Visible Blog

The success—or lack thereof—of a sales enablement team isn’t the easiest to track because the area itself isn’t always clearly defined. When a scaling company develops its initial sales enablement strategy, it’s often a struggle to determine exactly what the organization needs to focus on first. And that lack of clarity can present a real problem. “Enablement means something different in every company,” Katie MacDonald, global sales onboarding and enablement manager at Optimizely, said. “A lot of companies think they need enablement. But if there is not a clear understanding of the purpose of sales enablement, it can die very quickly.” So how do you start? Simply. Focus first on a handful of easy-to-identify valuable functions that drive performance in a sales organization. Here are three great ways to start: Decrease time to quota obtainment All new hires face a steep learning curve when entering a new organization and a new sales process. Providing the right tools that boost a new hire into peak productivity mode is remarkably important. And cutting down the number of days until that happens can wildly profitable. So the role of a new sales enablement team must start hacking at that time to quota obtainment with insights for into the sales process. Empowering new hires with basic strategies that overcome common obstacles that have slowed success in the past is a key component in enabling the sales team. Identifying selling pitfalls, core value propositions and common pain points and some additional tricks of the trade helps shorten the road to top performance. Decrease time to pipeline obtainment In order to hit that quota, reps need to fill the pipeline first. Most companies will use the 3x sales pipeline-to-quota-ratio as the goal for the sales team. For the sales enablement team, it’s essential to identify the best ways new reps can hunt for new leads. Your enablement team can provide information on the right customer types, how to best reach them and how to determine which opportunities might be better than others. Again, you’re providing new reps with a better roadmap to avoid obstacles others have already encountered. The bottom line is if your sales enablement team isn’t decreasing time to quota obtainment or pipeline obtainment, they aren’t providing the right boost to your onboarding efforts. Decrease sales cycles Finally, moving beyond new hires, sales enablement teams must deconstruct the sales cycle and find ways for the entire organization to cut down on the time to commitment. They have to monitor how deals track through the process and identify common factors that are often introduced and slow down the action. Sales enablement teams gather intelligence and data from across the team and synthesize the learnings into communication training that drives iterative improvement. That speeds up the process and makes enablement worthwhile in the long-run. There is almost no end to the avenues your enablement team may explore to keep your organization innovating and working smarter. But by focusing first on just a few key areas, you can convince investors of the need for sales enablement and earn buy-in from the rest of your leadership team of its value.

Measuring productivity and finding the right number of hires is a key to succeed Last week, I touched on the paradox that exists in a SaaS world largely celebratory of the role SDRs play in a growing sales team: many boast of the value, few invest in the execution. But the mere addition of a SDR team can increase lead conversion by 35 percent and free up account executives (AEs) to focus on closing deals. That’s an unavoidably big advantage if you’ve created a process that avoids unnecessary pitfalls. This week, I want to drill down to the actual SDR work that’s needed to determine how teams can succeed and how many SDRs are needed to hit goals. There’s little doubt that a SDR team helps AEs focus on hitting quotas. Whether your SDRs are qualifying leads, setting meetings or doing both, they organize a necessary process that’s harder to tie to hitting specific deal quotas and revenue goals. So how do we know you’re using their expertise correctly? Measuring productivity SDR work is a grind. Certainly, there’s an art to learning the right things to say that gets a prospect to pick up that phone after a voicemail has been left. And there’s no doubt SDRs learn to finesse phone calls over time to get prospects to commit. But in between the opportunities to actually speak with potential clients comes a litany of unanswered dials. And the necessity of putting in the calls can’t be overlooked. If your SDRs are responsible for setting meetings, logging the number of calls and emails is an excellent way to introduce some method into the madness. Let’s look at the incredible effort it takes to land just one prospect alone, based off Craig Rosenberg’s very helpful breakdown: On average, 12.73 dials are needed to connect with a prospect when you have their direct phone number On average, 18.83 calls are needed to connect with a prospect when you have to be routed through a switchboard On average, between 22.5 to 30 calls are needed to have just one solid conversation with a prospect Finally, if we consider that it will likely take three calls to set a demo meeting, that leaves each SDR with a 60-90 call range just to land one session. Getting their reps in on the phones is essential, even if it’s tedious. It’s okay to cheat a little… Now if we consider that each AE needs about 50-100 qualified leads each month to hit their goal (if that goal falls between 8-12 deals), 60-90 calls per prospect can teeter on being unsustainable. It’s necessary to find ways to increase efficiency and improve the movement through your pipeline. This is where an account based strategy across your sales and marketing teams really shines. Setting up email sends to hit prospects’ inboxes 24-72 hours before a SDR calls can wildly increase the success rate of getting a connection earlier. Additionally, following and engaging on social media with the target company and the individual you’re trying to reach even further warms up the conversation. This keeps your company top-of-mind, provides enough reason for a prospect to do some research and hopefully entices them to pick up that phone and say hello. Big takeaway: Make sure your SDRs are putting in the necessary calls and helping to coordinate with sales and marketing to increase efficiency. Finding the right number of SDRs You never want to hire just a single rep, but just how many SDRs do you need? It depends on the organization. As David Skok writes “There is wide variation, much of which can be attributed to company size. Smaller SaaS companies in particular, deploy higher SDR to AE ratios, meaning one SDR supports fewer AEs.” But normally, the number of SDRs to AEs will fall somewhere between a 1:1 to 1:3 ratio. Your need for lead volume and lead qualification rates also play a role in how many SDRs you hire as you’ll need your team to be able to create sufficient opportunities to make their roles succeed. To determine the right number, consider the deal range you need each month to hit your goal. Then you need to be able to determine the average number of leads needed to close one deal. Do you actually have enough SDRs to create that many leads? In smaller organizations, this is less likely to be an exact science. However, attempting to identify these metrics adds discipline to the process and helps you better execute a hiring plan and protects you against the wasted time and money of an inefficient SDR team. That’s a system that succeeds.

