We all love that time of year when the leaves hint at changing, the weather begins to turn, and the executive team goes to battle to determine topline goals, then sends everyone in operations into a full-on sprint 🙀 to figure out how to staff and support the organization.
Sarcasm is an art form in RevOps for a reason… 😂
Ideally, operations should play a vital part in giving the executive team the information they need to make a data-driven goal. This doesn’t always happen. However, learning how to build goals is important because it will empower you as a RevOps professional.
Knowing how to build a goal from the ground up will help you:
While it’s unlikely your board will have second thoughts about their revenue goal, the best companies build multiple models that also attempt to consider market forces. In this article, we’ll walk through what you need to know to determine your goal.
Note: Chances are high that you’ll be given a number and asked to back into a headcount model. This is a top-down model, which we cover in this article.
Not all companies are transparent with their employees regarding whether the most realistic outcome for the company is to IPO, be acquired, or sell their intellectual property. Knowing that aim, however, is crucial to determine how aggressive your revenue goals should be.
For this exercise, we’ll assume we’re targeting car dealerships with a moderately priced ($4,000 annual or $350 monthly payments) digital marketing platform. Our startup had modest growth in the first two years while we figured out how much we needed to customize versus templatize our product and how likely dealerships were to hire people dedicated to digital marketing.
In year three, we formed an alliance with a few big market players (OEMs like Toyota, GM, etc.). They liked the look and feel of the digital presence we projected for their dealerships and helped promote our product for a substantial discount. Our growth spiked mid-year, leading to 2X growth, but slowed down after those initial agreements to a steady 1.5X growth per year over years four through six.
Due to the steady but mediocre growth, the leadership team has decided to put feelers out for an acquisition. This means minimizing margins, lowering the acquisition cost, and focusing more strategically on market areas that haven’t been efficiently sold into.
What does this mean from a strategic standpoint?
You’ll want to develop a model that supports 1.5X growth (at minimum), understand how long salespeople take to ramp, and determine whether efficiencies can be gained by cutting your lowest performers and backfilling their positions with stronger salespeople. This will involve analyzing the market to decide whether you’ve designed some poor territories and recutting account distribution.
You’ll also want to determine whether investing in channel managers makes sense, given their cost, or if you have enough runway to maintain the current growth for a few years during the acquisition process.
Some companies create products that fit the bill for many verticals, individual consumers, and/or use cases. The sky is the limit for low-cost products, and your only real issues stem from product development limitations and competitors.
Many of us work with companies with a product intended for a niche, vertical, or a few use cases. For some of us, we only target marketing departments within technology companies, high-six-figure golf fanatics, or American car dealerships… Whatever the case may be.
For this exercise, we’ll assume we’re targeting car dealerships with a moderately priced ($4,000 annual or $350 monthly payments) digital marketing platform.
Companies must look beyond historical growth and understand their viable market. In the case of car dealerships, there are only so many in the market (let’s say 21,000), and we know which OEM-aligned dealerships are most likely to buy from us and the market share:
When we summarize the above against what we know about the market:
Finally, it’s advisable to understand how much activity goes into each prospect to close a deal and the estimated win rate for each tier.
The simplest way to calculate your customer acquisition cost is to take all of your marketing and sales expenses and divide it by the number of customers acquired.
Looking at last year’s number of deals (880), we see that an average of 73 deals were closed each month. While we have a range of talent, we have nine full-cycle sellers, and the average number of deals closed per representative was eight. If we remove the bottom two performers, that average is ten deals closed per rep.
Those nine full-cycle sellers have a base salary of $65,000 and earn up to $160,000 with commissions. The average salary was $95,000 times nine plus $270,000 for our Sales VP for a total of $1,125,000. Add $250,000 for the sales support (ops & deal desk) team. Our marketing team runs lean, with a VP of Marketing, a Marketing Operations person, and some contractors. Their budget runs $750,000.
Total marketing and sales expenses are $2,125,000, which means your customer acquisition cost is $2,125,000 / 880 or $2,414.77.
Take your $4,000 gross net new revenue per customer, and you have a 40% gain to cover operating expenses. This is why your secondary goal for the year will be efficiency gains to widen your product margin.
An excellent gross margin for SaaS is 70-80%. Unfortunately, your dealerships have needed a lot of convincing and handholding once the product is purchased. The initial implementation phase is too long, putting you at the inverse of where you should be, which means a dismal 25% profit margin. No wonder the leadership team is thinking of selling – but they won’t get a buyer unless they can broaden that margin to meet industry standards.
The good news is car dealerships are hungry for a better, easier way to manage their digital presence. Since your company handles the majority of the busy work for them, they love the product. This means a new seller is unproductive for the first month, hits 50% of quota in month two, and should be entirely up to speed in month three.
We get some great news from the product team.
They’ve heard the customers’ complaints and are months away from rolling out a platform update that will allow onboarding dealerships to enter their dealership colors, logo, and connect directly to their inventory system to make listing vehicles a snap.
This will mean a 25% reduction in margin because they are clearing up significant time for your support team to focus on one-off issues rather than initial build and ongoing maintenance. This means our gross margin is still (not great) 45%, but we have a better baseline to work with.
Happier customers should mean easier sales cycles (testimonials are everything!).
To determine the goal, we have to keep in mind:
Knowing that the UI is improving could mean more customer testimonials and an easier time winning both OEM partnerships and customers. We also know we have some under-performing salespeople, and selling is about to get easier with a boost in reputation.
In this case, we have confirmed that 1.5 growth is attainable because we have enough Tier 1 and Tier 2 accounts to sell into without establishing a new OEM relationship. We can also cut loose the low performers and gain even more close-rate efficiency with future product updates.
In this case, the CFO ultimately decides that holding growth steady while slashing product margin is the top priority. Your goal will be:
1,320 net new deals for $5,280,000 gross net new revenue with a focus on less overall expenses and greater productivity per salesperson.
