Pipeline Financial Return Measurements

Live from Schenectady, New York, it's SaaS Talk with the Metrics Brothers, Growth and CAC.

And I'm Growth, most often known as Ray Reich, the founder and CEO of Benchmarkit, formerly RevOps Squared.

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

And together we're the Metrics Brothers.

And an unlikely pair at that, Ray. Hey, today's episode is the 4th in our recently launched podcast series, SAS Talk. And today we're going to be trying a more improvisational format to vary this up a bit. So please send us your feedback on whether you like the more improvisational style— easy for me to say, right— or whether you like the more scripted style that we've done in prior episodes.

Well, I can tell you don't perform at Second City TV where they do improv every day.

Yeah, I used to be good, but it turns out it's a hard word, much more difficult than I thought.

Well, you know, last time we talked a lot about pipeline measures and metrics, so I thought today the perfect follow-up would be measuring. How do you measure pipeline performance and efficacy and really be able to talk about pipeline generation returns that a CFO would want to see?

Awesome. I mean, it's a good topic. I mean, obviously every CMO needs to justify these things and go to QBRs where they talk about costs and return on investment. What's the old John Wanamaker quote? I know that half my marketing budget is wasted. I just don't know which half. Despite, you know, decades worth of internet marketing and tracking and cookies, we still often don't know which half.

Those are not words that a CFO wants to talk about. So one of the things I'd like to do today, Dave, is let's talk about this return in the language that a CFO would understand, because to me, that's a great way to secure incremental budget to build even more pipeline. What say you?

Yeah, absolutely. I think it's important that marketing be able to speak to the CFO. As you and I have talked about before, Ray, you know, in the budgeting process, sales by default beats marketing because they're better negotiators with more leverage. And so if marketing people want to kind of win the budget battles, win the cost justification battles, they need to learn how to speak CFO. And hopefully we'll help with that in today's episode.

Well, speaking of speaking finance, I want to take a quick moment to hear a word from our presenting sponsor, Maxio. 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 the 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. Dave, now that we've talked a little bit about the language of a CEO, let's talk about how do you go about beating pipeline and revenue goals, and how do you actually share that with your CFO and CEO. What are the measurements that you want to highlight to your CFO and CEO that the money they allocated to you in budget actually produced the pipeline and revenue required?

So it's a big question, Ray. I'm going to hit my top answer to it. I think overall, the thing— if I only had one chart, I would use what I call the pipeline progression chart. Now, it's not goals-based, but it is coverage-oriented. And to me, it's always important to remember the goal here is to hit the ARR target. So I don't want to be hitting my pipeline goals and going, yay, go Dave, if sales isn't hitting their ARR target. So I always tend to start up there. Like, if I want the business to care, I'm going to be focused on ARR. And the next step away from ARR is pipeline coverage. And I have a chart on my blog called the Pipeline Progression Chart that covers that. But I think you wanted to go one level deeper in detail. You want me to do it or you want to?

Yeah, why don't we start with you? And it's really about For the CFO, if they give you $5 million and you're allocating, let's say, $2 or $3 million of that to demand generation, pipeline generation, how do you prove that that allocation of investment was worthwhile?

Yeah, so I think personally I look at 5 metrics. The first is pipe to spend. So how much pipeline got generated off a given amount of spend? So if I spend a certain amount of money, X dollars to run a webinar, and I generate 3X dollars or 10X dollars in pipeline, Then I'd have a 10 to 1 pipe-to-spend ratio. The other 4 metrics are all cost metrics. So I kind of look at— to me, pipe-to-spend is ROI, right? What did I spend? What did I get? So I like that one. The other 4 are all cost metrics that ultimately can get compared to our average deal size, right? But here are the cost metrics: cost per MQL, cost per stage 1 opportunity, cost per stage 2 opportunity, and cost per deal. Those are the 4 things I would track across all pipeline sources.

