How to Optimize Your Financial Model & Growth Budgets With Garret Mehrguth

And so you mentioned something, another platform you have, you guys built called Pulse. So I like Peter Drucker. He says, if you can't measure every part of your business, you can't manage or grow it. So, you know, with that analytics hub you've built, which helps you track and benchmark your performance against your competition, Can you just speak a little bit about that hub of how that data tracks this data and what key metrics do you think are most important to measure against for, for SaaS companies? What should they be performing and measuring against?

Yeah, well, there's like the way I found pipelines work is they always are evolving with where your focus area needs to be. So then we talk about Pulse in a second too. But just in general, when you think about what you want to measure in SaaS, It depends on where you're at. In other words, if you aren't getting enough meetings, you need to go get more meetings. But what I found is the second you have a lot of meetings, because you haven't had meetings, your system and process for getting people from MQL to SQL and SQL to demo is crap.

Mm-hmm.

So then you can't monetize your pipeline. So first you need to generate pipeline, and just because you have the meetings and the opportunities, the disco calls coming in, doesn't remotely mean you're gonna get more demos. So then it goes from, okay, how do we activate? How do we get people from form fill to proposal? And then once you get really good there, then you have to get really good at demo to MSA, right, to contract, to negotiation. And so ironically, it just depends on what stage you're in, because there's all— the value is always in the current reality. And then the new value comes once you've gotten there, if that makes sense.

Yeah.

And then pulse is just a benchmark. What I found is SaaS marketers, VC-funded, like I work with some Vista Group companies, like we did everything for Exactly, they do sales compensation software. Almost all our clients are funded. So they all have crazy goals, they all are unrealistic. And they all don't really hit them at the way the board wants. That's the game.

Okay.

Yeah, nothing special, nothing crazy. But they still get more money and everybody's still happy because their goals are ridiculous. And so part of ridiculous goals is why I built Pulse. It's so that the in-house marketer can go and say, hey, I know you wanna do that and that's your goal. You know, you wanna grow by 25%. I'm looking at our other 10 competitors and we're spending less than every one of them. Yes, I want to hit that goal for you. I'm all in on it. I believe we can do it, but I'm looking at my Google Ads and I'm at 50% search impression share due to budget. I'm looking at Pulse and I can see that I'm spending less than everyone else. The truth is, you want a Ferrari, but you gave me a lawnmower, and I'm not going to go that fast with a lawnmower. That's a real conversation. Marketers are yes-men and yes-women, and that's their problem.

Right.

They get a goal and without ever thinking about if they could actually hit the goal or what it takes, they say yes. And then 2 quarters later they're fired and they wonder what happened because it wasn't fair.

Unrealistic.

But there was a moment where they had this opportunity to push back, and that's what we got to get good at.

So for SaaS marketers, just adding that, who are maybe, you know, even founders are looking to plan their growth budgets, you know, maybe they're trying to benchmark. What else do you suggest to maybe optimize their financial model both on short-term and the long-term scale to avoid wasting time and hitting the ROI on spend and for these companies? Yeah.

So you first want to start by capturing intent. So first part is making your brand discoverable. So if someone's searching for the product or service you sell, does your brand show up when there's purchase intent? That's Capterra, G2, Software Advice, those types of environments, those listicles, those top X, top Y, best this, best that, reviews this, reviews that. Got to be there. That's when there's purchase intent, and that's when people decide you're the best because other people said it, not your sales team, not your marketing. That's very compelling, not only for initial conversion, but I found is cost per conversion can sometimes be very misleading. Most marketers right now are optimizing based on cost per conversion versus cost per demo or cost per deal.

Yeah. Right.

What I found is cost per demo, cost per deal from third-party review sites is exponentially lower than that from Google Ads because those prospects did their research, chose you, but they also have 2 tabs open. If you're not better than your top 2 competitors, review sites don't work for you because you get conversions, you get leads, but you can't close them because you're in a competition in this moment. That's why it still goes back to product fit, value, those things. Once you have that, that's when you can start doing the advertising, position yourself to be discoverable, and then grow. But what we do is we manage all of that in an LTV CAC sheet. I take the LTV CAC of every one of your channels with a vision that helps your CMO say, hey, if I had another dollar, where would I spend it? That's a really important question. We give them a model that says, hey, I— and then you can see search impression share. Oh, you're at 50% here. You could spend another $2,000 here. Some channels you can't spend more and get more from. So you got to realize what those channels are, and that's where you need to create your focus, your time, your resources, your hours, your agency, whatever that is, to try to create that repeatability. And then you got to get good on the marketing and sales ops to push it through the stages.

And what are you guys aiming for? Still trying to get that minimum 3 to 1 CAC to LTV, or is that what you're—

Yeah, I like to do— so either way I say is you need to— if you want to, like, so I'll let my team come to me and they'll get an experiment budget so they could say, hey, I want to test, and I built models where they could create a forecast. So let's say they want to sponsor a webinar and the webinar is guaranteeing 700 leads and it's $7,000. Cool. So I put together the model and I gave it to them so they can use it. They put all their stuff in there. They get a forecast LTV CAC of whatever that is. And as long as it's greater than 2, we can launch it. My thought is, as long as something has an LTV CAC of 2, I think there's enough optimization to get it to 3, and it's worth adding to your mix. Something less than 2, let's retire it and keep focusing on higher leverage opportunities.

