Waterfall Metrics

by Jon Russo

Waterfall Metrics

by Jon Russo

by Jon Russo

Many companies, particularly older SaaS companies, are still stuck with a lead based sales and marketing system while testing an account based system.  For those with a lead based system, the handoff points between sales and marketing can be critical.

In many client scenarios, we see low conversion rates between MQLs and SALs.  This is a sample set from all Marketo customers that ranges from 20% to 33% based on the maturity of the company of their funnel conversion.  The conversion rate is a function of Average Selling Price, Total contract value, sales cycle length and sales cycle type.  

In our experiences of seeing a pattern of low MQL to SAL conversion, this situation can usually be traced to 1 of 4 items or combo of items:

  1. No rigid acceptance criteria by the receiving function (SDRs) and/or no clear lead definition criteria agreed upon by sales and marketing – no accountability by parties or dashboards that can trigger non-compliance alerts and thus finger pointing.
  2. Too high of quantities of MQLs pushed to SDRs that are of low quality or low value – this is what we see most frequently as evidenced by actual conversion rates
  3. Lack of capacity of SDRs to execute on MQLs that marketing produces, so SALs are left untouched.
  4. SDR function that works for head of sales who is more motivated to do pure outbound ‘dial for dollars’ than to follow up on inbound.

Sometimes Marketing is unfairly asked to contribute even MORE to pipeline year over year across a flat or minimally growing budget against a weak conversion point that we spelled out above – we see that phenomenon quite a bit in the first quarter of the year.  In some cases, this calculation makes sense as investors want to see a more efficient sales/marketing engine as evidenced by a lower Cost of Customer Acquisition (CAC) over time.  However, Marketers are asked to make a “step function” change in CAC which is extremely risky to hit expectation wise.

There are ways to combat this increased pipeline challenge of marketing shouldering all the burden and other ways to improve revenue for the company that marketing can influence:

  • Fix the MQL to SAL problem – depending on the cause as identified above, one could address this overall conversion issue.
  • Reduce churn – with customer marketing, you can help drive better LTV and with better churn numbers, you can reduce the pressure sales AND marketing feel on generating new business – you have to generate fewer new MQLs to sustain revenue
  • Ask your CFO what he/she thinks about the sustainability of a step function change in CAC;  in our experiences, that is not a scalable solution in any SaaS environment, a good CFO will know that and may come to your defense.

Addressing any of these areas will help for better sales and marketing alignment, improved stakeholder satisfaction, and longer term tenure by a head of marketing.

What trends are you finding in your waterfall lead metrics?