Cost/Opportunity and Pipe/Spend

Live from Fifth Avenue in New York, it's SAS Talk with the Metrics Brothers, Growth and CAC.

And I'm Growth, better known as Ray Reich, founder and CEO of Benchmarket.

And I'm CAC, better known as Dave Kellogg, EIR at Balderson Capital, independent consultant, and the author of Kellogg.

And together we are the Metrics Brothers.

And we go together like food carts and hot dogs.

Wait a minute, CAC, did you say Fifth Avenue instead of Schenectady? And with that food court reference, I'm getting the impression there's a little bit of New York or Big Apple influencing you this week.

I am, right? There's a food cart right across the street. I'm, I'm here in New York this week to see the graduation of our son from NYU. We were just up at Yankee Stadium, which is a heck of a place to have a graduation.

I'm sure it was a big hit there, but I've been on the road too here, Keck. So I was out to SaaStock in Austin, SaaStr in San Francisco, Winning by Design Summit with Jocko. And then I had 2 CFO dinners, one in Austin and one in San Francisco. And tonight I'm hosting another executive dinner here in New York.

Geez, Ray, you sound busy. Well, I'm glad you could still make some time for your metrics brother to discuss one of my favorite topics, cost per opportunity and its inverted cousin, the pipe-to-spend ratio.

You know, Dave, I know you love these single metrics, or in this case, 2 metrics-focused episodes.

I do, Ray. 2 metrics, 2 sides of one coin. So I'll still technically qualify this as a single metric episode. But before we dive in, Ray, let's hear a word from our sponsor.

The Metrics Brothers is proudly sponsored by Benchmarkit, the B2B AI and software industry's largest, broadest, and most contextualized benchmarking index. Dave Kellogg and Ray Groth Wright have put the Metrics Brothers podcast on hiatus for remainder of 2026. All episodes we have ever recorded are still available on your favorite podcasting app. You can reach Dave at Kellogg and Ray on LinkedIn at Ray Reich. Thank you so much for listening to the Metrics Brothers podcast. Okay, Dave, I'm going to let you kick this off because I think you even wrote a blog post on this concept several months ago.

Sure. We're going to cover some of the stuff in the blog post, but I would say that this episode is not simply a summary of the blog post because we're going to look at both cost per opportunity. That was what the blog post was about. And pipe to spend, which was not really covered because these are really two, and I call them kind of kissing cousins or inverted cousins, Pipeline generation, aka pipe gen efficiency metrics. And let me make a distinction here. I think that the first thing I want to say, Ray, is a lot of people are sloppy when talking about pipeline because they conflate the words pipeline and pipe gen. And pipe gen is different from pipeline, right? Pipeline is kind of a snapshot of what we got. Pipe gen is what we've generated. And these 2 metrics, cost per optie and pipe to spend, are really pipe gen efficiency metrics. ROI metrics in a sense, right? Because they're both measuring kind of what did I spend and then what did I get for it?

Got it. And I think it's really important because a lot of times I see people just conflating the two. It's like, oh yeah, I've got a pipeline issue. Well, do you have a pipeline coverage issue or do you have a pipeline generation issue? Really good fine point.

Yeah, you hear it a lot. Now let's give some examples of this just to clarify what these things mean. I'm going to say if you spend $1 million on demand gen programs in 2Q And that generated $15 million in pipeline, then I'd say you have a 15x pipe-to-spend ratio. Or another example, if you spend $100K on SDRs in a quarter to generate $1 million in pipeline, I'd say you had a 10x pipe-to-spend ratio. I.e., the spend can either be on people or programs. So typically not both, by the way. When you're doing demand gen, you don't typically include the salary of the demand gen director.

Right.

So it's either people or programs because it wants to be a variable cost. We'll come back to that later. And you can also look at these metrics by count as well. So I might say, hey, I spent $1 million to generate 250 optees. Therefore, I have a $4,000 cost per optee. And now you see I flipped it. Rather than looking at pipe to spend, how much did I spend, how much pipe did I get for it, I'm looking at cost per optee. How much did I spend? $1 million. How many OPTIs did I get? 250. Well, then I spent $4,000 to get each OPTI. Thoughts, Ray?