4 questions to answer that help you avoid prospecting woes when you start specializing sales roles If we measured online chatter alone around sales development in scaling companies, I’d be hard pressed to think of many opinions that earn greater approval than the importance of segmenting your funnel and specializing roles to increase your bookings. Everywhere I look it seems my favorite thought-leaders in the industry are singing the praises of sales specialization roles. Yet a survey last year revealed that just over half (51%) the companies asked segmented inbound qualification and outbound prospecting into separate roles. Where’s the disconnect? I can’t think of any sales leader in any organization I’ve talked to in the past few years that isn’t at least mulling over strategies to optimize the funnel through specialization. But my suspicion is the reason there hasn’t been a greater wave of adoption to this method is the fear that specialization could lead to roles that don’t generate enough revenue quickly to justify their existence within a small company. When we talk about specializing roles, for most growing companies the first action item is to hire sales development reps (SDRs) and allow the current inside salespeople to stop prospecting a focus only on closing deals. As I’ve noted before, there’s no shortage of people championing the importance of the SDR. It’s even been argued that the best ROI you can get in sales is investing in top-of-funnel efforts. So why do some founders find their recent SDR hires pour endless hours into cold calls only to come up empty handed when it comes to actually setting up account executives with meetings or demos with quality leads? Usually, it’s your fault. In order for a SDR to succeed, you need the right structure in place to support their work, understand their value and measure their success. To avoid the pitfalls of a bad SDR hire, you need answer the following questions before you bring someone on board. When are you ready to hire SDRs? Timing is crucial. Your SDRs won’t succeed if you hire too early and don’t understand how the work of SDRs fit into your current funnel. David Skok outlined two great criteria to meet before you hire a SDR: There is enough lead flow to make qualifying potential customers a full-time job for SDRs There is enough budget to hire two SDRs–hiring only one SDR might give you an inaccurate view of how effective the role can be for your company In fact, Kyle Richless noted recently that hiring SDRs in tandem not only sets up the potential for exponential value creation but also helps your sales team develop a safety net to protect against potential failure. “SDR groups learn from one another and share best practices,” Richless wrote. “And if one hire doesn’t work out, the pipeline disruption will be less dire.” Do you know enough about your deal metrics to understand if SDRs are working? If you meet these criteria, then it’s time to determine if you have a good enough grasp on how your funnel works and what your customers are worth. Taft Love has developed one of the most thorough examinations of how to measure the ROI of your SDR hires. In his analysis, there are three crucial data points you need to know—but many overlook—before you can reasonably expect a SDR hire to succeed within your company? What’s your average deal size? If you can’t determine what an average contract is worth, you certainly won’t understand the measurable value prospecting new leads will create. Close rate –You and your current sales reps should be able to determine how many new opportunities will actually close. Otherwise, it’ll be impossible to determine how a SDRs quota for qualifying leads and setting meetings will impact your quarterly sales goals. Sales cycle length –It’s the job of the SDR to provide new opportunities for the AEs. But unless you’ve got an outline for the length of time until deals close, you may be saddled with the cost of a SDR for long stretch while you wait for their work to generate real revenue. That’s no issue for large organizations, but for cash-strapped startups the waiting game can be excruciating. Understand the sales cycle length and you’ll keep from underestimating the value of the SDR’s work. Have you provided your SDRs with the right incentives? Once you’ve mastered these metrics, you can back into a quota each SDR must meet to make their hire a success. Add up their projected base salary, the costs to train and hire, the costs of equipment and tools and any employee benefits for a new SDR. Then determine how many quality leads you need to justify these costs once you’ve multiplied the goal by the close rate and average deal size. Also, use sales cycle length to determine how lead generation impacts cash flow. The only thing missing from this equation is incentives. In order to properly motivate your SDRs, it’s necessary to provide variable payment components on top of their base salary. Richless advocates for a simple, quarterly payout system. “An SDR should be able to explain to a friend how they are paid in one sentence,” he notes, “I.e. ‘Schedule 20 qualified demos/month, completed by an AE partner.’” That’s a great start. It’s best to keep your SDRs accountable to a measurable quota of meetings with qualified leads rather than anchor their bonus to the number of leads they produce that ultimately result in a closed deal. Making an SDR responsible for the work that occurs after the lead is handed to the AE doesn’t make sense. Keep your criteria objective and consistent on what you need the SDR to deliver to the AE and they will be much more likely to hit quotas and feel motivated. Are you enabling your SDRs to succeed? Your SDRs are entry-level employees with one of the hardest roles to play in your company: cold-calling potential leads or emailing prospects to set meetings. It’s essential that you recognize the magnitude of this task and provide all the necessary tools to set them up for success. Get marketing involved. Allow copywriters to review email communication and punch up their language. Let marketing specialists sit in on calls to ensure that your product’s value is being effectively demonstrated and the SDR is showing how your company can solve the prospect’s pain point. This type of marketing-sales coordination benefits both departments and creates a collaborative environment where employees feel more buy-in and SDRs don’t feel like they’ve been sequestered to Cold-Call Island, where no prospects ever want to speak to them and their own co-workers don’t value them. Are you promoting SDRs? Finally, to get the best effort out of your SDRs you need attract a talented group to execute. And in order to hire and retain talent, you need to offer upward mobility within your organization. Conner Burt, Chief Operating Officer at Lesson.ly, has noted that one of the greatest values adds you obtain from hiring a SDR is only realized in much later on. “Your building a bench that you can use to promote SDRs to quota bearing sales people,” Burt said. “That’s an intangible benefit.” Once you bring in a new SDR, make sure they have an understanding of how to work their way up your organization and that the long-term prospects for their career are bright. That sets everyone up for success.

A couple weeks ago, I attended High Alpha’s marketing forum and was reminded by one of the speakers of the simple, yet remarkable function of all marketing efforts: enable sales to close more deals. That doesn’t mean marketing plays a subservient role when sitting at the table with sales executives, but it does serve a measurable purpose and it’s time marketing is held to a regular revenue commitment. So how do we help marketing help sales? Specific directives and clear goals. Here are some questions you need to ask your team to make sure they’re moving in the right direction. Is your content really king? Easily one of the greatest tools marketing can provide sales with is valuable, in-depth content that establishes the company as an authority and the product as a solution. eBooks, articles, emails and infographics can all play a vital role in properly educating the prospect and getting them comfortable with the buy. You must evaluate your current deliverables and decide if your sales team is being armed with the necessary ammo to hit their targets. Are you communicating clearly with prospects? Having the right content will keep the message clear and help your customers understand the product’s value while they’re not on the phone. But are they hearing the right message when it comes to demos and closing calls? That’s not only the responsibility of the sales team. Marketing reps should be sitting in on calls, stationed near the sales team and developing materials to improve communication in the sales process. Creatives should be helping with email communications and even provide some coaching with sales development reps (SDRs) and account executives (AEs) to help develop the right language that gets clients to commit. How do you measure if it’s working? Your marketing efforts should be every bit as accountable to quarterly goals as sales employees. Look at these data points—and more at Hubspot—to measure if they are making headway on their enablement efforts. Content production goals Quality content drives real results. But everyone has to hit numbers, right? Your marketing team should deliver quality at scale and hit regular production goals. Not only does it help predict traffic, boost SEO and create inbound leads, but it also helps the sales staff how many new assets they’ll have to dangle in front of potential clients. Sales team NPS Survey your sales team like you would any customer. Figure out if they are able to use marketing’s efforts to close deals easier. Is their feedback being considered? Does the content being created truly demonstrate value and explain the ways a customer’s pain points? If your sales team isn’t comfortable with the deliverables, your organization won’t maximize the value of your communications strategy and cause a riff that prevents true marketing-sales alignment. Other metrics to evaluate conversions Marketing is far from the only department that chips into sales enablement. The following metrics will help you measure marketing’s impact on sales enablement, but take into account that many other factors will move these metrics. Measure lead-to-customer conversion rate of marketing qualified leads Measuring lead-to-customer conversion rate help identify the success of a given channel. Marketing is no different. Evaluate the performance of marketing qualified leads (MQLs) to check the effectiveness of your inbound efforts. Finding a drop in this number over time can signal a drop in the quality of content (and vice versa for improvement) or determine if a change in messaging has brought in a crew of unqualified prospects. Measure revenue per lead As we’ve mentioned before, revenue per lead is really important to track. Use the following formula to figure it out: Revenue Generated/Number of Leads = RPL RPL helps to determine if your funnel is healthy and your leads are quality. This is also a great way to check if leads are being converted well and if not, it might be time to refigure the enablement efforts. Earning more revenue on each lead can be one of the strongest indicators of a startup that’s growing right. Are you beating your competitors? One of the metrics that can truly determine if your startup is healthy and your sales team well-equipped is a good win/loss rate against your competition. You may feel your content delivers better quality and the messaging is clear, but if it isn’t providing the winning differentiator that edges out the competition, marketing efforts may be the problem. Tally these columns and share it with your team each month and tweak communications as necessary. Related Resource: What Should be in an Investor Data Room?

