#75- Early stage sales

B2B SaaS sales & customer metrics for pre seed & seed stage companies

Sales and customer success metrics provide us with an early idea of what your firm will become. They also indicate whether the product has achieved product-market fit - what the product's potential is and which types of customers are most likely to buy. At this level, as a pre seed B2B SaaS investor, I look for companies that:

• Solve a real-world problem in a big market

• Close high proportion of sales prospects

• Attract new customers to drive revenue growth

• Have satisfied clients who renew their contracts

The most important metrics for sales & customer success at an early stage are:

1. Win rate %

2. New bookings growth rate %

3. Revenue retention %

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Win rate %

What is the win rate?

The win rate is a core KPI in sales: When a customer makes a decision, how many times do you end up winning it?

How do we calculate the win rate?

Win rate % = $ of opportunities won / total $ opportunities in pipeline

What does a win rate imply?

1. Your prospects engage with you and like your solution indicating demand

2. Your prospects buy the solution indicating it meets their need & solves their problem

3. You can close a lot of deals indicating predictable, repeatable GTM motion

In addition to the above, it also helps us understand what pipeline coverage is required to meet targets. Pipeline coverage is simply (1/win rate%). This means if we have a win rate of 25% via sales, we need 1/25% i.e. 4x pipeline coverage. For every $4 in the pipeline, we win $1 in sales.

What is a good win rate?

We’ve seen new logo win rates of 20-40%. Win rates above 50% happen rarely, and only if it is a very narrow ICP and targeted outreach. If your win rates are high, there may be 2 key issues: (i) Either you are qualifying leads out of your pipeline too early, or (ii) you are underpricing your product which increases your perceived value. A 30% win rate (converting 1 out of every 3 leads) is a very healthy number to have.

How to improve win rates?

Sharing our top 3 ways to improve win rates:

1. Lead qualification - Early-stage startups usually do not have a very refined deal qualification framework. Providing a narrow ICP to every SDR, and running leads across qualification criteria like BANT/MEDDIC, a list of direct & indirect questions help to only move qualified leads into the pipeline.

2. Standard sales process - While many companies have a standard sales process, some rep approaches may differ. It is not a bad thing as sales is as much an art. But inconsistent sales processes may affect the buyer journey and cause dropouts. Keeping a standard process and steps will help in measuring accurate win rates.

3. Optimal forecasting - Many startups fall into the trap of pipeline stuffing, falling in love with a lead even if it has gone cold turkey. The best thing to do is to put a timeline to every lead and map it against the different stakeholders within the buyer. If a lead moves from step 1 to 2 but gets stuck, that should be an indicator of where it is going. It may help to reallocate SDR bandwidth to other leads which are expected to move along towards closing.

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New bookings growth rate %

What is new bookings growth rate?

The new bookings growth rate is the % change in new ARR between the current period and its prior period. For pre-seed/seed companies we will only take new ARR into consideration and not expansion ARR because for the first 1-2 years in sales the focus has to be logo acquisition.

How do we calculate the new bookings growth rate?

New bookings growth rate% = New ARR in current period/ new ARR in prior period -1

What does new bookings growth rate imply?

This metric is all about growth. This ratio is the clearest indicator of a successful go-to-market strategy of an organization. All your sales & marketing efforts lead to something and that something is new ARR added.

What is a good new bookings growth rate?

Early-stage startups have to grow fast off a very low base. So good new bookings growth rates for the following periods are considered good:

1. Monthly: 7-12%

2. Quarterly: 30-60%

3. Annual: 100-300%

How to improve new booking’s growth rate?

Sharing our top 3 ways to improve new bookings growth rates:

1. Lead quality: Ensure leads that enter the pipeline are qualified and of good quality. If you sign up every customer that enters the pipeline you will start seeing non-ICP clients churn quickly. List all the sources of the leads, double down on the best-performing lead source

2. Repeatable sales process: It is difficult to grow 2-3x every year without a repeatable sales process. Around the first 10-20 customers acquired via founder-led sales, it becomes easy to identify a common denominator in the sales process, estimated timelines, lead sources, and touchpoints to codify a sales process document. This can also be a good time to hire the first VP of Sales to move away from complete founder-led sales and later hire SDRs to get the job done.

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Revenue retention %

What is revenue retention?

Revenue retention is simply the change in revenue from your existing customer base from the prior period. It measures how sticky your product is and how much value customers derive from your product.

How do we calculate revenue retention?

Revenue retention = Revenue from customer A today/ revenue from customer A 12 months ago excluding cross-sell or upsell

What does revenue retention imply?

Think about sales as a bucket. New wins keep adding water to your bucket. Churn or contractions keep leaking water out of your bucket. The difference between the leak and the addition is simple revenue retention - the amount that stayed.

What is good revenue retention?

• Good: 90-110%

• Better: 110-130%

• Best: 130%+

How to improve revenue retention?

1. Sell to your ICP only: If you sell to everyone, you will see churn from customers who were never your target customers

2. Focus on onboarding: Many customers get a grand courtship and wedding, but a shabby honeymoon. Memories are fickle, and you are as good as your last conversation. Treat onboarding with utmost care and take your customers from pre-user to power user covering all aspects of what it takes to succeed in using your product. Good onboarding keeps the customers happy and periodic check-ins keep that happiness alive.

3. Underpromise & overdeliver: Many reps promise customers the moon and when the product fails to deliver the excess value, users are turned off and eventually churn out. Do the opposite.