SaaS Metrics Maturity Model - Part 2

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

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

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

And together we are the Metrix Brothers.

And we go together like a wink and a smile.

Well, I hope that I'm actually the smile because I'm such a pleasant person, Dave.

I'm the wink then, okay.

Okay, so you— so now we could go wink and kak. I like it, you're wink and kak.

There we go, and no alcohol for once in my analogy of the week.

Though I must admit, I do wink more at people after I've had a few alcoholic beverages, Dave.

There you go, Ray. There you go.

Okay. So, hey, last episode, we talked about really the 15 problems with the use of SaaS metrics and the 5 root causes of that. But it all led up to getting into more detail of the SaaS metrics maturity model that you developed. So would you mind just right after we hear a word from our presenting sponsor, provide us the 5 levels, and then we'll go into level 1, okay?

Yes, sir.

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 @Kellogg and Ray on LinkedIn @RayReich. Thank you so much for listening to the Metrics Brothers podcast.

Okay, Dave, so let's get into the maturity model, and why don't you start with those 5 levels again, and then we'll dive right into level 1.

Sure. So as a reminder for folks listening in, this is effectively a second episode on the subject of the SaaS metrics maturity model. This was the subject of my 2023 talk at SaaStr, uh, called basically The Strategic Use and Abuse of SAS metrics, where I started out by talking about kind of 15 SAS metrics problems. Then we looked at kind of the 5 underlying causes of those 15 problems. And then we introduced very quickly this notion of a SAS metrics maturity model, kind of a multi-level maturity model that kind of lets you do 2 things. One, say, where am I? So you can do kind of a where you are here analysis. And then 2, help based upon where you are kind of figure out an action plan for what you want to do next. So, so that's where we are. We'll talk about the 5 layers of the maturity model. And basically layer 1 is the foundation. So, so you can't do SaaS metrics well or metrics-driven management well if you don't have clear definitions for metrics, clear calculations, how we calculate them. You know, simple example, do we do LTV to CAC smooth or unsmooth? Do we have a definition in LTV to CAC? How are we getting lifetime? Are we using GRR or NRR or some other churn rate? Clear semantics. So what do things mean when we say them? So that's the foundation layer. Layer 2 is trust, which is, do we trust these things? I have a couple of sayings. One is that templates build trust. So do we have good templates that we stick with? The other key part of trust to me is continuous improvement. Are we always making it better? Because we're always gonna find problems. But does finding a problem kind of go into the bit bucket, or does finding a problem mean Oh, we've got something to go fix, and we fix it, and people see that fixed in the next release of the dashboard. Level 3, strategic linkage, tying metrics to the company strategy. Level 4, data culture, so a culture of data-driven decision-making. And layer 5, which I call trajectory, which is just once we get out of kind of day-to-day operations, are we using metrics to define over the long term what we're trying to build?

Perfect. So let's go to level 1. And just to make sure you know, I read the episode briefings when you put them together. About laying the foundation. The first part of that, Dave, it really spoke to me being on the SAS Metrics Standards Board, as you know well, as one of our advisors. But it's the need to have those definitions and calculations you talked about well understood, documented, and used consistently. And one of the things I find all the time is most companies don't go to the length of documenting what they decide. Why do you think that is?

I'm not sure. I don't actually know why. Look, my instinct, Ray, is that there's 2 ways to solve this problem rather than talk about why it exists. One, footnote it. So every time in a deck, if you're building the deck or the template, every time a new metric is introduced, you just put a super tight definition in the footnote. It's actually good for 2 reasons. One, it forces you to come up with really short definitions. Because when you make a document, the definitions tend to be endlessly long, unnecessarily long. Whereas if you're forcing yourself into a footnote, you end up making— like Maritech does this. The definitions of Maritech metrics on Maritech public comms, they're like this long. They're teeny. And it's because necessity is the mother of invention. They just didn't have much space. So they found a really compact way to define things. The other problem I think is, and this is going to kind of contradict the first one, when you use footnotes, the problem is you can get inconsistency across decks. So some people create a centralized document but then they never reference it. So, so that's bad. So for me, I'd rather have a footnote with a link to the centralized deck. And by the way, I think the people who do this right— this is actually almost a trust layer thing— when there is a problem, we go to the source and we fix it. So maybe there is a central document, maybe in that central document we do the definition, and maybe part of the definition is the short definition of the metric that we copy and paste onto a slide. So somebody doesn't need to see the central document, but if we're caught in a, wait a minute, are we accelerating sales commissions and the CAC or not? Right. First, you might get that into the compact definition, but if you can't, if you have a link to the central definition, you can see it there.