When your startup hits growth stage, scaling the number of sales from channel partners is a no-brainer. For one, the customer acquisition costs are lower. A 2014 survey showed that companies spent about $0.53 for every $1 it attracted in new annual contract value (ACV)—almost half of what is spent on field sales: $1.02. Sales from channel partners also allow you to secure deals without scaling staff. Furthermore, your partners are likely hitting different customer and geographies. As Tomasz Tunguz notes, new channels diversify acquisition efforts “insulating the bookings number from the episodic underperformance typical of a single channel go-to-market.” That produces more predictable revenue and a greater multiple when you’re ready to raise money or sell the company. At first look, growing partner sales seems like the closest thing to a magic bullet. But your channel partners will not simply provide passive income. In order to achieve efficient and effective growth, start by interrogating your reselling efforts with the following questions: Are you actually securing more deals each quarter? It’s a simple question but one that needs to be quantified and shown to investors each quarter. Your partners need to produce and make reselling an indispensable part of your growth strategy. But if you’re just starting to create your first partnerships, this won’t come easy. Channel sales for partnerships require a lot of work upfront to get going. Be clear with investors when you embark on a reselling program that you need time to train your new partners. Nevertheless, after a few quarters, it’ll be time to show the program is working. Jim Somers at Openview has a great list of metrics for judging your partners. Here are some numbers he recommends for founders to record: How many partner deals are currently registered? What is the deal registration value? How many deals have been accepted/denied? How many deals have been won and lost? What is the value of the deals won? What is the deal velocity? Are you training partners properly? You can’t ignore your partners and expect the deal cash to flow. Channel partners may have experience in your industry or even share a similar business model, but will still need as much training like any account executives. “Developing reseller channels do require building a dedicated internal team to cultivate relationships, educate resellers, align internal and external incentives, and ensure success,” Tomasz Tunguz wrote. David Skok recommends creating marketing materials and programs specifically for channel partners to use. Sometimes, your staff will even have to convince your partners to help out with webinars and events to share these marketing efforts. Two things Somers recommends keeping tracking of is the number of courses your partners have attended and the number of training courses your partners have actually completed. Are your partners improving? Your partners have different priorities and, if the company is at a later stage, a different pace of business. It’s your job to prove the value in their participation and create a reason for them to be a better partner. You also need to figure out how to hold them accountable. “Establish partner quotas,” Jim Somers writes. “Both the supplier and the partner to agree to revenue goals and the required investment each must bring forward to be successful.” Assess your sales and training partner metrics and determine how you can improve each partner. Are they attending enough training sessions? What’s there close rate? Could their attempts be improved with more customized marketing materials? Working closely with your partners that are slumping will require a time investment but can pay off huge dividends in the long run. Moving a second-rate partner to a first-rate reseller can be as easy as looking at what’s worked for your top performer and figuring out to replicate the process. If a couple strategies don’t pay off, it’s worth both your time to end the partnership and move on. Are you adding partners? Treat your referral channels are an extension of your product. With new partners you have to test, measure and determine which fail and which scale. Provide incentives for your internal team to research new partners and develop leads. Measure the amount of leads generated, meetings set and deals made just like you would for your field sales squad. Scaling your sales from new partners protects you against saturation from other partner’s markets or a lackluster few quarters from otherwise reliable resellers. By going through this exercise each quarter and answering these questions, you’ve provided a framework for growing your partner channel, improving results with consistent focus on training and measuring any potential weak points that can be fixed or abandoned. If reselling is one of the most efficient ways to scale, evaluating the results and adjusting for future performance is one of the best ways to spend your time.

As I’ve mentioned before, one of the best ways to ensure a healthy sales funnel is to reevaluate the quality of your leads. Better leads produce better results. And taking a product-first approach to qualifying leads can help optimize your funnel. But first, let’s look back at how Categorizing leads Instead of taking a one-size-fits-all approach, qualify your leads by placing each in three separate categories: “organization-level,” “opportunity-level,” and “stakeholder-level.” Then ask specific questions that will determine if your product actually fits their needs or if this is a customer destined for failure. This filter alone can save your customer success team a great deal of headaches in the future. Types of lead qualifications Beyond categorizing leads, it’s important to assess where your leads are coming from and what teams are qualifying these customers. Traditionally, lead qualifications have come from two areas: Sales qualified leads (SQL): Some of the hardest earned customers come from SQLs, when your sales team identifies one of the customers in the previous three categories through research and deems them viable for a follow up call. With SQLs, you’re relying on a sales development rep (SDR) to cold-call to set a meeting or demo to get these clients into the funnel. These clients usually require a hefty amount of work to educate them on your offering, explain why you’ve identified them as a good fit and how your product solves their current pain points. Marketing qualified leads (MQL): Inbound marketing efforts produce leads that engages with your company through a number of actions—like requesting a demo or downloading a buying guide-that help educate users before they ever receive a sales call. Before they are passed on to an SDR or account executive (AE), these clients will have some familiarity with the pain point your company can solve. While effective strategies to help fill your sales pipeline, increasing the close rate on SQLs and MQLs can be difficult. One of the best ways to identify the potential customers with highest probability of purchasing is through product qualified leads. Product qualified leads (PQL): When a potential customer is already using a version of your product—whether that be a trial participant or user in a freemium model—they can qualify as a PQL. With a PQL, the customer has hit a designated trigger that lets the sales team know they are ready for a follow up call. As Christopher O’Donnell notes, by using the product to educate the customer first, you’ve given your sales team a huge advantage. “If we flip the traditional model 180 degrees and start instead with product adoption, we find ourselves selling the product to folks who understand the offering and are potentially already happy with it, before they even pay,” O’Donnell writes. Scale Leads, Create Focus PQLs rely on the product selling itself. With this approach, you’re providing the best possible introduction to demonstrate how the product can be a long-term solution. That’s an easy process to replicate too. “[PQLs] are scalable because they require no human touch and they are high-quality leads,” Tomasz Tunguz writes. “When the sales team calls PQLs, customers typically convert at about 25 to 30%.” If you have a freemium offering of your product, you can gain the benefits of the potential velocity of incoming leads while also earning the financial rewards of an inside sales price point. Furthermore, a focus on PQLs can improve your product roadmap as well. Tunguz notes that PQLs actually serve as a management tool as well because the focus on customer action gets everyone onboard with revenue as the key performance indicator. are a “Typically, the product and engineering teams don’t have goals tied to revenue which bisects a team into revenue generating components (sales and marketing) and cost centers (eng and product).” That can create a lack of effectiveness when it comes to creating a product that sells itself and providing the best ammo for a sales team to finish the job if needed. Of course, your product and engineering teams will have longer-term features that will not be revenue significant in the short-run. However, a mix of both can help get everyone on the same page and quickly end potential arguments. That’s a great addition to any company culture. “PQLs provide a rigorous framework for prioritizing development,” Tunguz writes. “Each feature can be benchmarked to determine the net impact to PQL which is ultimately funnel optimization.” Measuring PQLs If you’re ready to track PQLs, determine which triggers require an AE to follow up with a call. Product feature limits, a number of days in the free trial or specific actions in the product can all be good reasons to get in touch. Because you’re relying on customer actions, a large volume of PQLs may be tough to attract at first. However, learning how to optimize all your sales efforts to create more PQLs is essentially one of the best ways to constantly be improving your funnel. Track the number of PQLs each month and see how that compares to MQLs and SQLs. Share these results at monthly or quarterly investor updates to help make the argument that the team is determined to create an exceptionally efficient sales process as the company scales. Adding more PQLs could be one of the best KPIs for your company’s growth in 2017.

