To measure sales efficiency, SaaS startups should use the 4×2
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For the full article visit: https://techcrunch.com/2019/12/06/to-measure-sales-efficiency-saas-startups-should-use-the-4x2/
To measure sales efficiency, SaaS startups should use the 4×2
Brian Ascher
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Brian Ascher is a partner at Venrock, where he invests broadly across enterprise and fintech and serves on the boards of several companies, including Personal Capital, 6Sense, Socrates AI, Dynamic Signal, Retail Solutions, SmartBiz Loans, and Inrix.
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Once you've found product/market fit, scaling a SaaS business is all about honing go-to-market efficiency.
Many extremely helpful metrics and analytics have been developed to provide instrumentation for this journey: LTV (lifetime value of a customer), CAC (customer acquisition cost), Magic Number and SaaS Quick Ratio are all very valuable tools. But the challenge in using derived metrics such as these is that there are often many assumptions, simplifications and sampling choices that need to go into these calculations, thus leaving the door open to skewed results.
For example, when your company has only been selling for a year or two, it is extremely hard to know your true lifetime customer value. For starters, how do you know the right length of a "lifetime?"
Taking one divided by your annual dollar churn rate is quite imperfect, especially if all or most of your customers have not yet reached their first renewal decision. How much account expansion is reasonable to assume if you only have limited evidence?
LTV is most helpful if based on gross margin, not revenue, but gross margins are often skewed initially