when they are benchmarking it is an apples-to-apples comparison. One specific example was if you are trying to measure the efficiency of growing new customer ARR versus existing customer growth ARR, things like a "time study" may need to be conducted to properly allocate expenses to the pursuit of each growth ARR type.If you are a B2B SaaS company leader, the discussion with Ted and Davis provides some unique insights and perspectives that only come with the unique visibility they have across hundreds of leading B2B companies.

The Alexander Group works with many of the leading companies in the B2B SaaS industry, and I was recently joined by Ted Grossman, their co-lead of the technology industry practice, and Davis Giedt, Director of Research and Analytics.Based upon Ted and Davis' unique insights and understanding of B2B SaaS due to the discussions and data from over one hundred customers, coupled with their historic Sales Compensation research and benchmarks with has become an industry standard.My first question was how has the use of SaaS metrics evolved. Ted's perspective is the core metrics have not changed that much over the past few years - rather it is the weight that is placed on specific metrics, especially growth vs profitability. As an example in 2021 and the first half of 2022, the weight was much higher on growth rate versus profitability metrics. One example is the Rule of 40 has increased in importance as measured by R-Squared by 3x over the last 6 months. As such "Margin + Growth" is much more balanced in 2023.Ted highlighted "expense to revenue" as a top priority at the macro level. This is also a very easy metric to benchmark against the industry. Then you can dive down into more granular revenue growth efficiency metrics such as "Profitability by Sales rep. Other things like the CAC Payback Period which measures the amount of time to pay back the acquisition of a new customer. Net and Gross Retention Rates are also high-priority metrics to understand the efficacy of retaining and expanding revenue with existing customers.What about the importance of changing the mix of revenue growth from new customers versus existing customers? The story varies in every company and depends on company-specific attributes such as do they have multiple products, or do they have a product that can expand usage to additional users, departments, or business units within an existing customer.When I asked Davis the "top" metrics he prefers, they included:<ul><li>Sales and Marketing expense to revenue which tests for every dollar invested in revenue growth, how much is returned on both a new and top-line revenue basis. Davis shared a 35% - 40% S&amp;M expense to revenue as a good benchmark for growth companies</li><li>Cost of Growth, sometimes known as the SaaS Magic number measures the top-line revenue growth versus</li></ul>Sales and Marketing investment, which has a range of .5 (poor), .75 - 1 (good), and &gt; 1 (best)<ul><li>CLTV:CAC measures the amount of Gross Profit (or Revenue minus Cost of Goods Sold) generated against the revenue a new customer generates over the life of a customer. A CLTV:CAC ratio of 3x is good, though has been increasing over the past 2-3 years. CLTV:CAC ratio is a long-term ROI measurement</li></ul>Next, we discussed the topic of "consistency of metric calculation" when using industry benchmarks. Davis highlighted that for their clients they use one standard metric calculation formula to ensure when they are benchmarking it is an apples-to-apples comparison. One specific example was if you are trying to measure the efficiency of growing new customer ARR versus existing customer growth ARR, things like a "time study" may need to be conducted to properly allocate expenses to the pursuit of each growth ARR type.If you are a B2B SaaS company leader, the discussion with Ted and Davis provides some unique insights and perspectives that only come with the unique visibility they have across hundreds of leading B2B companies.

B2B SaaS Metrics and Prioities with the Alexander Group - Ted Grossman and Davis Giedt

Usage-Based Pricing is trending across the B2B SaaS and Cloud industry.  This pricing model is not new and is also known as Consumption pricing as the cost of the service or product increases as the "consumption" of the product increases.Saas has traditionally become known for the use of subscription pricing, which often associates an annual subscription cost for each user of the product.  In this scenario, the cost would only increase as additional users were assigned a "seat" and were then able to use the product in an unlimited fashion for that one annual "subscription" price.One of the challenges that come with the use of Usage-Based pricing in the SaaS industry is how to compensate salespeople for both the acquisition of a new customer, but also for the actual usage and relating revenue over time.Rachel Parrinello leads the Sales Compensation practice at The Alexander Group and works with many leading B2B SaaS companies that use a Usage-Based pricing model.  Based upon her unique insights into and experience with multiple different compensation models and plans, we dove right into the evolution of sales compensation plans within Usage-Based pricing environments.Rachel uses an acronym called ILAER model which stands for Identify, Land, Adopt, Expand and Renew model.  In this environment, there are multiple variables to consider in the design of compensation plans such as how to compensate retention, renewals, and expansions - then in the context of a much smaller value to the initial contract value.Four basic types of pricing models in Usage-Based Pricing environments:1. No contact and no minimum contract - Pay as your Go2. Uncommitted contract - There is a contract but no minimum commitment to usage or revenue3. Committed contract - Prepaid pool of funds that will be used against usage over the agreement term, often a year.  The agreement includes the minimum usage, price per unit of usage, and the associated minimum revenue over the agreement4. Hybrid (committed + non-committed) contract:  A minimum usage is agreed to, however the projected usage is typically forecasted to be much larger than the contractual minimum and reduced unit pricing  is predetermined within the agreementWe then moved to the "sales compensation" plan for the above models.  Rachel started with the importance of identifying the "persuasion" event and ensuring the sales compensation plan is aligned and rewards for achieving the persuasion event.  The persuasion event may be the original customer acquisition event and paying for a part of the "projected revenue" be paid at the time of the persuasion event and additional compensation as the actual usage and associated revenue happens.The conversation quickly moved to the different roles involved in the acquisition and growth of the customer.  One traditional model is the hunter/farmer model where the hunter is responsible for acquiring the customer and the farmer is responsible for growing the customer after the initial acquisition.  A new role, called the "rancher" has evolved in the Usage-Based Pricing world, and they have the responsibility for both acquiring the customer and growing the customer.In the "rancher" model, one defining variable to determine if this is right for a company, it starts with the amount and level of information that needs to be transferred after the initial close.  If the knowledge and level of customer information are large, consider using the rancher model, at least for the first 12-24 months after the initial close.If you are a participant or leader responsible for sales compensation models in a Usage-Based environment,  Rachel is a must listen!