Yeah, I understand the difference between the two, and we're going to get into this even a little bit more. But I guess the question is, should you do both, or is there one that's preferred in certain situations? And I may be leading the witness here. That's probably something we should talk about earlier. But I would like to know if you think there's appropriate use for each somewhere during our conversation today.

Yeah, there's a little bit of you say tomato, I say tomato in here, right? Which is to the extent they're effectively just inversions of each other, they look like literally, oh, just flip a coin and pick one or the other. And it's not quite that simple because there's a subtle difference between looking at pipeline dollars and looking at opportunity count. We're going to get back to that in just a minute, Ray. But before we do that, let me just talk about how people use these metrics, no matter which flavor they're using, tomato or tomato. They're using this for planning. Including marketing demand gen planning. They're using it to compare the relative efficiency of pipe gen across pipeline sources. So, to say, hey, if we— how much does it cost for the SDRs to generate a new opportunity? How much does it cost for alliances to generate a new opportunity? How does it cost for marketing demand gen to make a new opportunity? So, we're comparing the relative efficiency of pipe gen either in terms of pipe to spend or cost per opti across pipeline sources. And then, sometimes people drill it down another level to say, let's look at the relative efficiency of marketing demand gen across marketing channels. So, what is the cost per opt-in on paid search versus webinars? Or what's the pipe to spend on paid search versus webinars? And you could do this all the way down to individual marketing campaigns. Hey, what was the pipe to spend of the 2Q topical webinar series? So, thoughts there, Ray?

Well, one of the things that I've always done is I've always been very interested in, for every dollar I invest in pipeline generation, how much pipeline could I get out of that? Whether, and that was usually on a variable basis. And like you said, by source, by channel, by campaign or program. So, one of the things I want to make sure we talk about today is my kind of orientation on Dollar spent per dollar pipeline generated, a little bit different than yours. And I want to make sure we cover that, Dave. That's all.

Well, why don't you try and name that metric, Ray? Because I'm just about to say, in my opinion, Ray may just have discovered a 3rd type of company. But in my opinion, there are 2 types of companies out there, right? We each have our own lived experience, Ray. And in my lived experience, Salesforce, for example, where I was in 2011, 2012, was a pipe-to-spend company. Everybody at that time talked about pipe-to-spend. That was the metric we looked at. To compare these things. For example, HostedLytics, now called Planful, that I ran from 2012 to 2018, was a cost per opportunity company. We were very focused on opti count as opposed to pipeline dollar pipe gen. And therefore, instead of looking at pipe to spend, we were looking at cost per opti. And in my experience, most people don't do both because they're kind of kissing cousins. They pick one or the other. And it's actually very rare in my—

Yeah.

Lived experience, you see people who do both. But Ray has talked about a type 3 company, which I think is a variation on pipe to spend, but Ray expresses pipe to spend slightly differently than that. How do you do it again, Ray?

It is. So, I actually called it pipeline cost ratio. Now, it was, it was a Ray metric, but every company where I had the opportunity to lead marketing and sales, I used it. And I would take my actual spend or expenses for pipeline generation. And I would divide it by the amount of pipeline generated. Now, I would do that at the company level, but then I would do it at the segment level, my enterprise versus my mid-market. And then I would do it at the channel and program level, but it was the dollars invested in pipeline generation divided by pipeline generated, Dave.

So basically the spend-to-pipe ratio, if I'm getting this right.

It is, except Inverse because I put the spend on the numerator and the pipeline generated in the denominator.

Yeah, that's why I said spend to pipe instead of pipe to spend. Oh, got it. So, yeah, Ray. Okay, well, you know, this is not the first time we found Ray living in the Upside Down, folks. I can't remember our other example, but certainly that is just a straight inversion, right? The difference between pipe to spend and cost per Opti is it kind of looks like an inversion, but there's something different there because you're counting something different. You're counting opties generated by count as opposed to pipeline generated by dollars. Ray's variant is literally just spend to pipe as opposed to pipe to spend.