Q2 is here. Now every startup CEO will set out to accomplish the big wins that will catapult the company forward. But big objectives will ultimately come down to small details. So the very first question must be answered: are you prepared to hit this quarter’s goals? Surpassing your quarterly goals won’t happen by accident. Instead, careful planning and the right expectations to execute are the best ways to set up your team for success. Before you allow a few errors to knock you off a great start to 2017, ask yourself the following three questions: What does each rep need to do to hit their goal? The best way to hit the big revenue number for the quarter is to break it down into small steps. Jason Lemkin has a great breakdown that helps identify the component parts that can drive a successful sales performance. To start, plan for each rep to close about eight to twelve deals a month. With that as a baseline range, here is Lemkin’s outline for what needs to be done to stay on track: Deliver 50-100 qualified leads to a rep each month Allow time for at least three demos and three phone calls to close each deal Expect reps to have time for 30-40 demos and 50-60 phone calls each month (at least 20 works days are needed for the month) Multiply your average contract value (ACV) by 24 and 36 and you’ll determine the range of monthly recurring revenue (MRR) an account executive (AE) is expected to reel in for the quarter. Divide your Q1 revenue goal by the median expected MRR each account executive is expected to add over the course of the quarter. Do you have enough AEs to earn the revenue needed for the quarter? And do you currently have the pipeline to feed enough qualified leads? It’s essential to have a formidable group of SDRs filling the funnel so AEs can hit their marks. It’s also important to relay your expectations to AEs of the numbers of calls and demos they should expect to achieve their quota for the quarter. Do you have the right kind of leads? While it’s easy to look at the quantity of sales leads and feel confident that the formula Lemkin lays out will pay off, one of the easiest ways to slip up and miss your quarter numbers is having your team take their eye off the ball of quality. Never forget: you don’t need to grow unnecessary leads. I’ve written previously about the importance of categorizing your leads and filtering out the bad ones. This is a crucial step to ensure you haven’t stuffed your pipeline with junk that will only burn an AE’s precious time over the course of the quarter. Get your SDRs focused on delivering quality prospects or else they may serve as the weak link that keeps you from obtaining your goal. If you’re worried about the long-term trends on the quality of your leads, use why revenue per lead–an essential metric for any startup hell-bent on building a solid and robust pipeline. Who do you need to hire? (and when do you need to hire them?) Two of the biggest mistakes that will keep you from hitting your Q1 numbers are 1). Not appreciating how much time it’ll actually take to hire high-quality people 2). Not appreciating how long it will take those people to be up-and-running at 100 percent productivity. New hires may not arrive as fast as you’d like or be as productive as you’d hoped. However, if you run the numbers on your sales pipeline and you don’t have the headcount to qualify enough leads or land enough deals, hiring will be your first objective of the quarter. Determine the company’s greatest weakness: Is it a lack of AEs? Not enough SDRs? Are there too few inbound marketers to help build the funnel? Headcount may be your first priority of year if an insufficient staff threatens your revenue goal. You don’t want to hoist unrealistic expectations on your team and hurt morale when the group fails to reach its ultimate milestone. Regularly updating investors on the pace of lead qualifications, hiring plans, and the number of deals your team closes over the course of the quarter is one of the best ways to maintain great communication while you aim for these goals. Seek their feedback if you encounter problem areas, as your group of investors if often one of the best resources to rely upon for specific problems to solve.

It’s simple: if customers are happy, they are more likely to renew. Customer experience is essential—it can make-or-break your retention efforts, determine whether you’re at an acceptable churn rate and potentially drive your SaaS startup toward the all-important negative churn milestone. After all, as Tomasz Tunguz wrote, “startups that manage customer renewals better than their peers grow faster and require less capital.” What are you customer experience metrics? You wouldn’t avoid measuring marketing leads or quantifying the success of your sales staff to hit its quarterly goal. So if you’ve avoided measuring and evaluating customer experience until now, you’ve ignored an indispensable part of assessing your business. Luckily, your current client base likely offers a wealth of data you can quickly tap into if you ask your customers the right questions. One of the easiest ways to do this is to use Net Promoter Score (NPS). How to start measuring NPS It starts with a simple question: How likely are you to promote this company or product to a friend or colleague? Survey your customers and this will give you initial insight into the overall direction of your customer experience. Use a scale from 1-10 to measure their response. Here’s how the different scores are grouped. Promoters(score 9-10) – These are the most loyal customers likely to renew and make recommendations to their friends and colleagues. It’s this group that will drive your company’s growth. Passives(score 7-8) – Consider these customers satisfied, but unlikely to recommend you to others. Your company is vulnerable to losing this client base to a competitor if you’re not careful. Detractors(score 0-6) – This is your unhappy customer base who can actually harm your company’s reputation and prevent referral growth. To get your NPS average, subtract the percent of detractors from the number of promoters. According to Zendesk, a good average for a SaaS company is 29. Establish your company’s first average as the baseline. This will help you determine whether future efforts work. Also, it will help as we move into the second part of developing NPS feedback: segmenting. Filtering NPS Paid vs. Trial A one-size-fits-all approach to NPS can be limiting for a growth startup. In order to best measure customer experience, parse out different customer segments. Start by separating free trial signups and paid customers. Determine how each scores individually on their level of satisfaction. Trial customers won’t have enough experience with the product to deliver a quality assessment. However, they will provide insight into your conversion efforts. By evaluating this group’s NPS trend over time you’ll be able to measure your trial performance improvements. NPS can be the most important indicator of whether any new efforts the company is making actually produces customers. As for paid customers, they can provide essential feedback on how well your product improvements work. After a new release, measure the NPS performance in the subsequent weeks to find how your customers are responding to the product tweaks. Location Customer experience can vary by location, especially if where a client lives determines how much they interact with your sales or customer success team in person. For international companies, different countries can have very different renewal or customer experience patterns. Job Title Are you selling to right customer? How is your company performing when the C-suite is using your product versus middle management? By segmenting NPS scores by job titles, you’ll know which groups like and dislike your product the most. That will help you improve messaging to the low-scoring groups and double-down efforts on selling the segments performing well. Plan Type If something like price point is causing dissatisfaction or an expanded offering of your product is driving customers to deliver high scores, segmenting plan type will reveal these sentiments. Parse out your different plans and you might find that some of your current offerings are weighing down the rest of your customer experience. Number of users By creating different segments by a range of the number of users, you develop an understanding of whether your products start to perform poorly at a certain number. If adding more users is a large part of your strategy to scale, identifying a breaking point in customer satisfaction by number of users could be a crucial red flag that the product needs immediately attention. Determine your own No one knows your company better than you. If the above groupings aren’t the best segmenting options, create your own based off the demographics that are most essential to improving your product. Select experiences Now that you’ve created customer segments, ask for feedback on specific experiences with your product. Do you have an appealing interface? How is your customer service response time? These kinds of questions can help you isolate problems and make necessary changes. Qualitative feedback Metrics aren’t the only things that matter. Once you’ve asked your customers the first NPS question, allow a free-form feedback option and/or an additional survey to drill down into specifics you might not catch in your segmentation. Zendesk found that 63 percent of customers that gave negative reviews left additional feedback—that can be remarkably important to your business’ growth. Changing minds It’s important to segment and identify who is unhappy early because changing a customer’s opinion is incredibly hard. Zendesk found that more than 70 percent of surveyed users that gave negative reviews in the past didn’t change their mind. The majority of positive reviewers maintained their high marks, but to a lesser extent than their negative counterparts. Zendesk also found that more than half of NPS respondents rate a company 0 or 10, so your product is likely to produce a pretty strong reaction from the people paying for it. Share the results Now that you’re receiving more customer experience data points, be transparent about the performance of different segments with your team and investors. This level of detail helps your organization focus and will inspire confidence in your investors that you’ve parsed the necessary numbers to make big improvements.