Interesting, 'cause mine is pretty similar, but not quite the same, Dave. And I think it's really good that we talk about this, 'cause I'm sure in executive conference rooms out there all the time, heads of marketing and sales and finance and the CEOs are having these discussions. So I look at—

So what are yours, right? 'Cause you're right, everybody's tracking slightly different things. So I'm eager to hear what yours are.

So my first one, I do love cost per sales qualified opportunity. Now you talk about stage 1 or stage 2. I use SQO because to me that means the account executive has accepted that lead and created an opportunity from either marketing or from the SDR, BDR.

So, so that would be— In Dave's speak, that would be stage 2, correct?

That is correct.

Got it.

Now I like to go beyond a cost per S2 or stage 2. I like to look at cost per dollar of pipeline generated. So if I generated $10 million of pipeline and invested $1 million, I know that my cost was 10 cents per dollar of pipeline.

So the inverse of the pipe to spend, right?

Exactly.

It's what it is. Because I like to look at, hey, I need $1 million. Well, why do you need $1 million? Because I want to generate $10 million of pipeline for you, Mr. CFO. The third is cost per dollar of closed won ARR. And the reason I really like that, Dave, because I'm a CAC ratio guy. And CAC ratio says, you know, how much sales and marketing investment do I spend to get $1 of new or new and growth ARR? So I love marketing being measured the same way. Those are the 3 primary ones I like.

So the— my issue with the last one, because to me, one of our common themes is metrics are a collection, right? You have to use a collection of different metrics and And the only thing I'd worry about is yours ends up looking a lot like a cost per close one. It looks a lot like a CAC ratio, I think. And the issue is if you're doing it on an incremental basis as opposed to an average basis, the number will look very different than a CAC ratio. So I'd argue it's potentially confusing, but I don't know, you've used this in real life. Does that happen? It does.

And that's another thing I wanted to talk to you about because I think people have this debate. We talk about this thing called marketing CAC ratio. And marketing CAC ratio, some people use it on a fully loaded kind of base plus variable expense. Some do it on a variable expense basis, like I just invested another $500,000 on Google AdWords and what type of return did I get? What do you think about marketing CAC ratio? Is that a variable program analysis or is that a fully loaded one, Dave?

So I'm in favor of segmenting the CAC ratio in general. So you can segment it 2 ways in my mind. One is new versus expansion, and you're including all of sales and marketing in both, or all relevant sales and marketing in both. And the other segmentation is sales CAC versus marketing CAC. And basically sales CAC plus marketing CAC equals CAC. Just to be clear, there's no other category. And then the question, the million-dollar question you just asked is, do I look at these expenses on a, I would say, average or incremental basis? And average may be misleading. You say fully loaded. What does Ray mean when he says fully loaded? My favorite example, to be concrete, there's a PR person and we pay some PR person $100K a year. And are they included or not in that marketing CAC ratio? Because we're going to have them either way. The CEO loves PR. It's been dictated that they're going to exist and the PR agency, right? We're just doing that. And the question is, does it belong in the marketing CAC? And the answer is less obvious than you think. Before I say my answer, Ray, now that I defined the question for the audience, what's yours? What do you tend to do?

Well, if I hadn't talked to you about this before, I'd probably have a different answer, but I prefer the does our dog hunt model. And you know, I talked about that. So are people engaging with our messaging? Are they buying our product, et cetera? So I used a fully loaded base expense, kind of salary compensation benefits, plus the variable program spend. So I've always used the marketing CAC ratio on that fully loaded basis. However, if I wanted to look at incrementality, which is if I invest another $100,000 on LinkedIn paid ads for this new product launch, then I just look at the variable costs compared to the incremental pipeline and dollars of revenue I'm driving.