Yeah.

So, I think we're back to 2 and a half types of companies. There's pipe to spend companies, some of which flip it and do spend to pipe, and there's cost per optie companies. But my main point here is that nobody really does both because they're so close. And when you walk into a company and say, hey, how does your pipe gen efficiency compare across pipeline sources? They're going to tend to answer either with cost per opti or pipe-to-spend ratios. Yeah.

Now, I think, you know, we did discuss this script beforehand because it was so important to both of us. I think you're going to get here, but you don't use— let's say you have a preference for one, which I know you do. And I think you're going to highlight that as your cost per opportunity. However, you also use a dollar metric to try to triangulate whether that's efficient or not, correct?

It's kind of like Ray goes through the whole episode 2 pages ahead on the script. It's like you're living in the future, Ray.

I do. I do.

We're gonna get there, I promise, Ray. Yeah, let me grab this first because we're gonna build up to that. I want to start though, let me back us up 2 steps and just say, look, while pipe to spend, they say, well, why would one have a preference? You know, cost per opti versus pipe to spend. Why? And you might say, well, isn't what we really want pipeline? We don't want opti count. We only care about optis to the extent that they become dollar valued and then they have pipeline dollars. So shouldn't we use pipe to spend because it's one iota closer to what we actually want, which is pipeline? Hmm. And I kind of buy that argument. In general, I want a metric that's as close to what I actually want. If I can't have the metric count what I actually want, I want to be one step removed, not two. Right. So the issue here with this is simple. The reason I don't like measuring pipeline generation with pipeline dollars is because while the count, the number of opportunities that we generate in a quarter is kind of invariant, like we generated 200 opties, period. That is, was, and forever will be true. The issue with pipeline dollars is they change over time. Just consider one opportunity. Just say we have one opportunity we generated, optie count 1. But we started at $25K. The rep talks to the customer, thinks it's now $50K. So, they up it a few weeks later. Then they go, oh, they need 2 products. So they— oh, sorry. Oh, they think it's enterprise. So, I'll take it to $250K. And then, they talk to the senior VP who says, no, we're going to do one division. And the rep slides it back to $100K. So, over a couple of month period, this one opti has been valued at $25K, $50K, $250K, and $100K, right? And this is why I don't like measuring pipe gen in pipeline dollars because I always have to ask the question, when? And then there is no right answer. So, while I do think it's important to look at pipeline dollars specifically when it comes to starting pipeline coverage, I think for measuring pipe gen, heck, I'd rather just count opties and sidestep this entire problem. Ray?

Yeah, I understand that logic. But for all those, you know, both heads of marketing, heads of sales out there listening to us, right? I think we need to try to eliminate one of the core reasons for that, and that is that The pipelines just aren't very accurate at stage 2 or even stage 3. So one of the things I always did, Dave, was I made sure our frontline sales managers were always enforcing as much granularity at stage 2 and stage 3 for opportunity size. And we even put a calculator inside of our Salesforce environment because a couple of times we had a variable pricing unit called number of locations for retailers. And they would put in the number of locations. It would automatically pull from the price catalog, the price. And I knew that if they had 2,000 locations, it was going to be a $250,000 deal. So, I understand it, but I wouldn't want to do that just because we've said, well, sales just— the pipeline at stage 2 and stage 3 is just not accurate. They've got to try to make it accurate.