Makes sense. And you can always upsell too, right? If you get—

Yeah, well, and you can expand too. I still try to keep initial acquisition right at like 3 to 1, but on experiments, I mean, it's not like I mean, you have to have room to like collect data and optimize and trying to start at 3 doesn't make sense.

Makes sense. And then so when it comes to tracking, I know you're big on OKRs, if I'm correct. How do you guys use OKRs to track actual growth for the businesses, or how do you suggest other SaaS founders to set that up internally with their teams?

Yeah. So I'm using a tool called Ally. To do OKRs. And then I do that on quarterly OKRs. So we do, with the executive team, we have our quarterly goals, objectives and key results, and then they all funnel down. So we wanna hit X amount of revenue, so they need X amount of ops, X amount of MQLs, SQLs. And that's kind of how I do it with marketing. And then other departments will have, whether it's a retention goal, whether it's an average order value goal, Whatever that department is, but everybody has theirs, an ally. Then we do our one-on-ones based on their OKRs. It's not about like, oh, how are you feeling today? And blah, blah, blah. It's like, hey, how are we doing on our OKRs? How are we progressing? How can I support you? What do we need to do to hit that? It keeps us very outcome-oriented with our inputs, if that makes sense.

How often are you reviewing that? Is that on a weekly basis? Then are you making changes or just once a quarter?

No, we do. I mean, we'll adjust as we go, but we try to not pivot too much. I think pivoting too much is a sign of immaturity in your experience in business. I'm learning as I get better and better at this, I pivot less and less, and then I say fewer and fewer things.

Mm-hmm.

And I'm still not great at it as I will be in the future, but the fewer things you communicate and the more focus you create, And the more alignment you can create for everything you say, that's when you start to get that flywheel effect and you start to get better. So you shouldn't be changing your OKRs all the time. It should be very stable because you should have a very thorough planning process. And yes, you want to adjust so you can postpone certain ones, start new ones, as long as it's within your initial summit. If you keep missing and having to keep changing your OKRs, It's not— no, there's no employee or director that likes that coming from their executives.

Either you set the wrong goal or you set it too high, right? You set the bar way too high and you're just like unrealistic. Or if you're changing that because it was too low and you're just like, yeah. So I think, I think you get that with experience, right? Like what's actually realistic and maybe you're not hit 100%, but you get close enough is probably— Yeah.

So you have to just get kind of good at the game. Um, But, uh, we meet biweekly on our OKRs and update to them. Um, so, you know, once every, uh, 2 weeks, so twice a month. Um, but more than that, and you're not really getting a ton of value out of the meeting, you're probably better off trying to influence them than report on them. Right. So yeah.

Yeah.

A little bit of balance.

So you mentioned you work with the marketing managers. They have 2 quarters. If they don't hit their goals, they're fired. Right. Um, how do you work with, you know, how do you approach these business growth and planning when SaaS companies need to hit their quarterly goals with the understanding that some of these marketing channels take a lot of time to test and see results, right? So of course with the paid, it's a little bit easier to set that up. But if you're doing SEO or CRO or other things, maybe it takes a little time. How do you set that expectation there?

Yeah, I mean, it's not about time because paid takes just as long as organic. Like, the whole time thing is like a myth in a lot of ways and has you focused on the wrong thing.

Mm-hmm.

Like, it's really about understanding if every input is actually aligned with your outcome goal, because everything takes different amounts of time. Like, regardless, like, paid is not nearly as fast as we think it is. It's just not true. Like, it's a total misconception. And organic isn't as slow as everyone thinks it is. The truth is, is most people's organic stinks and their paid stinks, honest to God. Like, that's like because they're not saying any— like, they're doing content for SEO instead of for their audience.

Yep.

So even if you get the traffic, it doesn't turn into customers. Like, I can't tell you how many people's have diminishing marginal returns on organic conversions and correlation to traffic. It's not like it grows one-to-one. So the point isn't about how long it takes to get more traffic. It's about how long does it take to understand why someone would ever care what you wrote.

Mm-hmm.

Like, why should someone read your blog? And what I found is the only reason someone should read your blog is because you can say something that no one else can say.

Yeah.

And if that's not what your content strategy is, unless you're one of the 1% of people in the world that are that good at execution, consistency, and scale— because every industry has that one person they all want to be like and everybody else sucks, right?

Yeah.

Well, the reason is because they're trying to be that person without saying anything different than that person. So why would you steal their readers? It's not like there's unlimited readers. So if everybody's already getting their information from somewhere else, how are you going to get them to stop getting information from there and start getting it from you? In other words, if you launch a business newsletter, it has to be better than Morning Brew. Why would I read you? I'm not going to read 2. And so, that's the problem. It's all in how we think things work, and we don't use enough common sense. And so, we get our goals of traffic or leads, but it doesn't hit revenue because it's vanity. And so, getting to revenue doesn't take as long as people think if you're doing it right. The only reason it takes so long is because you're not doing a good enough job of communicating differentiation, value, and building that.