Introducing Xero Chart of Accounts We originally launched our Xero integration into the Add-On marketplace just over a year ago and it has quickly become one of our most popular accounting integrations. Xero is a cloud accounting platform that has gained in popularity and is beloved by their power-user accountants. Our initial integration was great. We pulled in your high level financial metrics from your Income Statement, Balance Sheet and Cash Flow Statement. We started to hear more and more that our customers wanted to get granular reporting on their Chart of Accounts — after all, being able to compare your Online Ad Spend to Budget has become increasingly popular as “unit economics“ has become the in vogue term of 2016. We’re excited to release our Xero 2.0 integration to all that not only pulls in financial metrics but will query and pull in any account from your own chart of accounts. By pulling in your unique chart of accounts you’ll get to fine tune how you present and tell the story of your most important data. Protip: Use your actuals from your Xero chart of accounts and compare them against a budget or forecast by utilizing our Google Sheet integration. We’re excited to be improving the initial set of integrations we used when we launched Visible. Should you have any requests for future integrations or current ones, send us a note to hi at visible dot vc. Up & to the right, Mike & The Visible Team

Last week in a post about hitting revenue milestones to prepare for a Series A, I mentioned the importance of achieving true growth rates and avoiding false indicators of success. The problem for many founders comes when they try too hard to show exciting growth numbers at the expense of a clearer picture of the company’s performance. Avoid Misleading Metrics You don’t want to look like an idiot in front of your investors. At the same time, you want to excite your backers with some of the new accomplishments that are adding to the bottom line. So how do you avoid misleading numbers? Be honest with the size of monthly recurring revenue (MRR) numbers and your month over month growth (MoM) percentage. Your investors are likely assessing revenue figures from a number of portfolio companies, which means they know where to find weak spots. Don’t look unprepared. Here are some of the most popular mistakes–according to Amplitude–that founders make when outlining revenue growth figures: Don’t pass off big growth rates on small numbers If you’re still gaining traction as a startup, your month over month numbers may be tiny. So boasting mega percentages in MoM growth will be laughable to seasoned investors if you’re passing the rate off as sustainable growth at scale. January February March April May June July August September MRR 1000 1300 1800 2500 3300 4100 5000 6200 7300 MoM Growth Rate 30.00% 38.46% 38.89% 32.00% 24.24% 21.95% 24.00% 17.74% Don’t hide MoM fluctuation It isn’t sustainable unless you can show a detailed strategy for sales and market growth. An early stage startup with 30 percent growth MoM may not wow new investors, but it is a sign that you’re moving at a strong pace. That’s only a problem if you’re passing off your big digit percentage as a large MMR number. Your numbers can fluctuate. That’s perfectly normal. Especially over the course of quarter, a SaaS company can often begin their first two months hitting only 50 percent of its mark, but rally for more than 50 percent in the final month on the back of the groundwork down in the beginning. Make sure your founders now how your numbers may fluctuate from month-to-month. Showing the chart below and claiming a steady 15 percent growth rate over the course of nine months is inaccurate, even though the company hits that average over time. January February March April May June July August September MRR 10000 13000 14000 18000 20000 22000 26000 31000 32000 MoM Growth Rate 30.00% 7.69% 28.57% 11.11% 10.00% 18.18% 19.23% 3.23% Instead, show your investors a list of your monthly numbers and explain the factors that cause the fluctuations. If you’d like to calculate your compound monthly growth rate to have the metric on hand, use the following formula: Compound Monthly Growth Rate = (Last month/First month)^(1/Number of months difference) – 1 Don’t disguise declining growth rates Using the compound growth rate (CMGR), the following chart shows a 15 percent average over the course of nine months: January February March April May June July August September MRR 10000 13000 16000 19000 21500 24000 26500 28500 30500 MoM Growth Rate 30.00% 23.08% 18.75% 13.16% 11.63% 10.42% 7.55% 7.02% But as you can also see, as this startups numbers continue to climb, the growth rate is slipping. That’s not always a red flag. Sometimes scaling your MRR is going to come at the cost of maintaining your growth rate. However, you don’t want to lead with your CMRG during the period without discussing the difficulty of holding that percentage moving forward. In the long run, it’s only going to benefit you to share any bad news with investors, invite their help and be as transparent as possible to get everyone on board for the future. As Archana Madhavan said, distorting your company’s revenue picture can really damage your reputation moving forward. “When you fudge your growth models, you’re not just deluding yourself and your team,” he wrote. “You’re not just giving potential investors the signal that you don’t know what you’re doing.” Be clear about your MoM goals and how they impact your company’s long-term success strategy. Your month-to-month performance isn’t going to be the only indicator of your company’s growth, especially if you’re sacrificing in the short-term to improve product or reformat with your team. Nevertheless, discuss these numbers with regular updates to investors in order to allow for the necessary information to be shared and everyone to feel confident in the future direction of the business.