Yeah, so this is a super important point we're making on metrics, which is how you calculate it should be very much related to how you want to use it, i.e., what question are you trying to answer? And as Ray said, look at a lot of early-stage startups. You're trying to figure out if the dog hunts, right? It does this business model work. And to me, you would look at your CAC ratio, your overall CAC ratio on an average basis, on a fully loaded basis, all costs, every sales cost, every marketing cost. How much did we generate in ARR? There's your CAC ratio. If it's 5, your dog doesn't hunt, right? You've got a problem. And maybe you need to pivot and change models. So When you're at that phase of trying to figure out if the dog hunts, if the model works, then that question should, in my opinion, be done on a fully loaded basis. In my experience as a marketing person and working with marketing person, the more common question you get asked is, holy cow, we need 20 more opties. How much money do you need? And that's an incremental question. That's a demand gen question. And look, I just want to get this out because sometimes marketers will get attacked Because they'll show the incremental cost only because they're thinking the relevant question is, what does one cost on a marginal basis? I.e., if you want 10 more, how much money do you need? But they can be accused, particularly if there's not good relationships, of like, you're understating the marketing cost, you're not including the PR guy, you're not including— you got to be very careful on that. So whenever I use incremental cost, giant footnote of the slide saying these are incremental costs designed to be used to get the incremental— basically the incremental cost of getting additional opportunities. So, so what do you think?

I think this highlights one of the reasons I went into this business and why I'm doing what I'm doing now. It's alignment both across the go-to-market team on these metrics and what the hell they mean and why are we doing it, and alignment with the CFO and CEO so we're speaking the same language. So Dave, to what you just said, I think it's important to sit down with your peers and your CFO and say, Here's how I'm going to highlight the return on marketing spend. I'm going to do here, I'm going to do fully loaded. I'm going to call that marketing CAC ratio. But when it's incremental, then I'm going to do it on a variable cost basis. And here's what I'm going to do. Do you agree with this? Is this a good way to look at it for you? And then there's never that finger-pointing or misunderstanding, Dave.

Yeah, you always have to put it out on the— just like attribution, always put the footnote what you're doing first. This is first-touch-based or this is last-touch-based. Because by the time people freak out, it's too late.

Yeah.

You're like, trade show leads cost $20,000. It's too late. It's burned in everyone's brain. So, so I think you're right. You need to cover this on the front end and say, what question are we trying to answer? And if the question is, what's the incremental cost of another 10 opportunities, then we should use demand generation costs, which is typically the incremental marketing cost here. And if we're trying to figure out the efficiency of our overall business model, we see average costs. By the way, personally, I'm not sure I would ever do an incremental marketing CAC. Because to me, the CAC is almost definitionally all in. So, so I would definitely do incremental costing, the cost per MQL, the cost per S1, the cost per S2, the cost per deal. But maybe there's a time and a place you do incremental CAC, but I can't think of one for me.

I must admit, I never called it incremental CAC, but you did say something. And since we still have a few minutes left in today's episode, you said that it's not a 4-letter word, but to me it's a curse word— attribution. Because when we were talking about this incremental or variable cost returns, they're going to get into the attribution. Well, that came from my paid media spend, or that came from my event or sponsorship spend. What's your perspective on how attribution factors into this entire return discussion?

So 2 things. One, if you're at an early enough stage, one common mistake I see is very early stage companies get too into attribution. And my short answer is, I don't care if it's inbound, outbound, all-bound marketing or partners at the first order. If our CAC is 5, we have a problem and the dog isn't hunting, and maybe we need a new business model. So, so to me, let's go step by step. And if we're trying to figure out if the dog hunts, I care less about who gets credit for the opti than the overall machine is not working. Now, once the machine is working, then we want to say, okay, who gets credit? And I guess, Ray, there's attribution and there's attribution, right? And what do I mean by that? There's kind of opportunity-level, pipeline-level attribution. What we used to call it Salesforce back in the day, the 4 horses of the apocalypse, terrible metaphor, and I think they got rid of it. But, you know, marketing inbound, SDR outbound, AE outbound, and partners. Those are the original 4 horses. And then you could add trials. So in the PLG world, you could even add AQLs and account-based stuff in an ABM world. But, but 4 to 6 sources, whatever they are, that's pipeline attribution. And I think we agree that's a good thing. I think where you start to go down the slippery slope is when you do marketing channel attribution, right? You don't just say, oh, that's marketing inbound, but which specific campaign gets credit in a world where 15 people had 5 touches each on 3 different campaigns? That gets hard.

