Written by Coupling Marketing, Sales Metrics, and AE Projections with a Cushion
When public companies report earnings and their stock shoots up 10% in a day, it’s fantastic. Hitting and Exceeding your ARR bookings target is great, it builds confidence and makes everyone feel great. When public tech companies miss earnings…ouch… the stock can be down -25% in a day. Good thing you’re still private but miss several quarters and some difficult conversations will occur.
Get The Team Aligned
In part 4 of our series, we discuss the importance of maintaining alignment with projected revenue targets as a cornerstone of sustained growth and investor relations. To circumvent the risk of missing the numbers think of a comprehensive strategy that melds marketing tactics, maximizes sales funnel metrics, and the forecasts of Account Executives (AEs), all while incorporating a safety buffer.
A Holistic Approach: Unifying Marketing, Sales Funnel Metrics, and AE Projections
Growing bookings and hitting your ARR targets calls for a multifaceted methodology that harnesses the synergy of marketing strategies, sales funnel insights, and AE predictions. This approach is designed to ensure that promised ARR objectives are fulfilled and potentially exceeded, minimizing the chances of falling short.
Marketing and Sales Funnel Metrics
A meticulously defined marketing and sales funnel plays a pivotal role in propelling ARR bookings for software enterprises. Monitor key metrics at each stage of the funnel so that you can gain invaluable insights into the efficacy of their sales across the customer journey.
Selecting Qualified Leads for New ARR: Securing and converting qualified leads underpins the foundation of new ARR generation. Effective marketing efforts should be focused on prospects that genuinely demonstrate interest in the product. I’ve worked at a software company where we had 100,000 leads per month, a staggering amount. But peering deeper a lot of these shouldn’t have been leads in the first place. The term “qualified” is key so make sure marketing doesn’t throw anything and everything into the leads bucket (sorry Nigerian Prince, you’re not a real lead).
Marketing Qualified Leads (MQLs) are all varying sets of criteria across organizations, encompassing demographic data, online behaviour, and engagement with marketing campaigns. Be it inbound or outbound, from content you created or from a trade show follow-up from the BDR team, the marketing team’s role is to nurture these MQLs continuing to nurture relationships and guide them along the sales funnel.
Advancing to Sales Qualified Leads (SQLs): SQLs represent leads that have undergone a thorough evaluation and meet specific criteria signalling a higher degree of interest and purchase intent. This juncture marks the transition to the sales team, who take the reins to engage with SQLs, comprehend their needs, and steer them through the decision-making journey.
Identifying SQLs empowers the sales team to focus their efforts on the most promising leads, enhancing conversion probabilities. Usually, the problems that I see are when AEs say “What am I supposed to do with this lead?”, which means the qualification process once again needs improvement.
Conversion Rates, Expansion ARR, and Churn Analysis
Analyzing conversion rates within the sales funnel serves to identify areas primed for enhancement, optimizing the sales process for efficiency. Also, Expansion ARR is cultivated through upselling enhanced features or higher-tier plans to existing clients, cultivating overall ARR growth. I had a CEO once who was fond of saying “The best customers are your existing customers”.
And churn hurts. Make sure to have a diligent churn analysis that provides insights into churn triggers, enabling companies to implement strategies that minimize churn and safeguard ARR. Can you imagine having all that new and expansion ARR in a quarter wiped out by churn ARR?
The Math and the Reality of Sales Achievement
Anticipating Ramped Salespeople’s Influence on New ARR
The impact of “ramped” salespeople—those actively selling post-training—on new ARR cannot be underestimated. To accurately forecast, we must factor in the number of ramped AEs, their contributions, and the gradual progression of productivity in new AEs. Typically, the math is it will take let’s say two quarters for a new AE to start contributing. But some will ramp faster than others and it’s important to understand why. I’ll jump to the net of it which is to hire AEs who can develop their own book of business because they have deep relationships.
Steadfast Onboarding for new AEs: The onboarding process should be thoughtfully structured, you want to have everything in place so that the new AE can get ramped up quickly with the company’s offerings, target audience, sales process, and competitive landscape. (and for heaven’s sake people that will use Salesforce correctly). Equipping new hires with access to indispensable resources and tools is key since AEs are expensive and usually have draws that you have to pay for in the beginning.
Mentorship and Role-Modeling: Enlisting seasoned sales professionals or managers as mentors for new hires fosters guidance, knowledge-sharing, and adeptness in handling diverse scenarios.
Shadowing and Practical Simulation: Facilitating shadowing opportunities with experienced colleagues during sales interactions and conducting role-playing exercises empowers newcomers to refine their pitch and objection-handling techniques. Using tools like Gong! Or other software can help.