I'll tell you, when I was entering as a new executive often, and I would look at some of the dashboards or reports, it was so helpful for those companies that said, oh, here's a way we're calculating CAC ratio. So at least I knew what the reports I was reading to get onboarded.

And I like it just to be anal here, Ray. I like it better as a footnote than a PowerPoint slide note. Because very few people see the slide notes and they just get lost.

Totally get it. Now, you brought up a second part about laying the foundation, and that's to have clear understanding of semantic references, things like forecasts. Because I still remember people say, well, my forecast is $3.2 million, but I didn't know if that was their best case or their probable case or their commit number. So, you're saying it's really important to define those semantics Right up front.

Yeah, absolutely. You can go to a forecast meeting, to pick that example, and you're going to hear people use words like best case, forecast, commit, downside, upside. You're going to hear a lot of words. And the question is, do we have any common understanding of what those words mean? And at many, many companies, the answer is no. It's just all kind of intuitive. And if you ask, you know, hey, what's— what do you think the probability is that we hit our commit? Some sales guys will be 100%. That's what we do. And it's like, well, as a mathematician, this is not going to be 100%. I know that. So, am I going to factor that at 90%? Or if it's not committed, but only forecast, is that a 0.7? And whose forecast is it? And how is it calculated? So, to me, just making sure we understand what the words mean, because most people know they need to define SaaS metrics. That's semi-obvious. But the thing they often miss is all the words that go with them.

Totally agree. And the other thing I love that you highlighted in laying the foundation was the need— I use the words like instrument and automate, but you talked about the need to sometimes fundamentally rework the underlying systems. As an example, you mentioned P&L, you know, in the last episode. A lot of companies don't have subscription revenue separated out from services revenue, so it's hard to do things like CAC ratio Yeah, you can't do CAC payback period, right?

If you don't have a subscription gross margin, you can't really do CAC payback period. Totally agree. The other thing I'd say right here on the foundation, so, so look, it includes a definition in calcs. Most people get that. It includes semantics, which can be subtle, like what does best case mean? It often includes reworking underlying systems, as we talked about. If your P&L is not in the standard SaaS structure, it's— you can't even— you kind of blow up on the launch pad in doing SaaS metrics. I'd say more subtly, it's about benchmarks. Do we agree what sources we're going to use as benchmarks? What's applicable to our size? KPIs in terms of data sources, let alone the targets we're shooting for, which would be more of a trajectory issue. And the thing I would suggest, Ray, I do have a concrete suggestion there because I've done this a couple of times, is get a coalition of the willing to go do this. So typically it looks like me, maybe one other board member, the CFO, the ops person, and that works as a committee. You do not want to define all this stuff in a board meeting. You want to take it offline and you want the coalition of the willing, the metrics committee as I call it, to come back and say, Hey, we've got people on the management team, we have people on the board, we've dove in pretty hard here, and we are now all comfortable that we agree on definitions, semantics, et cetera.

Dave, I know how much you love actually being involved in those metrics committees because I do have you involved with the SAS Metrics Board.

People love being on metrics committees with me, Ray, as you could attest.

Yes, I can. Well, let's go to the next one because You talk a lot about this, and it's the level 2, and that's all about building trust.

Yeah, so we need to have trust in, in this. So we can make all these definitions and we write down the semantics, but people trust the numbers. Um, and there's a lot of ways to erode trust, you know. First, subtle sleight of hand on definitions, like, you know, look, ASC 606 amortizes sales commissions. If you're— I believe the spirit of the CAC ratio is not to use amortized commissions. So you should, you know, how you define them will affect your trust, right? Or if you, if you have CSMs who actually do some upsell and you don't include their cost in a CAC ratio, that erodes trust, right? It's not common sense. So having these definitions, making sure the definitions kind of make sense, that's trust building. Another form, or another way to erode trust, is through cherry picking. Like, you just show the metrics that were good last quarter. So if you had good logo churn, you show logo churn in Q1. If you had good ARR churn, you show ARR churn in Q2. And you're like, hey, the metrics are always changing. I wonder why. We used to care about logo churn and now we care about dollar churn. And if you excavate that and find out the reason is we're just cherry-picking, right? We're like, somebody in finance is putting 37 candidates up and we pick the 5 best ones that we most want to talk about. That erodes trust. So that's why I say templates build trust. If you always show the same template with history, right, with maybe the forecast for next quarter, And it's always the same metrics, then I know you're not playing any games.