So, to be clear, Ray, that's not what I said though. So, I think you're raising, as always, a very interesting point, even though you're wrong. Just kidding. You're raising a really interesting point. Which is Ray is saying, hey, the value of an OPTI doesn't need to bounce around like crazy if you just get it right the first time, right? If you ask the right couple of qualifying questions, how many divisions, how many stores, how much money do you have, you can get a value for the OPTI that will be relatively stable. And I think that's half the answer, Ray, which is there's 2 things. One, that's a super interesting perspective because I presume a lot of our audience are kind of ops people. Or finance people, not CROs. So, if you're the CRO, you can do what Ray said and just say, you know what, I'm going to scrub the heck out of pipeline opportunity values and we're going to make sure they're right the first time and make sure they're right all the time. And that's a great solution to the problem. The issue is 2 things. One, the ops people can't do that necessarily, right? So, maybe they're better off just saying, well, this is a dirty world and I can't control that. So, I can be smart about what I count and therefore, I'll count PipeGen and opties, right? And by the way, let me be very clear. I don't think you run the whole pipeline funnel based on optie count. I speak specifically for PipeGen only because I'm going to complement it with a strong focus on pipeline coverage at the end of the episode, which is very much measured in dollars. So, Dave is not saying ignore dollars when it comes to pipeline. No, no, no, no, no. Dave is saying measure PipeGen and optie count. We'll come back to the reasons for that in a minute. But I think Ray hit on a very interesting point, which is if your OpEx values are bouncing around because of lack of hygiene, the CRO can and should fix that. But what, Ray? What would you say to the, wait a minute, this was all clean. When it started, I thought it was $25K. I talked to somebody. They said they needed to do products. So, I took it up to $100K. Then, I talked to an SVP who convinced me it was an enterprise opportunity. So, I changed it to $250K. And then, when I finally got to the CFO, they told me, no, we're going to do one division. And I took it to $100K. This wasn't lack of hygiene. This was just simply reality. What do you say then?

That does happen, Dave. Reality. Anyone who's been in the field, you know, they know that happens. But at the same time, if one opportunity is 3 times larger for some reason, it also does impact the number of opportunities I needed for that quarter.

Yeah, we'll talk about— that's the other reason that we're kind of backing into why I like cost per opportunity better than dollars for pipe gen, or we're firmly in it now at this point. So, so let me just keep going. The other thing I like about counting Opties is it's less gameable. We haven't talked about that possibility explicitly yet, but just say I have a buddy in sales, or I know there's Ollie Optimist in sales, and I can convince Ollie to value one deal at $2 million and say there's not great sales management discipline around that. That $2 million opportunity, 10 times bigger than anyone in the pipeline, will in fact mask a pipe gen problem. And if you're counting opties, if I generated 180 instead of 200, There's nowhere to hide. You can make that as big as you want, Ollie, and it's not going to hide the fact that I came up $20 short.

So, you and I could have a very, another 20-minute debate on this because one of the things I saw in one company when I didn't run marketing is my marketing went downmarket. They created the number of opportunities they needed, but they were about 40% lower than the average ASP. She had the opportunities, but she didn't give me the pipeline I needed.

Yeah. Well, all this stuff's gameable, Ray, right? Which is why my proposal is to look at both. Let me just be clear. When you're looking at the funnel, you look at both. I'm saying when you look at pipe gen, count optees, and then when you look at it basically, and then also take a really hard look at starting pipeline coverage, which is very much measured in dollars. That way, I'll find it. The last thing to look at is just the sales forecast as well. If you look at those 3 things, it's kind of hard to hide anything.

But that is really smart. I love that you look at both simultaneously.

Yeah, metrics got to work together, Ray. And that's why the reason I'm belaboring this point is I like metrics to work together. And if I'm only looking at dollars all the time, then I have a blind spot around opti count. Whereas I'm saying, hey, let's look at pipe gen and opti count and let's look at coverage and dollars, then I'm getting a little bit of both and I have no blind spot. And either one can be gameable, but it's very hard to game both at the same time. So the last thing I want to talk about, Ray, on this topic is just there's another habit people do to kind of get rid of the whole conversation Ray and I had, which is to say, wait a minute, either we're just going to create all optis at $50K. Or when we create them, we're going to create SMB ones at $25K, mid-market at $75K, and enterprise at $200K. And this is a fairly common habit. We're getting pretty deep in the weeds here, but I don't like that habit. I like creating opties at zero because zero means it doesn't have a value yet. And once there's a number there, I can't tell if that $50K was a proxy $50K kind of put in at optie creation time, or if that $50K was actually based on kind of a conversation with the customer. And by the way, my trumping argument here is, if you want to know what the pipeline would be if all the zero opties had these proxy values, I can do that math and reporting. And I have. I call it implied pipeline. So, I'll say our pipeline is X. If you wanted to know what our pipeline was compared to how other companies do it, for example, for coverage ratios, then I could do implied pipeline where I just add up all the opties with values. And then, I shove in the report, not in the CRM, a segment-specific value for all the zero-value optees. So, in any case, anything else on this one, Ray? Or can we talk about what kind of sample values are for pipe-to-spend? Did we miss anything in that roundabout?