Using Customer Segmentation to Your Advantage Customer segmentation is a fantasy for startups struggling to gain customers. If your company hasn’t reached the product-market-fit stage, it’s hard to justify spending time segmenting your small client base. But once your startup begins to grow at a strong pace, it’s no longer responsible for your startup to continue grabbing at any potential clients without a clear understanding of how it potentially impacts your business. Customer segmentation applies mostly objective differentiation around your varying client types and helps you build a strategy to scale each. Additionally, understanding the value of scaling each will drive decisions to dedicate resources and future planning. Your investors aren’t going to be encouraged by your company’s direction if you’re not employing customer segmentation. “At the expansion stage, executing a marketing strategy without any knowledge of how your target market is segmented is akin to firing shots at a target 100 feet away — while blindfolded,” Tien Anh Nguyen writes for Openview. Bottom line: you might be wasting your time aiming for customers that aren’t worth the effort, while more valuable fish swim away. Types of Segmentation To get started on segmenting, Openview has developed a helpful guide for best practices for B2B companies. In this guide, Nguyen also outlines the three different types of segmenting strategies that are usually employed. A priori segmentation In this type of segmenting, classify potential customers based on publicly available information –like company or industry size. The biggest issue in this approach will surface when you find companies of a similar size or industry that have very different needs. Nevertheless, a priori segmentation can be one of the quickest and easiest ways to objectively differentiate customers if you’re just begin to use customer segmentation in your business. Needs-based segmentation What are the different needs your company serves? This segment separates out the different clients with different needs. You can verify these needs through primary market research. The needs approach is one of the most popular forms of segmenting, hitting on the “jobs to be done” mentality that can prevent customer segmentation from being too rigid or narrowly focused. Value-based segmentation This type of segmentation separates potential customers by their economic value to your business. Not all clients are going to be able to offer the same initial contract value nor will all clients be able to make your customer service efforts as worthwhile as others. Depending on your company’s needs and product, your segmenting efforts might stray from the traditional forms of differentiation. By focusing one (or many) of the above strategies first, you’ll likely get into the pattern of recognizing the value of customer segmentation, which can help as you begin to make your model more custom. Part of growing up as a company is focusing in on the customers that offer the most value—no longer feeling around for the right fit, but knowing your target client that is mostly likely to convert. Here’s how segmentation can help each area of your business focus: How it improves marketing One aspect that customer segmentation improves is the focus of your marketing message. By understanding the needs of your most valuable customers, you can tailor your communication strategy to address these pain points and offer solutions. Segmenting also identifies the value of creating different messages for different segments. If your customers are segmented by industry or company size, they may be more active on different platforms as well—providing yet another layer of marketing specificity that can improve messaging performance. How it improves sales Customer segmentation can focus a sales team quickly. If the segmentation process properly identifies the traits that make a potential client less valuable, your SDRs can avoid scheduling meetings and your AEs won’t have to worry about conducting demos or drawing up paper work. Instead, they’ll be digging in deeper to find out how to close the clients that really count and make more meaningful progress towards the quarterly goal. Then, the new information gleaned from the successes and failures can be poured back into the segmentation process to further parse out customer traits. How it improves customer success Understanding how each segment engages with your product and renews will also help you determine the cost of serving these clients. You might be able to identify how likely you are to upsell a client based on their current needs and the success of upselling similar customers in the past. On the other end, you’ll be able to better predict which customers might cancel quickly and add to your churn rate if the needs your servicing aren’t leading to renewals or if the company size tends to be in a low performing segment. While initial revenue might entice your sales team for the potential value of a customer, renewal segmenting might help you better identify the lifetime value of the customer you’re going after. How it improves product Trying to develop and improve a product that appeals to an unnecessarily large customer population can be overwhelming. By segmenting your potential client base, you can zero in on the specific needs that require attention first. As later iterations of your product are release, your priority structure and product road map could largely be dependent on how your customers are segmented. So much of your success as a SaaS startup relies on execution. Share your updated customer segmentation profile with investors to help increase confidence that your company is taking additional steps to make the necessary improvements to scale.

By now, it’s obvious to most experts: the Series A crunch is a reality and a burden on many founders in need of a capital boost. The boom in seed funding and the stagnation in Series A funding has created greater competition when founders return for the next round. Quick and easy results can set false expectations—especially for first-time founders—for just how hard it might be to succeed in future fundraising efforts. Couple this distorted view with the false belief that startups are getting cheaper and a cash-strapped business could be cooking up a recipe for disaster. Is it any wonder then that about two-thirds of startups fail to raise a Series A round? To best prepare for your future round, consider the following tips to stand out from the competition: Prepare strong unit economics early If seed rounds are more about inspiration, Series A rounds are closer to an interrogation. You’re no longer able to coast on an ambitious vision and a smart team to get a deal done. As a founder, it’s essential to provide proof that your unit economics are working and the model will work at scale once the business receives its next capital infusion. Being able to share your current customer acquisition costs and lifetime value and demonstrate how those numbers have tracked over time will earn you an advantage over many of your Series A startup competitors. You’re placed with the burden of proving your model is solid, so start financial planning early so you’re not surprised when you’re hit with questions about metrics when it’s time to raise. Get investors interested before you raise If you’re ready to raise a Series A but you haven’t established any relationships with VCs that can make it happen, it could be too late. You may have outlined a strong path for scaling your business, but it’ll tough to earn attention quickly unless you’re already on an investor’s radar. Take informal meetings regularly when you’re not fundraising. Share your story with investors before you ever start looking for Series A cash. Partners and associates at VC firms are hunting for their next deal. Don’t hesitate to reach out to them directly if you feel your business isn’t getting the attention it deserves after its seed round. By familiarizing VCs with your offering, you could be lining up potential suitors if the time is right. Just make sure to preface each meeting as an informal “informational” session, so they know you’re not looking to raise already. Call on your angels Your current crop of angel investors should be able to connect you to eager VC firms if you have trouble drumming up interest on your own. Rely on their network as much as yours. Founders who don't update investors on their progress & problems never engage their biggest supporters — & fail 95% of the time. #realtalk — jason ? ?? ❤️ (@Jason) October 30, 2016 But don’t just keep your investor’s Series A responsibilities to introductions. Make sure your regular updates provide an opportunity for investor to challenge your company’s metrics and help you reach important milestones that will make your business an attractive target when it comes to the Series A round. Your monthly and quarterly updates can serve as a vetting exercise that prepares you for the investors you don’t have yet. As Jason Calacanis tweeted recently, “Founders who don’t update investors on their progress & problems never engage their biggest supporters — & fail 95% of the time.” Maintain proper expectations Many investors caution against aiming your sights too high early. This could set you up for failure in the future. “A simple piece of advice: It’s much easier to increase a round size than to decrease it,” Josh Kopelman wrote. Setting a fundraising amount at $10 million and subsequently reducing the round to $5 million will send a signal to investors that something isn’t right with your company and could quickly cool their interest. Unfortunately, too many founders worry about what other companies are raising instead of focusing on what their business truly needs and determining with their investors’ advice the right number to go after. Losing ideal terms on improper expectations is an unforced error. Set a timeline and stick to it Attracting interest from investors doesn’t mean raising money on their timeline. It’s their job to spot the next great startup and get in on deals early in the process to wedge out their own competitors. As a result, investors will often pressure founders (with their kindness, of course) to meet before they start an official fundraising process. Not only can that decrease their competition, but it likely puts them in a position for the most VC-friendly deal. Don’t let it happen. Talking terms before you need the cash can compromise your business, as your company may not have earned enough traction to receive the offer you’ll ultimately deserve when the time is right to raise. In fact, not only should you delay serious fundraising conversations until you’re ready for term sheets, you should be thinking of creating greater time restrictions as well. When you’re ready to raise your Series A, set a firm deadline for the process so investors know how long they have to secure a deal and that you’re serious about getting it done quickly. Meet with all interested parties (if possible with your schedule) over a two-to-three week period and schedule second meetings quickly after. It’s not an unreasonable ask, nor will your deadline be arbitrary. The business got where it is today because you worked on the business instead of spending unnecessary amounts of time on fundraising. You don’t need to have flexible timeline. Plus, if you’ve driven enough interest in your company, adding a time restraint will increase the competitive atmosphere in the round and provide you better leverage in the process. Get them to agree the timeline if they are interested in moving forward in the process. Prove that now is the time If you can demonstrate strong unit economics, have the right amount of interest and a solid timeline, now it’s back to the basics: painting a picture of future success. Fundraising will always mix a little art into the science. In order to demonstrate that your startup is at an inflection point and ready for major scale, share your vision for how your startup will continue to grow in the market over time. Share examples of how your software has become an invaluable tool that’s saved your clients 10x what they paid. Lay out a plan that gets investors excited that you’re well on your way to hitting future milestones. In a Series A round, these intangibles won’t be worth more than hard metrics, but don’t forget that you’re adding members to your team when attracting investors. Part of closing any deal will always rely on convincing them that they should bet on you.