Quarterly Expectations and the Dual Nature of Expansion and Renewal ARR
Each quarter comes with opportunities and challenges. The quarter might be seasonal, the macro can have an impact, or competitors may bomb pricing to competitively displace you at a marquee account.
Model and think through the linearity, the incentives and how customers may be pushing things out as they assess their own business. Actively consider the quarterly dynamics influencing expansion and renewal ARR and make sure you do get these low-hanging opportunities in early enough in the quarter. (every new order booked should have the renewal date plugged in early in Salesforce).
Rockstars…and “What was I thinking?”
AEs are not created equal. Recognizing the distribution of salespeople’s achievements is a tenet in steering overall ARR bookings. This understanding, typically depicted by a bell curve pattern, unveils the dynamics that drive expansion ARR, renewal ARR, and new ARR bookings. The other term is farmers and hunters for AEs, at the early stage of growth, people should be out hunting.
Creating Room for Error: The Buffer’s Necessity
Aiming to achieve financial reporting goals is the goal but prudent companies recognize the importance of buffering potential deal slippages and extended sales cycles. Unforeseen circumstances can cause delays, jeopardizing quarterly targets. Things happen all the time, “the guy is out sick”, “she promised me a signature last week”, “it must be the holidays”…A buffer cushions the impact, ensuring the team isn’t pressured to seal deals as the clock ticks down to the last day of the quarter.
Anticipating and Addressing Deal Slippages: Despite the sales team’s best efforts, deals can encounter unexpected delays during the final negotiation, contract signing, or customer approval phases. Factors like evolving customer priorities or internal processes can trigger such situations. Everyone has dealt with nailbiting as the contract ends up in procurement and takes forever to get signed. A buffer acts as a safety net, providing flexibility and mitigating the effect of deal postponements. Have enough deals in the pipeline and make sure to recover the prior quarter deals that slipped.
Evolving Sales Cycles: Sales cycles in the software sector are notoriously variable, ranging from weeks to months. A buffer enables a company to accommodate extended sales cycles, averting disruption to quarterly financial targets. Calculate what it is on a quarterly basis. If it is 12 months, some strategic rethink needs to occur to get this number down.
The Path Forward: A Blueprint for Preventing Deal Slippages Minimizing deal slippages during a quarter demands a combination of strategic steps:
- Rigorous Qualification and Discovery: Ensure thorough qualification processes, avoiding pursuits of deals likely to slip.
- Realistic Sales Forecasting: Foster honest sales forecasts to align expectations.
- Efficient Sales Pipeline Management: Implement structured pipeline management processes to facilitate smooth progression through stages.
- Early Quarter Incentives: Encourage early-quarter deals with bonuses or incentives.
- Cultivate Customer Relationships: Consistent engagement and value beyond the sale bolster trust.
- Transparent Deal Milestones: Define clear milestones for deals, agreeing on steps for mutual progression.
- Effective Resources and Collateral: Arms sales with compelling collateral that addresses pain points and showcases solutions.
- Deal Analysis and Improvement: Regularly analyze deals to uncover patterns and enhance strategies.
QBRs to Avoid Surprises
Review Key Metrics: During the QBR, review key performance metrics and KPIs to evaluate the company’s progress toward its objectives. These metrics may include aggregate dollars of deals in the pipeline for the quarter, deals that are at risk, deals that can be upsized, customer retention rates, customer satisfaction scores, and product usage analytics.
- Identify Successes and Challenges: Acknowledge the achievements and successes of the quarter. Also, identify any challenges or obstacles that hindered progress. Is there a recurring theme as it takes too long to try out the product and convert to a buyer? This assessment helps in understanding what worked well and what areas need improvement.
- Cross-functional collaboration: Involve representatives from various departments, including sales, marketing, product development, customer support, and finance, in the QBR.
Look Good (and avoid the 100-page board deck of explanations)
Achieving overall ARR bookings for a growing software company requires an integrated approach that leverages marketing strategies, sales funnel metrics, and AEs’ forecasts. By tracking marketing and sales funnel metrics, factoring in ramped salespeople, and aligning with quarterly expectations, businesses can build a resilient sales engine that drives sustainable and predictable growth.
Understanding the distribution of salespeople’s achievements ensures optimized performance, contributing to new ARR, renewal ARR, expansion ARR, and reducing churn ARR for overall ARR bookings.
A data-driven and customer-centric approach, coupled with strong sales culture and support, paves the way for exceeding promised ARR targets and making you look good in front of the board.