No, we covered that deeply. We took 15 minutes to do that. So, we've only got 5 to 7 minutes to cover the rest.

Yeah, that's fine, Ray. That's all we need. That was the meat there in my opinion. So, look, What is a good pipe-to-spend ratio? It's around 10 to 15x in my experience. For cost per opportunity, I think it varies from— I used to say it varies from $2,000 to $4,000. I think now it varies from $4,000 to $6,000. And that does depend also. Well, obviously, it depends a lot on your deal size. But it also depends on whether you're counting them at stage 1 or stage 2 because typically, there's at least 20% to 30% fall-off rate between stage 1 and stage 2 opties. But let's go back to pipe-to-spend here. I want to kind of do a quick proof of why 10 to 15x can work. And here's the kind of sanity math on that. Assume you have— assume you're at steady state. So, every quarter looks like every other quarter. Assume you have a 20% close rate, which is not the same thing as a win rate or a week 3 conversion rate. We've talked about that before. But a close rate, i.e., in the fullness of time, 20% of those opportunities close. Therefore, I spend $1 to get $15 in pipeline. In the fullness of time, I get $3 for that. Now, if we assume that demand gen is half of marketing, then we can say that marketing expense is $2 because we spent $1 in demand gen. If we assume sales is 2 to 1 on marketing, then sales expense is $4. So I can add the 2 to the 4 and get 6 and say, if I want to make a CAC ratio, I have spent $6 in sales and marketing to generate $3 in new ARR. Therefore, I have a 2.0 new biz CAC ratio.

Okay.

Not a great new biz CAC ratio, by the way, but just kind of grosso modo, back of the envelope. I just tried to kind of reconcile, can you have a decent CAC ratio with a 15x pipe to spend? And the short answer is yes. Ray, any comments on that dark magic or—

Yeah, I was going to say, other than you've sure pulled a line out of your hat there. That was magic math, Dave, and it worked really well. Good job.

Yeah, I like to try and do that. Like I sit here with these rules of thumb and I try to reconcile them and it's like, you know, this one actually reconciles. So, in terms of cost per opportunity, we've talked about the math already. If you spend $1 million to get 250 opties, then those are $4,000 each. I think a typical cost these days is probably $4,000 to $6,000. And the biggest variance I see is, wait a minute, are we counting stage 1 opties or stage 2 opties? And then you need to look at the conversion rate between the two.

Hey, Dave, something really important though that I think we need to cover, and that is what is cost? Because is it fixed cost? Is it variable cost? I get asked this question all the time. So, what goes into the cost?

Yeah. So, this is a really important question because we've been skimming over it right now. I just said, I'll use cost. Well, what's cost? Oh darn, Ray. So look, I'm going to tell you the answer and then we'll talk about why I think it's the answer. In marketing, it's the program's cost. Either demand generation cost, not the people cost. So, I would not put the demand gen director's salary in. I would not put the CMO's salary in. I would put the dollars you spent to run the program. For SDRs, it is the SDR salary because there's nothing else to measure, right? You're hiring SDRs. Presumably exclusively to generate opties. So, they are the cost to generate the opties. In alliances, it's typically a time allocation because a lot of alliances groups, some alliances group, they're 100% dedicated to optie generation. Some are maybe 50%. So, we add up all their salaries and take half of that. In sales, it's a percent of an AE time. So, if they spend 10% of their time prospecting, then we'd say the cost there. So, that's how you get it. In general, Ray, we would call this a variable cost. I don't want to get deep into the finance rabbit hole. But we're not including the VP of Sales cost in the sales cost per opportunity. We're taking 10% of the AE's time. Ditto for the SDR's managers. And the reason we're doing that in general is you could probably hire another SDR without getting a manager. You could hire another sales rep without getting a manager. You could certainly do a lot more marketing programs without getting another CMO. So, I'm trying to get some notion of a variable cost, which helps me answer the all-important question of, How much does it cost me to get one more? And that's always the question you want to be focused on when we're talking about cost per opportunity or pipe to spend. The scenario is simple. The CRO walks into your office and goes, we're either $1 billion in pipeline short or we're 20 opportunities short. How much is it going to cost each of these pipeline sources? Hey, SDRs, how much will it cost you to cover that? Hey, alliances, how much will it cost you? You know, can you even do it, by the way? Because if it's a short-term problem, you can't hire and ramp an SDR fast enough. So, then you look at marketing and say, hey, could you spend this money and scale up existing programs? But that's how you want to use these metrics to kind of gap fill. And the way people get screwed up, Ray, is they try to use them as overall marketing efficiency metrics. And there's a simple answer there. Back to the whole metrics need to work together thing. If you want a marketing efficiency metric, God already made one. It's called the marketing CAC.