By now, most startup founders are exhausted by the seemingly endless talk of a tech bubble and the inevitable wave of destruction that never seems to arrive. It may not be time to hit the panic button, but the ever-present buzz around bubbles provides a reminder that any business built without a strong foundation will be (and has always been) vulnerable as the favorable tides turn. What Is Unit Economics for Startups? A Crash Course Eventually, all the delusions of grandeur you may have developed around your startup must be tested with a real financial model that’s easy to communicate to your investors. Sure, in the early days, you can attract capital by telling ambitious, untested stories of rapid growth and high margins. But when the rubber meets the road, the success of your business can’t be dependent on a series of hypothetical. Instead, you need to satisfy investors with an easy-to-explain model that demonstrates a formula for growth. That starts with a grasp on your company’s unit economics. Unit economics are the foundation that sustains your business as it scales. If you understand your unit economics, you understand what needs to happen and what needs attention in your business in order to hit your goals. This is essential when it becomes necessary to determine how much you can invest in the business to get an expected return. With positive unit economics, you’ll develop your projected return on investment and also make forecasting easier in the future. No matter what stage your business is in, you need the following basics: How much direct revenue is coming in? What are the costs associated with the business? What’s our unit of measurement? (one customer per unit for SaaS companies) Then you can begin to paint a picture for your investors of your company’s customer acquisition efforts and lifetime value projections that hopefully provide a high margin return on their investment. Triple-digit revenue growth is meaningless if you’re not providing a path to earn real margins on the customers you are acquiring. As Sam Altman notes, many of the poorly constructed startups he sees today rely on wild assumptions untied from traditional unit economics considerations: infinite customer retention projections, an implausible reduction in labor costs or a highly doubtful steep drop in the cost to acquire users. “Most great companies historically have had good unit economics soon after they began monetizing, even if the company as a whole lost money for a long period of time,” Altman said. Related Resource: Our Ultimate Guide to SaaS Metrics What are the Components of the Unit Economics? To best track and understand your unit economics you need to understand the individual components. Learn more about the components that are used to calculate and influence your unit economics below: The Unit Depending on your business model, how you classify a “unit” might differ. For a software company, this could be one customer. For a company selling a physical product, this could be one product. Customer Lifetime Value (LTV) A crucial aspect of your unit economics is understanding the value of a single customer. LTV is simply the lifetime value of one customer (or average order value (AOV) for an ecommerce store). This not only helps inform your unit economics but can help teams develop go-to-market strategies and product decisions. As an example for a startup company, let’s say their customer’s lifetime is on average 22 months and they pay $100 a month. That would be a lifetime value of $2,200. Customer Acquisition Cost (CAC) As we wrote in our guide, Customer Acquisition Cost (CAC): A Critical Metrics for Founders, “CAC is the sum total of the amount that it takes your business to acquire a customer, including time from your sales representatives and marketing and advertising expenses.” Customer acquisition is important when calculating your unit economics because you need to understand what it to takes to acquire a customer. Related Resource: Customer Acquisition Cost: A Critical Metrics for Founders Lifetime Value (LTV) vs. Customer Acquisition Cost (CAC) In order to better understand your acquisition efforts, you can calculate your LTV:CAC ratio. As we put in our guide on LTV:CAC ratio, “to make your cost to acquire is worth the lifetime value of the customer, it’s helpful to check the ratio between both. LTV:CAC ratio measures the cost of acquiring a customer to the lifetime value. An ideal LTV:CAC ratio is 3 (your customer’s lifetime value should be 3x the cost to acquire them). “ Customer Payback Customer payback period is exactly what it sounds like – the amount of time it takes to payback the acquisition of a new customer. For example, let’s say it costs a company $500 on average to acquire a new customer and they pay $100 a month on average. That would be a payback period of 5 months ($500 CAC/$100 MRR). Note: This is the simplest form of calculating a payback period — there are formulas that take into account gross margins. Churn Rate According to Investopedia, “churn rate is the annual percentage rate at which customers stop subscribing to a service or employees leave a job.” Churn rate influences your lifetime value which in turn influences your unit economics. If you can improve churn, you’ll be able to improve your unit economics. Retention Rate Going hand in hand with churn rate is retention rate. Being able to retain and grow your existing customer base is a surefire way to improve every aspect of the economics around your business. What is the Most Important Aspect of Unit Economics? Your business model will dictate the different components and aspects of your unit economics. However, the most important aspects will boil down to how your business and acquisition model scales. Unit economics for certain business models may make sense from day 1 — for example, if you are going after large contract sizes and building a custom solution. On the flip side, there are models that will take years to make sense — for example, if you have a smaller margin business that requires massive scale and customers. No matter how you slice it and dice it, investors want to understand that your business has the ability to turn to profitability and grow efficiently with the product and acquisition efforts you have in place. How To Calculate Unit Economics for Your Business Now that we understand what unit economics are and why they matter to your business. We need to find a way to calculate and track them specific to your business. Method 1: Defining the Unit as One Item Sold Calculating your unit economics based on a single item is sold is very straightforward. You simply take the revenue per unit and subtract the costs to sell 1 unit. Method 2: Defining the Unit as One Customer When calculating the unit economics for one customer (or one software user). You use the customer acquisition cost and lifetime value metrics we mentioned above. You can use the LTV:CAC ratio to understand this relationship or subtract your CAC from LTV to understand the profitability of a single customer. Example Unit Economics Table Here’s a sample model we developed that helps you demonstrate your company’s financials. Below, you can see the secondary performance indicators to include to develop a wider look at your company’s unit economics: Scenario A Average Contract Value (ACV) $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 Gross Margin 85% 85% 85% 85% 85% 85% 85% Gross Profit $4,250 $4,250 $4,250 $4,250 $4,250 $4,250 $4,250 Customer Acquisition Cost (CAC) $14,286 $14,286 $14,286 $14,286 $14,286 $14,286 $14,286 Sum of all Sales & Marketing Expenses $500,000 $500,000 $500,000 $500,000 $500,000 $500,000 $500,000 Number of New Customer Added 35 35 35 35 35 35 35 Churn Rate 8% 8% 8% 8% 8% 8% 8% Expansion Rate 0% 0% 0% 0% 0% 0% 0% Lifetime Value (LTV) $53,125 $53,125 $53,125 $53,125 $53,125 $53,125 $53,12 It’s wise to have this level of detail available to investors in your regular updates. With a model like this you can help answer some of the most pressing questions facing your startup: Are you maximizing retention rates to justify the cost to acquire? Are you delivering the expected conversion rate on the money you’re spending to attract new leads? Is the revenue per user outpacing the cost to serve? As your business scales, are you seeing an expected decline in churn rate? Why Should Startups Use Unit Economics? Having a clear vision and path to profitability is a must for any startup. At the end of the day, if a startup fails to be able to pull a lever to generate profit, it will cease to exist. Learn more about why you should track and monitor your unit economics below: Identify Obstacles to Profitability Early? As we previously mentioned, solid unit economics is the path to profitability. By modeling your unit economics in the early days you’ll be able to paint a picture of your potential for profitability. If your model and plans aren’t demonstrating what you’d like to see down the road you’ll be able to identify obstacles and focus on those in order to achieve profitability. Evaluate Potential Strategies As we mentioned in our previous point if your unit economics are not demonstrating a clear path to profitability it might be time to tweak your strategy. By identifying the weak components of your unit economics you’ll be able to inform strategy for the coming months, quarters, years, etc. For example, if you find that you are spending too much to acquire new customers, you’ll want to focus on bringing that number down. Analyze and Update Financial Model As we wrote in our blog, Building A Startup Financial Model That Works, “No matter who you are talking to – team members, investors, potential investors – company storytelling doesn’t stop, it simply changes contexts and mediums. A financial model is one of those mediums through which your company can tell its story, even without the operational history one might assume would be necessary to persuade investors or make smart decisions about the direction of the business.” Unit economics will certainly play a role in this direction. By manipulating your unit economics, your financial story will need to be changed and updated as you seek capital from potential investors. The Importance of Good Unit Economics for Startups Unit economics are the lifeblood of a business. Without a scalable and profitable way to acquire customers, a business will cease to exist. In order to improve your unit economics, you need to keep an eye on and track your efforts. Check out a few examples below: Raising Venture Capital The strength of your unit economics will be one of the key competitive advantages in a venture capital market that many predict will toughen considerably as the cost of that will toughen considerably for founders over the next 5-10 years. “The question that will immediately follow, ‘What is your annual growth rate?’ will be ‘What are your unit economics?’” Tomasz Tunguz predicted. “This change in investor mentality is catalyzed by the increasing cost of startup capital.” It’s not going to get any cheaper to run your startup or raise serious capital to keep things going. And if you’re earning low-margins, face a high-level of competition and are looking out on a short runway, your financials won’t inspire confidence in your investors. On the other hand, if you have racking up short-term loses on customer acquisition, but can clearly demonstrate your customer payback period and lifetime value, you’ll be an attractive target for investment. Learn more about raising capital in our guide, The Understandable Guide to Startup Funding Stages. Acquisition Improvements Tracking your unit economics forces you to keep an eye on your acquisition efforts and go-to-market strategies. If you launch a new acquisition campaign and begin to see your CAC is on the rise — it might be time to evaluate and tweak your new acquisition model. Keeping tabs on your acquisition efforts is a surefire way to grow your business. Growing & Scaling As we mentioned above, tracking your acquisition efforts is a great way to grow your business. By doing so, you’ll be able to understand what channels work best. You’ll be able to invest in the channels that work best so you can grow your company in an efficient manner. Track Your Key Metrics with Visible Markets fluctuate and conditions will better and worsen as your time goes on. But with a strong approach to unit economics, you are making responsible choices and setting yourself up to easily handle investor communication. It might not be the sexiest approach to drawing interest from top venture capitalists, but it’s a solid foundation that helps you build any kind of business. Raise capital, send updates and engage your team from a single platform. Try Visible free for 14 days.