Hey, Dave, I gotta highlight one example. And you, you're the one who provided this. I think it was a blog or one of the presentations. The CRO who shows up to the quarterly board meeting and says, oh, our total ARR goal was $38.8 million and we're at $38.9 million, so we beat it. But that same CRO forgot to mention that new ARR misplanned by 25%. That's cherry picking.

Yeah.

Ending—

you know how they say, uh, well, I can't remember who said it, but patriotism is the last refuge of a scoundrel. Like, to me, ending ARR is the last refuge of a scoundrel because it's inherently damped, right? If you start out with $20 million of ARR in the bucket and you're supposed to sell 3 and you come up at 2 against the 3, you've done a 66% performance on new ARR, right? But you'll have done 22/23, which has got to be coming up on 96% of, uh, Of ending ARR. So yeah, that's another great— like, be another one. Beware of Greeks bearing gifts, right? The Trojan horse. Beware of sales VPs talking about ending ARR. To me, it's a giant red flag when I hear people talking about it, but it does happen. And it is done in this context of cherry picking. And I think cherry picking erodes trust. So the other 2 things are trust are one, footnotes. Just never hide exceptions. Always address them. Don't leave out, oh, churn was $200K except for the $500K from the one big account, right? Like, thanks for playing. term was $700K and put a footnote, you know, $500K of it came from one big account, so we think it's not repeatable. But don't play those games. And then cadence is part of templates as well, which is what gets presented when, right? Because you do— you should look at different things on a weekly basis, on a quarterly basis, then at a board meeting. But they should be consistent across the meeting type.

Now, the other thing to build trust is that it's not just a one-time event, that there's continuous focus and improvement quarter over quarter and that you're fixing data to source. Is that part of level 2, Dave?

Yeah, it is. I think continuous improvement is a really key part of level 2, which is there's always going to be problems, right? We're always going to have screwed up a definition, screwed up a calculation. It happens. But, but what I want to see when that happens, I want to see somebody go to the root source document and fix the definition. Like, like, this is the official document. We are now updating it to say we accelerate commissions to CAC ratio, and I want to see it in the template. So, so, and when I come back to the next board meeting specifically, I want to see the template improved to fix whatever the problem was. So I'll just— I like concrete examples. If we were smoothing LTV to CAC to make it look better, which is a very common trick which I can't stand, then I want to see the next version of the template come back with an unsmoothed one. My answer is always, I can smooth it myself, thanks. It's very hard to unsmooth if you show me a smooth metric.

Hey Dave, would you do me a favor? Would you just Define what you mean by smoothing, because when I first heard it, I'm like, I wonder if I'm defining it the same way. So here's a best practice of defining that term.

So look, smoothing is, is going to be taking a trailing 12-month period. For example, if you wanted to do LTV to CAC, you can do it either in the current quarter, right? So what do we spend in sales and marketing last quarter to get the CAC part at the bottom? And then LTV, you'd say, well, what was the average ARR for new accounts last quarter? I know you'd use all accounts, but you say, what was the average ARR for new accounts last quarter? Then multiply it by 1 over the churn rate. Of last quarter, right? And that would get you an LTV to CAC, maybe this quarter. No, that'll be last quarter. Well, it depends, but you get a churn rate and multiply recent churn rate, multiply it. Some people say, well, wait a minute, that's inherently volatile. In Q4, we sell a ton of ARR and the sales and marketing costs are pretty high in Q3, and we really should look at this on a trailing basis. And that's fine. It's a reasonable argument. But smoothing it is when you just put LTV to CAC in the field. You don't say anything and you're actually taking trailing 12 months sales and marketing costs divided by trailing 12 months. New ARR, inverting that with an annual churn rate. And all you're doing is damping out volatility. And look, there's an argument to say analytically it's more pure, and it's actually not a bad argument. But my argument is, if you're going to smooth it, you got to tell me. By default, I assume it's quarterly metric and you're not smoothing. So that's why it's a trust issue. There's 2 different debates there. One is a trust debate where if you haven't indicated it, I think you're eroding trust. The other is, what should we be looking at? I still think we should be looking at the quarterly variance because as a board member, the variances are what's interesting. And I'm old enough to go, oh, wait a minute, 1Q is typically light on new ARR because it's the first quarter. We cleared the table in Q4, and Q4 is typically high on sales and marketing expense. So our CAC ratio is going to typically look pretty bad in Q1. And I promise to be thoughtful and not have a tantrum about that, right? So you don't have to be afraid to show it to me.

Got you. So, what you're saying is that Dave Kellogg is not a fan of smooth operators.

Yeah, that's right. I'm not a smooth operator. And I don't like smooth metrics even more. I'm okay with smooth operators.