Right.

And that includes all marketing costs, by the way. And we can look at that metric. But if you want to know demand gen efficiency, we should be looking at either cost per opportunity and pipe to spend. And cost should be the variable cost associated with generating demand. Back to you, Dave.

Marketing CAC ratio. I think, I don't think we've done an episode on that. So, it'd be a great one. But I need to, I think, get us to wrap this up and bring us home over the next couple of minutes. So, maybe you can close with your final thoughts.

Yeah, time police. It's okay. So look, I prefer cost per opportunity to pipe to spend for several reasons. One, the haziness of that when, right? I don't have to ask when was the pipeline valued because it's either 1 opti or it's 0 optis. And I don't have this problem with this kind of vector of values. I think it's a way more visceral goal. We've not talked about this. Hey marketing, let's go get 200 opportunities. It's a lot more visceral to me than, hey, let's go get $2 million in pipeline. It's less gameable that we've talked about. You can't You can't kind of hide a pipe gen shortfall with one massive opportunity. And by the way, I can and will track pipeline dollars with other metrics, most notably tracking pipeline coverage and starting pipeline coverage. And that's where I go to pipeline dollars, either pipeline coverage, starting coverage, to-go coverage, and then forecasting next quarter coverage. Because in the end, Ray, the point, the reason we do all of this from a pipe gen perspective is we generate pipeline. To give sales a chance to hit their number. How do we give sales a chance to hit their number? By having them start every quarter with sufficient pipeline coverage. So, if I hit my pipe gen goal but somehow we start with insufficient coverage, there's nothing to celebrate, right? I want to celebrate, hey guys, as a pipe gen machine, we did our job. We gave sales a chance. We started with sufficient coverage. That's what we do here.

I love that. And the thing I would end the show with is everybody should at least be measuring one of these, the pipe to spend or cost per opportunity. And our latest benchmarking research said only about 50% of B2B SaaS companies are actually measuring one of these, Dave, which was shocking to me.

Shocking, Ray. Shocking. Okay, well, let's talk about that in an upcoming episode.

Okay. Talk to you later.

Take care. The Metrics Brothers AI, SaaS, and More is a production of The Metrics Brothers Growth and CAC and a member of the Benchmarkit Podcast Network. By accessing this podcast, you acknowledge that the Metrics Brothers make no warranty, guarantee, or representation as to the accuracy or sufficiency of the information provided or the humor content of the jokes told. Ray? Information, opinions, and recommendations presented are, according to our spouses, probably wrong and provided for information purposes only. This podcast should not be considered professional or, for that matter, unprofessional advice. We disclaim any and all liability for any direct, indirect, indirect, misdirect, incidental, special, ordinary, consequential, inconsequential, or other damages arising out of any use of, or God help you, reliance upon the information presented here. Ray Grothreich is based in New York City and available on X @RayReich. Dave Kellogg is based in Silicon Valley and available on X @Kelblog. Schedectady, which is French for unspellable, is not our actual production location. Thanks for listening.