One thing I've learned over the course of my career as a marketer and founder (which should come as no surprise) is that basing business decisions on measurable KPIs is a key attribute to ensuring long-term growth and business success. However, the question founders often face is which KPIs they should rely on to make decisions—and that's where the rub lies. As many different philosophies as there are for running a business, so many different KPI options present themselves to justify those philosophies. In the following, I'll talk about the five KPIs I rely on to manage our growth team at zenloop and why I chose these metrics to do so. Please note: The KPIs I'm going to talk about are relevant to us as a B2B SaaS solution. I mention this because depending on the industry you're in, the KPIs can differ significantly so if you're looking for metrics for a B2C eCommerce business, for example, this article might not provide the most relevant options for you
One fundamental factor founders should take into account when identifying the right growth metrics is the stage their company is in. Some KPIs can be of high value in more advanced stages of company maturity but really don’t hold any significant value shortly after a company was founded. The reason: The more mature a company is, the more reliable the data points collected are, which increases the reliability of the KPIs fed with them. If we’re talking about a company which was founded one year ago, it wouldn’t really make sense to make a decision based on Customer Lifetime Value, for example.
Another question founders should ask themselves is whether they want to focus more on activity-based (e.g. outbound sales calls) or output-based metrics (e.g. revenue generated). Both approaches have merit, which is why I am an advocate for leveraging a combination of both. So which KPIs do we actually use?
Cost per MQL
To define how much we can spend on marketing activities according to our budget, we are mainly guided by the Cost per Marketing Qualified Lead. You may now wonder why we don't use the classic cost per lead calculation. To make sure we only pass on qualified leads to sales, for our marketing department, MQLs are our ‘currency’. This ultimately enables our SDRs and AEs to convert leads more efficiently. A high number of leads may sound great but won’t do us any good if they don't match our target audience and we can't do business with them. The cost dimension is important for us to look at to ensure we end up hitting our CAC (Customer Acquisition Costs) goals and don’t generate pricey but potentially useless leads upfront in the sales funnel.
Another key metric we use to manage the growth team is Sales Velocity. To briefly outline this KPI for those who are not familiar with it: Sales Velocity describes the measurement of how efficient deals move through your pipeline and generate revenue. A Sales Velocity equation determines how much revenue an organization can expect to generate over a specific time period by taking into consideration four metrics: number of opportunities, average deal value, win rate, and length of the sales cycle. Factors that positively influence sales velocity and that we also track separately include, for example, the number of activities per deal, the time between activities, the percentage of deals that continuously reach new deal stages as well as the number of deals with which we don’t make progress.
CAC Payback Period
As described previously, we also align the decisions made in our growth team with our CAC—more precisely with our CAC Payback Period. In a nutshell, the CAC Payback Period describes the number of months it takes to earn back the money you invested in acquiring customers and thus outlines your break-even point. This crucial metric is often utilized in (SaaS) startups because put simply, it determines how much cash your business needs in order to grow. In my opinion, it is one of the most useful metrics there are for SaaS businesses in terms of capital efficiency.
Net ARR Retention
A hugely important indicator of our success team's work is Net ARR Retention. Net ARR Retention describes the total of the annual recurring revenue including expansions from upsells minus any revenue churn caused by departing customers or customers who have downgraded. It is a powerful metric because if increased, it allows for a non-linear contribution to company growth. Let’s say your company does a decent job at retaining customers as well as upselling. A few customers churned over the course of the year, but you still managed to achieve a Net ARR Retention Rate of 99 percent. Now imagine your company does an outstanding job at both retaining customers and upselling and increases the Net ARR Retention Rate to 101 percent. At first, the revenue performance of both companies will look very similar. After all, it’s only a two percent difference, right? However, over the course of just a few years, the company with outstanding retention will have almost twice the revenue and a completely different growth trajectory. Their success with existing customers will show a massive impact over time.
Customer Health Score
Last but not least, another metric that is integrally important to our growth team, more specifically our customer success team, is the Customer Health Score. The Customer Health Score is a simple, easy-to-monitor metric that allows you to identify the "health", or satisfaction, of your accounts on a scale of 1-10. Depending on what user behavior you consider relevant to your business, the calculation of the Health Score may differ. Important for us, for example, are the account activity and how much value the account is getting out of using our platform. We also base our health score, among other things, on the ‘relationship phase’ we are in with our customers—from onboarding to the adoption of our solution, to the expansion of our services, and ultimately to customer advocacy. Depending on which phase we are in, the customer health score changes—and consequently steers our decision-making.
In addition to the Customer Health Score, we utilize our own platform and the Net Promoter System® to survey satisfaction among our customers on a regular basis. The customer feedback messages are made visible to all employees via Slack in real-time but are also analyzed and presented in summary form in monthly all-hands meetings. The idea behind this approach is to keep the entire team constantly aware of how satisfied our customers are with our product and services in order to enable everyone to take action where necessary.
About Björn Kolbmüller
Björn Kolbmüller is co-founder and managing director of zenloop, the leading integrated experience management platform (IXM). After his studies at HHL Leipzig Graduate School of Management, Kolbmüller started his career at Mister Spex before joining Procter & Gamble's brand management team in 2008. Together with Paul Schwarzenholz, he then founded the online perfume retailer Flaconi, which was successfully sold to Pro7Sat1 in 2016. At Flaconi, Kolbmüller was responsible for marketing, product, and tech. In addition to zenloop, he is an active business angel and advises young start-ups.
Co-Founder & Managing Director