Really hard. And I've seen debates. I'll tell you about one customer I was brought in to do a assessment on their metrics. And one of the things I wanted to look at was pipeline coverage ratio. But for your 4 Horsemen, there's 4 different pipeline coverage ratios in that. It's inbound marketing, outbound SDR, outbound AE, and partner. And their marketing pipeline coverage ratio was about 4.2. It was higher. And I said, you know, compared to the benchmarks, we need to kind of be closer to 3. And the head of marketing said, Well, are you using first-touch or last-touch attribution model for your benchmark? I said, it doesn't matter, it's an inbound marketing lead. She goes, well, that's your issue. You're not using first-touch the way I am. I'm like, really? This is a discussion we're gonna have when I'm talking about inbound marketing pipeline coverage ratio? Does that make sense to you, Dave? Kind of—

Yeah, I think what I heard, Ray, is you're saying, I think what I heard you say was it's easy to know, it's easier to know if it's marketing versus partners versus SDR outbound, than it is to know which specific marketing program did it. And as we all know, there's 3 fundamental marketing channel attribution: first touch, last touch, and points-based. Those are the 3 that I'm aware of, and the points-based systems start to lose credibility very quickly. But, but I would just say, in some ways you can think of this as lead source versus opportunity source, right? You're kicking it up a level because an opportunity may have 15 leads associated with it. Only one usually gets converted into the opti, so you tend to default to that. that lead source to the OptiSource, but you can override OptiSource and you can put it in yourself. So I think the answer, the answer is let's just remember when we say attribution, there's 2 different problems. Are we attributing an opportunity to one of the 4 to 6 horses, right? Or are we trying to get more granular? And when you get more granular, you know my favorite mug, Ray, it's marketing attribution is fake news. We literally made it up. And I firmly advise that every CMO should go buy 2 or 3 of those mugs and bring them to every QBR. The whole time you're talking about the marketing deck, you've got your little fake news mug.

Let me be topical on the fake news. If you use fake news, you might get indicted, but that's a whole other story. Let's take it back up for just a minute. I thought I'd get a chuckle out of you on that, Dave.

You got a smile, Randy.

The audio people can't hear, but Let's bring that back up to, you know, sometimes you and I get right into the details, but you talked about your top return measurements that you like, which started with pipe to spend. Can you just restate those so the audience has those at the end here?

Sure. And Ray and I use these terms slightly differently, and I'll let him explain his point of view. But, but just because I'm pretty literal, it's not a return metric unless I'm comparing what I got to what I spent. So the only metric I view as a return metric literally is pipe to spend, because I know how much I spent and I know how much pipe I got for it. I can generate other ones in a minute. CAC is arguably a return metric. CAC is a return metric, in fact. So I'd say CAC is a return metric, right? How much did we spend? What did we get? My other 4 metrics were cost metrics. They're cost per MQL, cost per S1, cost per S2. An S1 in my definition is a BDR thinks it's an opti. An S2 is an AE thinks it's an optee, just to keep it simple. And I always think of that handoff like a safety deposit box. 2 people have to turn their key, right? The BDR turns their key and then the rep turns their key. And if both keys are turned, basically my pipeline is so valuable that it takes 2 keys turning to get into it. So the second key is stage 2 and then cost per deal. And if I were to actually try and put that into an ROI analysis, I would actually compare it to my average sales size. So for the company overall, I'd say, Okay, what's our average deal size? It's $50K. How much marketing spend, variable marketing spend per deal do we spend? $5K. I would then upload that to probably all marketing. So maybe $10K in total marketing, maybe $20K if you add the sales cost, maybe more. And then start comparing that to my average deal size, which by the way, back of the envelope, which is always super dangerous, should start to look like your CAC ratio.