We quietly launched some awesome updates to Visible last week that we wanted to make sure got the attention they deserve. The two updates below focus on automation of your KPIs and enhancing the storytelling of your data. Zapier Integration Our integration with Zapier is now live! It is in beta so you’ll have to use this link to accept the invite to Zapier. Link any trigger apps and assign values to your Metrics in Visible. E.g. Every time a new trial of our “Pro” account is started in Stripe I have that add +1 to our Pro Trials Created metric within Visible. You can find more info in our knowledge base. Feel free to reach out with any questions or recipes that you love! Update Enhancements You can now do two commonly requested actions within an Update. 1) Include bold number visualize types and 2) Include 2 charts side by side in an Update similar to a dashboard. In an Update simply hover over a chart component and click the grid icon to add a secondary chart. You can click the arrow to re-arrange the position as well. We hope you enjoy these updates! Stay tuned for more exciting announcements in the near future! Up & to the right, -The Visible Team

Your Startup Financial Planning Financial planning for your startup is a real buzzkill. It’s a long, potentially arduous process that can feel like a gigantic distraction from the actual work needed to make your company grow. Not to mention the plans that founders create that end up closer to WAGs – wild assed guesses –than accurate plans. But overlooking the importance of financial planning will cause major damage to your company. And if you’re only working on your plan once a year, you’re already doing it wrong. Your annual plan needs to be reviewed every month and possibly readjusted after every quarter. By reevaluating your financials every three months and checking in regularly, you’re performing maintenance on your startup—finding the weak parts of your business and testing your assumptions from the previous year. This is good discipline for any startup CEO. Establish rigorous financial planning in your business and you’ll better understand how your unit economics are trending, whether headcount projections have created the expected outcome and what’s needed in the next few quarters to stay on track. In the early days it may be exhausting to reassess every quarter, but in the long-run you’ll be building a stronger business. Tomasz Tunguz recommends creating and sharing two different financial plans every quarter with both the board and your company. The board plan includes the projections that you have 90 percent confidence in executing. With your board plan, you’re making a predictable commitment so you’re not over promising results, but still getting everyone on board in the room that the company is producing real growth. It’s the management team that will bear the responsibility if this plan goes awry, so setting responsible projections is essential. Tunguz also advocates for a company plan that includes the goals you have 70 percent confidence in achieving. This should be broader, more ambitious and include the individual goals of each team. Your company plan is your reach plan, which helps fire up your troops to do more without applying too much pressure if you fall short. Every company plan should also help you measure department performance and reveal any under performing parts of the team. The plan should be as detailed as possible so you understand the underlying factors of your business model. If your plan is just a sales number, that won’t show you where you need to improve or where your assumptions may be wildly off. Break out the plan into your different channels and show the key metrics for each. Whether it’s your cost per acquisition, number of marketing leads or customer lifetime value, it’s essential to have everything regularly measured to know if something is going wrong. It’s not necessary to share all this information with your investors unless requested. Your investors are likely too busy to dig into the weeds. Stick to KPIs and telling the story of your company with your developed board plan. By creating two plans you are speaking to two audiences and maximizing the impact of your message. You’re setting up both ambitious goals and proper expectations. That’s financial planning without unnecessary stress. Once you’ve hit the end of the quarter, if you feel like your business has only slightly over performed or underachieved on its performance, it’s best to stick to the plan for the next few quarters and not overreact to a potentially short-term trend. Especially if things are going well, the natural inclination of someone building a business is to think that positive performance will continue uninterrupted. Adjusting plan too quickly could cause you to overshoot your company’s ability in the next few quarters. As for under performing, even a one-time loss may provide a reason to add to headcount to help cover the gaps created so you can get back on track to hit your end of year goals. Falling short of your quarterly goal could be a sign of bad planning on your end as well. Maybe you assumed all your reps would hit 100 percent of their quota instead of the more realistic 80 percent. If you’ve missed consecutive quarters or if your numbers are wildly off, readjust your plan for the next quarter. There may be external factors that are causing the plan to be disrupted as well, like unforeseen market forces or key employee loses that you didn’t expect. Either provides a reason to adjust your quarterly and annual figures. However, make sure these changes are being communicated to your board. You wouldn’t avoid making constant improvements in any part of your business. A financial plan is no different. These exercises will keep you in constant communication with all parts of your business and allow you a better grasp on different aspects. This will be especially helpful when you face specific questions from investors. It will make you a better founder and executive. Related Resources: How to Write a Business Plan For Your Startup