Evaluating the effectiveness of a Go-to-Market (GTM) strategy, and the team driving it, is a challenge. How do you know if you have the right GTM strategy? Here are 7 KPIs a CFO can use to assess their GTM plan to determine the probability of success:
- Pipeline coverage. How often should your pipeline turn over? How long do prospects stay a prospect before being closed out? Does the sales team have clear exit criteria to move a prospect from one sales stage to the next, or is it all gut feel? Does your head of sales know the difference between pipeline and forecast? Further, how much opportunity should be considered against each? Best practice suggests having a two, or three-to-one forecast, while 4:1 pipeline-to-opportunity is recommended. Forecast is within quarter, while pipeline is outside of current quarter. Your sales team should have two or three times their quarterly quota in their forecast. This means that if the quarterly quota is $100,000, there should be $300,000 of opportunities within the quarter. Additionally, Sales should have eyes on 4 times their quota for the next quarter.
- Sales team performance. High performing teams typically have a 70/30 split – those above quota and those below respectively. If more than 70% of the team is reaching or exceeding quota, you should question how quotas were set. More than 70% of the team reaching quota suggests lost opportunity. Less than 70% of the team at quota may be an indicator of product problems, weak messaging, poor territory design, and even compensation problems. Remember, if everyone gets a trophy there is no way to distinguish winners from losers.
- Lead conversion rates. The demand generation funnel is full of various definitions. Marketing captured leads, marketing qualified leads, marketing reported leads, sales accepted leads, and sales qualified leads are just some of the most common lead definitions. What the CFO really needs to understand is how much was spent to generate leads, which activities generated leads, and which of those activities converted to the greatest number of sales. Understanding cost per lead and its accompanying lead-to-sale ratio is critical to assessing marketing’s performance. The benchmark for lead-to-sale (L: S) is between 13 – 27% depending on industry. The more complex the sale, the lower the L: S ratio, the less complex the sale, the higher the conversion rate. Additionally, there is a lead-to-opportunity (L:O) ratio, and an opportunity-to-sale (O:S) ratio. Benchmark for L: O is 25 – 35%, while O: S can range from 25 – 40%. The head of sales should be able to identify the key drivers for both of these ratios – the key triggers that drive these conversion rates.
- Days Sales Outstanding Ratio (DSO) – collecting revenue is a key indicator of a company’s health. The benchmark here suggests a healthy DSO should not exceed 35 – 50% of the sales terms of the company’s contract. If the customer has 30 days to pay, then you would expect to collect revenue in less than 40 – 45 days. Anything longer than that suggests a deeper look into key areas including product usability, customer service issues, a poor onboarding experience, and buyer’s remorse driven by any number of factors that can affect a buyer’s commitment.
- Sales team tenure. The average sales person is in their position for 27 months. Turnover for inside sales is under 22 months while field sales people are typically in their role for 31 months. Averages above or below these benchmarks need to be considered against a number of factors. Company culture, revenue growth rate, and percentage of quota attainment are just a few of the areas to dig deeper if your company is over or under these tenure numbers. While examining tenure, take a look at the company’s onboarding process. How long does it take a new sales rep to get their first sale? What’s the time to break-even for a new rep? Companies with higher than normal turnover should commit to creating a strong onboarding plan to maximize time-to-revenue for new hires.
- Marketing and Sales budgets as a percentage of company revenue. How does a CFO determine whether their marketing and sales teams are funded properly? Too many sales headcount and not enough quality leads from marketing will yield disappointing sales. Too many leads and not enough sales people results in a lost opportunity and an inefficient deployment of capital. Determining the appropriate budget for your company requires an understanding of the following inputs: Average sales price, average sales cycle time, win rate, size of sales addressable market, current market penetration rate, competitors, and the company’s durable competitive advantage – your unique value proposition. The benchmark for marketing spend is between 11 – 17% of total revenues generated. Of course, this depends upon the industry and its buyers, and where your company’s position is in the industry relative to where your goals strive to reach. Sellers of consumer-packaged goods spend in excess of 25% of their total revenue on marketing. Other industries such as utilities or mining may spend less than 5% of their total revenues on marketing. The benchmark for sales budgets ranges from 25 -50%. Again, this range is highly dependent upon industry, sales cycle, and other factors including how a company assesses it’s return on capital invested. Another major factor in the right % of spend is how much of the revenue is repeat vs. net new.
- Availability of market research or market listening. Inquiring as to how the GTM strategy was developed is an important discovery point for CFOs. How much of the strategy has been based on quantifiable data versus gut feel? How many win/loss calls were conducted, and by whom? How many customer focus groups, advisory councils, or expert panels were held to gather insights directly from the buyer, and further, tested and discussed? What is the difference between the total addressable market (TAM) and the sales addressable market (SAM)? Best in class companies conduct win/loss calls monthly. Companies selling a complex product should attempt to contact each lost prospect. These are companies that have sales cycles in excess of 9 months. Companies that have a shorter sales cycle, selling high volume, should target 20% of lost prospects each month for win/loss calls. While this may seem like a lot of work, it’s crucial to providing real insight into where in the buying process things went awry. Additionally, understanding the difference between a TAM and SAM is necessary when setting priorities and strategies. If the TAM for your market is $1 billion, yet product limitations reduce your SAM to $100M, this opens the door for rich conversations around product development and prioritization.
Contact me at firstname.lastname@example.org if you would like more specific benchmarks for your company/situation.
- Facilitate deeper interactions with key company functional leaders within Product, Marketing and Sales.
- Provide insight into different revenue generating areas of the company and what questions to ask to gain additional clarity on GTM strategy and tactics.
- Increase the engagement with the CEO and Board to provide a deeper understanding of company’s probability of making its number.