Ever had a discussion or sat in a meeting to review metrics and the meeting didn’t accomplish much because the discussion got mired in questions about the metrics, not what the metrics were saying about the company’s performance? Or your executive team looks at metrics one way, but your investors, bank lenders, or new M&A partner does it a completely different way that may or may not relate to your business?
Granted, the way that operational metrics like SaaS Sales KPIs are compiled varies because of differing business models, but there are only so many different business models in SaaS. Fundamentally, operational metrics should be calculated with the following objectives in mind:
- the metric should capture something important about the performance of the measured operation;
- the metric calculation should be consistent and quantifiable
The following key operational SaaS sales KPIs and benchmarks are critical for planning company growth and expenses and identifying weaknesses – or strengths – in sales productivity and structures. Every SaaS company should know these SaaS Sales KPIs and be tracking and benchmarking themselves against peers and market leaders.
4 SaaS Sales KPIs and How to Calculate Them
Average quota attainment: Average quota attainment is used for several different reasons:
- to forecast probable future revenue attainment,
- to identify weaknesses in the sales organization,
- as a contributor to your CAC calculation (if quota attainment is low, then you’ll need more sales resources to achieve the targeted revenue, driving up your CAC)
Sales/quota X 100 for each contributor in Sales and then take the average; best to segment into cohorts by position or level, by territory, or by hiring date to get more granular views into where the problems might be.
Monthly is best but maybe quarterly or annually with very long sales cycles, making the forecast riskier and the identification of problems much slower.
Quota Multiple: The quota multiple is used for:
- Planning the number of sales resources required to reach targeted revenue, as well as
- To benchmark, if sales compensation and revenue achievement are comparable to peer and market leaders
Total on-target compensation is the sum of a sales person’s fixed plus variable compensation when they hit their quota target. If a salesperson earns a fixed salary of $120,000 plus $80,000 variable upon closing 100% of their target quota amount, then the total on-target comp is $200,000. If their quota is $1 million in ARR, then their quota multiple is 5X on-target compensation.
Pipeline coverage ratio – How many pipeline $s per month are needed to close the targeted $ in a month?
The pipeline coverage ratio is used for:
- Estimating marketing and sales lead gen expense and activity required to achieve targeted revenue
- Benchmarking against peers and market leaders to identify if leads are being efficiently converted to sales, or if there are inefficiencies in the marketing and sales funnel
Pipeline for the month/target for the month. For example, if a sales rep has $500k in the pipeline for the month and has a target of $100k for the month, then the pipeline coverage ratio is 5X.
Average Sales Cycle: The average sales cycle is the average time it takes for a qualified lead to become a sale. The average sales cycle is used for:
- Forecasting how many deals an average sales rep can complete in a time period
- Benchmarking against peers, competitors, and market leaders to:
- Identify strengths and weaknesses in the product/market fit and
- Identify strengths and weaknesses in the sales process
Add up the total number of days it took to close every sale in the week, month, quarter, or year you want to measure. Then, divide the sum by the total number of deals.
For example, let’s say you recently closed three deals with the following sales cycle lengths:
- Deal A took 10 days
- Deal B took 14 days
- Deal C took 16 days
40 / 3 = 13.3 days
With this metric, you can estimate that similar deals in the future will take around 13.3 days to close.
We’ve put together a quick cheat sheet of the 4 operational SaaS Sales KPIs and how to calculate them. Please click here to get your free copy of our ‘SaaS Sales Cheat Sheet’.