Usage-Based Pricing is trending across the B2B SaaS and Cloud industry.  This pricing model is not new and is also known as Consumption pricing as the cost of the service or product increases as the "consumption" of the product increases. Saas has traditionally become known for the use of subscription pricing, which often associates an annual subscription cost for each user of the product.  In this scenario, the cost would only increase as additional users were assigned a "seat" and were then able to use the product in an unlimited fashion for that one annual "subscription" price. One of the challenges that come with the use of Usage-Based pricing in the SaaS industry is how to compensate salespeople for both the acquisition of a new customer, but also for the actual usage and relating revenue over time. Rachel Parrinello leads the Sales Compensation practice at The Alexander Group and works with many leading B2B SaaS companies that use a Usage-Based pricing model.  Based upon her unique insights into and experience with multiple different compensation models and plans, we dove right into the evolution of sales compensation plans within Usage-Based pricing environments. Rachel uses an acronym called ILAER model which stands for Identify, Land, Adopt, Expand and Renew model.  In this environment, there are multiple variables to consider in the design of compensation plans such as how to compensate retention, renewals, and expansions - then in the context of a much smaller value to the initial contract value. Four basic types of pricing models in Usage-Based Pricing environments: 1. No contact and no minimum contract - Pay as your Go 2. Uncommitted contract - There is a contract but no minimum commitment to usage or revenue 3. Committed contract - Prepaid pool of funds that will be used against usage over the agreement term, often a year.  The agreement includes the minimum usage, price per unit of usage, and the associated minimum revenue over the agreement 4. Hybrid (committed + non-committed) contract:  A minimum usage is agreed to, however the projected usage is typically forecasted to be much larger than the contractual minimum and reduced unit pricing  is predetermined within the agreement We then moved to the "sales compensation" plan for the above models.  Rachel started with the importance of identifying the "persuasion" event and ensuring the sales compensation plan is aligned and rewards for achieving the persuasion event.  The persuasion event may be the original customer acquisition event and paying for a part of the "projected revenue" be paid at the time of the persuasion event and additional compensation as the actual usage and associated revenue happens. The conversation quickly moved to the different roles involved in the acquisition and growth of the customer.  One traditional model is the hunter/farmer model where the hunter is responsible for acquiring the customer and the farmer is responsible for growing the customer after the initial acquisition.  A new role, called the "rancher" has evolved in the Usage-Based Pricing world, and they have the responsibility for both acquiring the customer and growing the customer. In the "rancher" model, one defining variable to determine if this is right for a company, it starts with the amount and level of information that needs to be transferred after the initial close.  If the knowledge and level of customer information are large, consider using the rancher model, at least for the first 12-24 months after the initial close. If you are a participant or leader responsible for sales compensation models in a Usage-Based environment,  Rachel is a must listen!

Usage Based Pricing & Sales Compensation Models - with Rachel Parrinello, The Alexander Group

Matt Bartels

Have you subscribed yet? Get weekly episodes delivered straight to you on Apple &amp; Google Play!Connecting the dots between your advertiser’s objectives, their audience, and every other success factor has never been so complicated for salespeople. Matt Bartels and Quang Do from Alexander Group join us this week to discuss why solving that problem starts with CIA: a 'client impact assessment'. Tune in to hear some of their specific pointers so that you can grow and get to the top of your sales game, this week on the Conquer Local podcast.Participate in Alexander Group's Modern Media Ad Sales Study. https://www.alexandergroup.com/modern-media-ad-sales-study/

Have you subscribed yet? Get weekly episodes delivered straight to you on Apple &amp; Google Play! Connecting the dots between your advertiser’s objectives, their audience, and every other success factor has never been so complicated for salespeople. Matt Bartels and Quang Do from Alexander Group join us this week to discuss why solving that problem starts with CIA: a 'client impact assessment'. Tune in to hear some of their specific pointers so that you can grow and get to the top of your sales game, this week on the Conquer Local podcast. Participate in Alexander Group's Modern Media Ad Sales Study. <a href="https://www.alexandergroup.com/modern-media-ad-sales-study/" rel="nofollow" target="_blank">https://www.alexandergroup.com/modern-media-ad-sales-study/</a>

112: Alexander Group’s secret weapon: the client impact analysis | with Matt Bartels, Quang Do