I'm not sure when we decided to start comparing revenue generation to engines.
In some ways, it makes sense.
Many different parts of an engine need to function well together to ensure it can run smoothly. All the components must work together so the car can accelerate, decelerate, and run at optimal capacity with all of its resources like gas and oil.
Similarly, a Go-to-Market (GTM) team must function well together to bring more revenue to the organization.
Marketing, sales, implementation, customer success and support, account managers, and product departments must be enabled through processes, systems, analysis, and alignment to generate revenue effectively.
This is where Revenue Operations (RevOps) teams come into play. If we think of the GTM team as an engine, we can think of Revenue Operations as the mechanics and engineers who make sure the engine is humming along with no bumps.
It may sound like stuff you already know.
RevOps helps GTM teams generate more revenue and faster. So, if you are RevOps, how can you tell what's working and what's not?
This article is the first of a three-part series on measuring the effectiveness of your GTM processes so you can tell what's working and where you need help.
It all starts with the right metrics
When we RevOps professionals think about the wealth of data we have in our organization, what should we pick as the metrics to help us determine the effectiveness of our revenue engines?
The first place we will look at is our deal process.
You'll want to keep an eye on these metrics:
- Win Rate
- Deal Velocity
- Sales Cycle Length
Win, win, win, no matter what - Right?
Win rates are an absolute must to monitor; they tell us how effective our sales team is at closing deals.
As we monitor this rate (month-over-month, quarter-over-quarter, and year-over-year), we can look at how individual sales reps perform across different regions, territories, and products.
Using this information, leadership will spot weak or underperforming reps and information about territory design and quotas; territories might not be distributed fairly, or quotas might have unrealistic expectations.
It can also tell us to look upstream if leads are correctly being qualified as they enter the pipeline. Improperly qualifying leads can negatively impact your win rate because you've got people going through your sales process who are not a fit and won't close anyway.
How Do You Calculate Win Rate?
The total number of closed deals/total number of created deals.
A secondary report to help you dig deeper is a Loss Reason Report.
You will need to define loss reasons and make sure reps enter a loss reason for each closed-lost deal/opportunity.
Common loss reasons include:
Standardizing this information will ensure data integrity and help your reporting be more meaningful.
We want to close more deals faster
The second thing you'll want to keep an eye on is Deal Velocity.
If you are in the SaaS space, this could arguably be the most critical metric to tell you how effective your revenue engine is.
Let's start with the equation.
How Do You Calculate Deal Velocity?
# of deals created x average deal value x win rate/length of the sales cycle
This essentially tells you how fast your company is making money.
We like fast cars, right? Is your GTM a honda civic, a mustang, or a Ferrari? I'm fully bought into the car metaphor now.
Let's say you had 10 qualified opportunities and won 60% of them.
The average deal size for these 10 opportunities was $20,000, and it takes you 45 days to move a prospect from contact to close.
(10 x .60 x $20,000) /45 days = $2,667
An average of $2,667 is moving through the pipeline daily.
Are you looking for ways to improve this?
Propose finding a strategy to add more qualified opportunities to the pipeline.
You spin me right round - around the sales cycle
Your sales cycle will, of course, depend on your industry and the complexity of your business.
You could have a two-year sales cycle (which seems like an eternity), or you could have a two-week sales cycle.
How Do You Calculate Sales Cycle?
Average time from the first customer touchpoint to a closed-won deal
That's if you are using a CRM - if you aren't, you should - timestamp EVERYTHING.
Timestamp when a lead first enters the pipeline, as the lead moves through the various stages, and when deals change stages, etc.
This will make the reporting and analysis easier when the time comes, and the questions start following.
If your sales cycle is too long, this is a great time and place to dig deeper into your sales process and look for inefficiencies.
Other things to consider
Once you have your 'Big Three' metrics, you can also consider adding others to the mix.
You can look at things like average order value, sales vs. marketing pipeline generated (this will tell if your outbound strategy needs work or your reps could need training), lead response time (or, as I like to call it, speed-to-lead), and deal stage age to name a few.
Remember those handy timestamps? They will come in handy when you are looking at things like speed to lead.
You'll be able to identify if SLA's are being met by your sales team. The faster they follow up, the faster a lead can be qualified (or disqualified), and this can shorten the sales cycle and accelerate deal velocity.
Deals stuck in stages can also impact velocity and sales cycle.
How long are deals staying in certain stages? Are there any deals that have stalled in late stages that can be nudged forward to the closed-won finish line?
Get out your WD-40 from your operations toolkit and help sales move their deals through the stages.
Maybe you need a sequence to be triggered if a deal has been in the negotiation stage for 30 days or more. This can be done with sales manually adding stalled deals to a sequence.
Are sales reps following up promptly with new leads?
The faster a rep can follow up with a qualified lead, the faster they can move through the pipeline.
Are there tech issues slowing the sales process down?
A poorly implemented CRM that doesn't enable reps to door their job can add unnecessary time to the sales cycle.
A follow-up report for this sales cycle would be looking at the average time to close your sales reps.
I won't divulge too much here; you'll have to read part II of this series.
Like a mechanic looking at diagnostic reports about a car's engine, RevOps can look at the top three sales (deal) metrics to measure the effectiveness of the company's revenue engine.
Having your top sales metrics in your central source of truth is critical for monitoring the effectiveness of your GTM teams.
By examining your win rates, deal velocity, and sales cycle length, you'll know if your revenue engine is sputtering and requires new parts.
Or, you'll know if it's really effective and ready for acceleration (adding more people to the team, adding a new product line, etc.) and being able to drive more revenue.