When you oversee a multi-department operation, you open the door to a lot of possible metrics and indicators.
Too much information can be just as paralyzing as too little.
So, how do those in revenue operations identify the most revealing metrics aligned to how the revenue is really behaving?
It’s worth noting that when the measures become the target, they cease to be good measures.
That means you should avoid drawing your conclusions from looking at the figures in isolation and always seek to understand the wider context and reasons behind them.
Start asking how your revenue indicators collectively communicate the story your revenue is telling.
When you start looking at your figures like this you can see what they show with one hand and answer why they’re showing that with the other.
You can also identify how you intend to improve them.
With that in mind, here are five revenue indicators that businesses should be accurately tracking.
Indicator one: customer acquisition cost (CAC)
It’s a great discovery exercise that forces you to deconstruct your marketing spend and signpost those costs against their delivery.
Add everything you spend annually on marketing; including salaries, PPC, agency fees, contractors, software, referral fees, overheads, etc.
I would add your total sales spend into this equation too.
And caveat that if you’re a product-led company that leans on a freemium service, then the upkeep and support of that service are included in your acquisition.
Then divide that by the number of customers that this activity had a role in acquiring.
A lot of companies find marketing acquisition a bit of a quagmire, but when you can plot that spending movement against its impact then you can identify:
- What’s accounted for
- What’s connected
- What’s justified
- And what’s engaging
Marketing should not be about going through the motions and creating complicated acquisition models.
It can be a lot simpler than that when you track the figures and recognize where you don’t need to be spending so that you can focus on where you should.
Make sure you include a timeframe so that you can see what was done differently and accommodate the longer ROI from activity like SEO.
This is an overview of CAC and should always be held in tandem to the lifetime value of a customer (which we discuss later).
Indicator two: pipeline coverage
A ratio that measures how much open pipeline you have against the quota you need to close in order to meet your target.
Sales leaders would usually suggest you should accommodate three to four times your coverage as a good rule of thumb for achieving your quota.
Understanding the coverage you need is anchored against your average win rate and sales velocity.
Revenue leaders use our platform as a command centre to gain a real-time overview of their pipeline coverage, its likelihood of closing, and the longer-term outlook.
They’re able to drill past the headline metrics to see which reps have solid pipeline coverage and should be focusing at the tail end of converting them.
And those that have bad coverage and need to be counterbalancing the time they spend closing with pipeline-building activity.
Businesses can shorten or extend that vantage point over pipeline coverage to see when the road runs out and mitigate the risk accordingly.
Indicator three: lead conversion rate
How effective are you at converting your leads into customers?
Successful revenue ops require you to look at the sum of all parts and view things systematically across the customer lifecycle.
That means breaking down the sales stages and each successive conversion point.
A good example of this would be to consider the introduction of leads that marketing hand to sales.
(leads that convert to sales divided by total leads supplied)x100
It’s important to ask the right questions of the figures to positively change the inputs that deliver better outputs at each gate:
- How are you qualifying “leads” and how many MQLs convert into SQLs?
- What is being done differently between those that convert and those that don’t?
- How many SQLs evolve into opportunities and then into customers?
- What is being differently to secure success at these stages?
- Is the problem the quality of the leads or the ability to convert them?
Once you understand the reasons behind these transitions you can identify which leads will generate the most revenue, the typical timeline, the volume to fill quota, and where to refocus your sales and marketing energies.
Indicator four: Sales velocity
The means of tracking how fast your leads evolve through your sales cycle and how quickly new customers then generate money.
A higher sales velocity means you’re bringing in more revenue in less time.
Sales velocity relies on accurately knowing how your pipeline has performed historically in order to anticipate its trajectory.
To understand sales velocity you need to deconstruct:
- Number of opportunities you can work
- Average deal size and lifetime customer value
- Win rate
- Sales cycle length
Sales velocity equals the multiple of your opportunities worked X your average deal size X your win rate and then divided by the length of your sales cycle in days.
Our new platform automatically calculates this:
And then flags where sales velocity is stalling, extending into risk, or running out of runway.
There is no perfect science to predicting the future, but having the right revenue indicators is the most accurate system we have for reducing the margin of error and creating predictable revenue.
Indicator five: Forecasting accuracy
The sooner you can identify the likelihood of success, the faster you can strategically move to positively change its outcome.
Past performance that ties together the reasons for previous success are the best benchmark for revealing this.
It comes down to understanding the lag indicators that qualify what good looks like and then layering leading indicators over them to scrutinize the real-time risks that are ahead.
Businesses will typically look at historic win rates and breakdown forecast accuracy by sales velocity, stage conversion, and quota to close.
When you find inconsistency between your forecasts and reality, you have to ask why, what, and how you can operationally improve them.
Our platform automatically surfaces this process in real-time and houses it all in one place so that you actively track how you’re moving against your forecasts and why they might be trending negatively.
It might be a case of not having the right stakeholders involved from the buying committee. Your opportunities might be stalling, past their close date, or running out of the time you typically need to convert them.
If you would like to have a look at the forecasting platform it’s entirely free and self-driven for you to try in your own time.
Indicator six: Customer lifetime value (CLTV)
It’s all well and good streamlining your customer acquisition and sales journey, but those efforts are somewhat in vain if you don’t pay equal attention to the revenue indicators on the other side of success.
Your customer lifetime value should be mapped against the same margin of time as your CAC.
It should use leading indicators to determine how much each customer will typically generate.
There are a number of ways to calculate LTV. We’ve started with the basics. The simplest way is to start by calculating the average purchase value:
Divide your company’s total revenue by the number of unique purchases made in the period.
Then calculate the average frequency of purchase:
Divide the total number of purchases by the unique number of customers that made purchases.
And finally, the average customer lifespan:
The average number of months/years that a customer continues to purchase from you.
Once you have this, you can determine the customer lifetime value (LTV) from the sum average of:
- Purchase value x average purchase rate x average customer lifespan
When you feel more adventurous you can segment this by verticals, customer firmographics, recurring revenue, and more detailed factors.
Businesses tend to frontload their metrics at the beginning of the customer journey and forget that their existing customer base is often their biggest opportunity for sales advocacy and new revenue.
A good CAC includes the cost of delivering the experience that was promised during the marketing acquisition and sales journey.
Businesses that are able to effectively segment their CLV can reinforce their ideal customer profiles and reverse engineer their marketing models and sales focus accordingly.
When you have a cost of acquisition that’s complementary weighted against the lifetime value of your customers, then you’ve built a profitable system that scales and it’s time to pull the levers harder.
What’s more important than any of these revenue indicators individually, are what they collectively communicate and the reason for their movement.
Install a system of measurement and a culture of improvement that allows you to accurately identify and improve your leading revenue indicators.