The Power of the SaaS Bowtie: The Key Metrics You Need to Measure for Success
The SaaS Bowtie is a powerful tool that can help businesses understand the key drivers of pre-sales, sales, post-sales and service functions and how they work together to impact revenue growth. The SaaS Bowtie visually represents these three critical functions and the key metrics for each function. Any SaaS business can leverage the Bowtie to give valuable insights on optimising sales and marketing efforts, reducing customer churn, and ultimately driving revenue growth.
By understanding the relationship between these functions, their key metrics and how they impact one another, companies can make data-driven decisions to improve their overall revenue performance. Let's delve into the power of the SaaS Bowtie, how it works and key bowtie metrics to measure for success.
How does the SaaS Bowtie and its key metrics work?
The SaaS Bowtie helps businesses understand the key drivers of customer acquisition and retention and how they impact overall revenue growth. It provides a visual representation of the three critical functions for any SaaS business: Pre – Sales, Sales and Post Sales. The Bowtie can help provide top-line critical metrics that these functions should focus on; customer acquisition cost (CAC), lifetime value (LTV), and churn rate.
At the centre of the SaaS Bowtie is a customer's LTV (lifetime value). This is the total revenue a customer will generate for your business throughout their lifetime. The larger the LTV, the more valuable that customer is to your business.
On one end of the Bowtie, we have the CAC (customer acquisition cost). This is the cost of acquiring a new customer, including all pre-sales, sales and marketing expenses. The lower the CAC, the more efficiently you are acquiring new customers.
On the opposite end of the Bowtie, we have the churn rate. This is the percentage of customers that cancel or do not renew their subscription in a given period. The lower the churn rate, the more successful your business is at retaining customers.
The relationship between these three metrics is critical to understand. If your CAC is higher than your LTV, you are losing money on each new customer you acquire. If your churn rate is high, your LTV will be lower, as you will lose customers before they can generate enough revenue to offset your CAC.
The SaaS Bowtie helps you to understand the interplay between your GTM functions through the management of these three critical top-line metrics. By tracking these metrics and understanding their relationship, you can make data-driven decisions to improve your overall SaaS GTM performance.
What metrics should you track for each function of the Bowtie?
CAC, LTV and Churn are great for managing top-line revenue performance, but there is a need to develop a set of standard metrics for each area of the Bowtie to enable your GTM functions (pre-sales, sales and post-sales) to be successful.
6 Key Pre-Sales Metrics:
There are several key pre-sales metrics that SaaS businesses should track to measure the effectiveness of their pre-sales efforts:
Lead Generation - The number of leads generated by a business. Track this metric to understand how well a business is performing at generating leads.
Lead Qualification Rate - The percentage of leads that are qualified as potential customers. Use this to understand how well a business is identifying qualified leads.
Lead Conversation Rate - The percentage of leads that become paying customers. Track this metric to understand how well a business is converting leads into paying customers.
Lead Source - This metric measures the source of your leads. Use this metric to understand which channels and platforms your leads are coming from.
Return on Marketing Investment (ROMI) - It is important to track this metric to understand the effectiveness of a business's marketing efforts.
Customer Acquisition Cost (CAC) - The cost of acquiring a new customer. You want to track this to ensure that the cost of acquiring new customers is less than their lifetime value (LTV).
6 Key Sales Metrics:
There are several key sales metrics that SaaS businesses should track to measure the effectiveness of their sales efforts:
Monthly Recurring Revenue (MRR) / Annual Recurring Revenue (ARR) - The total recurring revenue generated by a business on a monthly or annual basis. It is a key indicator of the growth of a SaaS business.
Sales Qualified Lead (SQL) - The number of leads that have been qualified by sales as potential customers. This can help a business understand the quality of leads coming through to sales.
Sales Accepted Lead (SAL) - The number of leads that have been accepted by sales as potential opportunities. It is important to track this metric to understand how well a business is identifying potential customers.
Sales Win Rate - The percentage of deals that are won by a business. Track this to understand how well a business is closing deals.
Sales Cycle Length - The length of time it takes for a lead to convert into a paying customer. Use this metric to understand how well a business is moving leads through the sales process.
Average Deal Value – Use this metric to understand the $ value of a business's opportunities. This metric helps you understand if you are growing your deal size and whether you are targeting the right target market.
6 Key Post-Sales Metrics
There are several key post-sales metrics that SaaS businesses should track to measure the effectiveness of their post-sales efforts:
Customer Retention Rate - The percentage of customers that continue to use a business's service over time. It is important to track this metric to understand how well a business is retaining customers.
Net Promoter Score (NPS) - The willingness of customers to recommend a business's service to others. This metric helps you understand how satisfied customers are with a business's service.
Upsell and Cross-sell Rate - This metric measures the percentage of customers that purchase additional products or services from a business. Use this to understand how well a business is expanding current customer relationships and helping them realise value in the product.
Renewal Rate - The percentage of customers that renew their subscription to a business's service. This metric tracks how well a business is retaining its customers.
Churn Rate - The percentage of customers that cancel their subscription to a business's service. It is important to track this metric to understand how well a business is retaining customers.
Support Ticket resolution time - The time it takes to resolve a customer's support request. Track this metric to understand the effectiveness of the support team.
By tracking key metrics, SaaS businesses can gain valuable insights into the performance of their business and make data-driven decisions to improve their overall performance. The SaaS Bowtie is a powerful tool that can help businesses stay on top of their key metrics and make informed decisions to drive growth and success.
Need help to get you started?
At Ellivate Consulting, we understand the power of the SaaS Bowtie and the key functional metrics that need to be measured to enable your go-to-market success. We understand the importance for every business to develop a set of bowtie metrics that can be used to help drive the ongoing operational effectiveness and efficiency of its revenue generating business.
If you want your go-to-market teams to be successful, make sure you have implemented the SaaS Bowtie and are tracking the key bowtie metrics that will enable your profitable revenue growth. It will make all the difference. Contact Ellivate today to get started on your journey.