Interesting. And the only thing I'd supplement that with is, I like to look at 2 additional metrics, and that's the cost per dollar of pipeline versus just cost per opportunity, and the cost per dollar of closed won ARR versus just the cost per deal won. And that kind of moves right towards CAC ratio, as you said earlier, Dave.

Yeah, I was— funnily enough, I was doing count-based, like, because the CAC ratio is an ARR-based metric, right? CAC is count-based in effect. But CAC ratio was ARR-based. And in general, I greatly prefer CAC ratio. I don't know why I was avoiding it on optis. I'll need to think more about why I do that. But I think I know why. Ultimately, I have a huge bias towards counting optis in the funnel because it's less gameable. And look, the more your optis are all the same, the more that works because basically count is a proxy for dollars. The more they're highly variable, bimodal, the more they're in a weird distribution, the more in my mind you need to look at dollars. I still look at counts because I like the viscerality of saying, marketing, you're on the hook to generate 75 opties this quarter. I hate saying you're on the hook to generate $1 million in pipeline, but, but I also want them to track pipeline coverage. So I can sound like a hypocrite here, Ray, but, but there's something very visceral that just says I want 75 opties from you, 25 from you, and 20 from you.

Now you are tech. And CAC measures the cost to acquire an account. Maybe I should go from growth to being the CAC ratio guy because I like cost per dollar.

Yeah, I can be count-based and you can be dollar-based.

Okay, well, you know, I really enjoyed today's conversation. I really like getting into these discussions where we don't see eye to eye, but 80% is common. And that's exactly the discussions our listeners are going to have in their executive conference rooms, and they need to understand The most important thing is just defining, clarifying, and then being consistent across the entire executive team.

And always remember, if you're using a metric to answer the question, what question are you trying to answer? Because, because you may well calculate it differently. For example, the incremental versus the average basis that we talked about.

Dave, that's it for today. Thank you for the discussion as always. And do you know what we're going to talk about next week for the listening audience?

I have no idea, Ray.

Well, we talked about maybe we go to a new topic, which is account-based programs, and really why are they so strategic today, and some of the measurements that you're going to use for account-based. What do you think about that as a topic?

I think it's a great topic, and I look forward to talking about it. I did a fairly searing book review on an ABM book, so I'm a little skeptical on some aspects of ABM, but in the right place, right time, I'm absolutely religious about ABM when you're really focused on a relatively small number of accounts. So I look forward to, uh, to doing the next episode.

Well, I know that I've re— I've achieved some level of fame, and when you do a blog based upon something I said, you disagree with it. Okay, well, that's a wrap to this week's SAS Talk with the Metrics Brothers. Thank you so much, Dave, for doing it with me again.

Thanks, Ray.

And to our listening audience, as Dave said, we're really kind of finding our way with the podcast. This is only podcast number 4. We're trying to look for the best way to make sure this resonates with you. So do this for us. Go and send us an email to sasmetricspodcast@gmail.com, or just do a direct message to Dave and I. It's @Kellogg for Dave. It's @RayWright for me on Twitter. And let us know what you like and what you'd like to see us do in the future. But it would also mean the world to us if you go ahead and subscribe to the SAS Talk podcast on your favorite podcasting network and give us that 5-star rating so your colleagues and peers around the industry Can either laugh for 20 minutes or hopefully get some good information from us today from these 20 minutes. Thank you again.

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 at. Ray Reich. Dave Kellogg is based in Silicon Valley and available on X @Kelblog. Which is French for unspellable, is not our actual production location. Thanks for listening.