How do you know if your go-to-market (GTM) plan will succeed? Evaluating the effectiveness of a GTM strategy and the team driving it is always a challenge. But based on SBI’s experience in helping numerous clients achieve GTM growth, there are several key metrics you should always pay attention to as these will help you determine the probability of success of your GTM strategy. Here’s a checklist of 7 KPIs that CFOs can use to evaluate their GTM strategy.
What’s the difference between pipeline and forecast, and how much opportunity should be considered in either one? Your forecast looks at opportunities within the quarter, while pipeline looks beyond the current quarter. Best practice suggests having a 2:1 or 3:1 ratio of opportunities in your forecast and a 4:1 ratio when it comes to your pipeline.
This means that your Sales team should have opportunities two to three times their quarterly quota in their forecast, and four times of that in the pipeline. If the quarterly quota is $100,000, there should be $300,000 of opportunities within the quarter and $400,000 for the next quarter.
High-performing teams typically have a 70/30 split of those performing above and below quota respectively. More than 70% of sales reps reaching or exceeding quota may indicate lost opportunities, but if less than 70% are meeting their quota, it could indicate a variety of other issues: product problems, weak messaging, poor territory design, or compensation problems. It’s important to distinguish who’s winning and who’s not if you want to continue raising the bar over time.
There are so many types of leads in the demand generation funnel, but what CFOs really need to know is the cost per lead and which activities generated leads and had the highest sales conversion. Understanding cost per lead and lead-to-sale ratio is critical to assessing marketing performance.
Lead-to-sale (L:S) benchmarks can be anywhere between 13-27% depending on the industry. The less complex the sale, the higher the conversion rate. Benchmarks for lead-to-opportunity (L:O) and opportunity-to-sale (O:S) ratios can be 25-35% and 25-40% respectively. Your head of Sales should be able to identify the key drivers for both these metrics.
Collecting revenue is a key indicator of a company’s health. A healthy DSO should not exceed 35-50% of the sales terms of the company’s contract, so if a customer has 30 days to pay, then you would expect to collect revenue in under 40-45 days. Anything longer than that may need a deeper look into areas like product usability, customer service issues, a poor onboarding experience, and factors that could lead to buyer’s remorse.
The average tenure for a salesperson is 27 months; 22 months for inside sales and 31 months for a field salesperson. Averages that deviate greatly from these benchmarks need to be considered against various factors from company culture to revenue growth rate and quota attainment percentage.
At the same time, examine the company’s onboarding process. How long does it take a new sales rep to get their first sale? What’s the time to break even for a new rep? Companies with high turnover should commit to creating a strong onboarding plan to maximize time-to-revenue for new hires.
How does a CFO determine whether Marketing and Sales are properly funded? Determining the appropriate budget requires an understanding of several inputs: average sales price, average sales cycle time, win rate, size of sales addressable market, current market penetration rate, competitors, and the company’s durable competitive advantage—your unique value proposition.
For many companies, marketing spend is 11-17% of total revenue, but this number can vary greatly depending on your industry and your goals. There is a high variance in the benchmark for sales budgets as well, from 25-50%. Many more factors play a role here, including sales cycle, how a company assesses its ROI, as well as recurring versus net new revenue.
Inquiring as to how the GTM strategy was developed is an important discovery point for CFOs. How much of it is based on quantifiable data versus gut feeling? How many win/loss calls were conducted? What is your company doing to gather insights directly from buyers? What is the difference between the total addressable market (TAM) and the sales addressable market (SAM)?
The best companies conduct win/loss calls monthly. Companies selling a complex product with a sales cycle longer than 9 months should contact each lost prospect. Companies with a shorter sales cycle that sell high volumes should target at least 20% of lost prospects for win/loss calls.
Knowing the difference between TAM and SAM helps you set priorities and strategies. If product limitations reduce your SAM to one-tenth of your TAM, this opens the door to discussions on product development and prioritization. It’s a lot of work, but all this provides real insight into where the buying process went wrong and what you can do to achieve better results in the future.