Okay. Well, let's move to level 3 of your maturity model, and that is about the linkage to strategy. So, talk a little bit about the details of that.

Yeah. So, look, this is going to include a quick primer on how I think companies should do strategy, because that itself is hard. But look, if you want to do strategy, in my opinion, if you don't know much about it, go read a book called The Crux. If you have time for 2 books, go read The Crux and then another book called Good Strategy/Bad Strategy. They're both by the same author, Richard Rumelt, who's a UCLA— retired UCLA professor of business. And those are the 2 best books on strategy that I know, and I know a lot of good books on strategy. So, so, and the point of The Crux is basically to say every company at every moment in time has one big challenge they need to overcome, and you need to focus on identifying that big challenge. And, and that is like half the battle, maybe 3 quarters of the battle. What is the most important thing we need to do right now? Because I think one of the occupational hazards of running a company is you got 50 people around you and everyone's got things that are broken. Customer support isn't good enough, the product has bugs, sales is inefficient, we hired somebody stupid, whatever. You have all these problems, and sorting out The really big levers from the small levers is a very important part of the CEO and the exec team's job. And Rumelt does a great job in both those books of saying, look, try to find your crux. What's the crux? It's a reference to rock climbing apparently. You know, what's the crux of the route? What's the hardest part of the route? So that's step one, figure out your strategy. And that in Rumelt terms is nothing lofty or fancy. It's what's our biggest problem and then what are we gonna do to solve it? So then we make a bunch of goals to solve it. For example, one of the examples in the book is Netflix. You can imagine all the problems Netflix had back in the days when they were shipping CDs around, operational problems, discs are going to the wrong place, people are not returning discs, discs are coming back damaged. You can imagine all these operational problems when you're in the CD shipping business, but their biggest problem was first streaming. What are we going to do about streaming? And then once we made that transition, the biggest problem was, Holy cow, where are we going to get content from? Because the content industry is changing around us and we run at real risk of being a distributor without content. So we need to get in the content business whether we want to or not. Personally, I thought it was crazy, just so you know. But, but, but if you'd never identified that as your biggest challenge and put commensurate resources behind it, we're going to go hire world-class people to go build amazing content that we own, right? That was their crux, just as an example. So So basically in the 2-minute strategy course, one, get the crux, 2, get like 4 to 6 strategic goals that associate with it, and then hook those goals to OKRs. As we talked about earlier, the example of ASP is a key result. OKR means objective and key result. So key result for an upmarket push should be increased ASP. And if we're not increasing the ASP, well, that was the whole point of the upmarket push. So, so why isn't it going up and what are we going to do about that? And then in a perfect world, you find the KPIs, the key performance indicators, sorry for all the acronyms, that lead to KRs specifically. Wait a minute, if we want the win rate average sales price to go from 25 to 50, shouldn't we first see that in the pipeline average sales price, the opportunity value? And the answer is you should. So go look for that too.

Now, I can't believe it. Here we are in the second episode talking about the SaaS Metrics Maturity Model. We're almost out of time, but I wanted to just talk for a minute or two on your level 4. Which is having a culture that's built around metrics. I mean, that's why I actually created the company and I went into benchmarking because I truly believe that if you're a metrics-informed, benchmark-validated culture, you're going to have superior operational performance. So, I really love this one, Dave. It's like I said, it is who I am. And the first thing you talked about is you got to demand that numeracy, that everyone in the organization thinks about how their objectives can be measured, and how those measurements impact the overall company's strategic goals.

So, I'm gonna let you take it from there, but I love this one. Yeah, so do I. And basically, Ray, I mean, preaching to the choir here, I'm pretty sure. But you want to build a metrics culture where numeracy is demanded, where we have cadence and discipline about reporting and discussing numbers. As I touched on earlier, I think the biggest miscomprehension here is people think, oh, we're going to spend all our time talking about the numbers. And that's actually the symptom that you've not solved the problem. If you spend all your time, like, I remember one time, I think I talked about this in the talk, I was at a meeting where we got caught into a definition of an MQL, because the marketing team counted every user conference attendee as an MQL. All hell necessarily broke loose thereafter, because sales certainly didn't think that all the existing customers were MQLs just because they came to the annual conference. So, and we ended up in like a half-hour scrum about what an MQL was, right? That is not a good example of discussing the business using metrics. That was discussing metrics, right? That's a foundation layer problem. What is an MQL? So to me, that discussion about what an MQL is in a quarterly business review was a symptom of a problem, i.e., we didn't have our foundation tight. It's not the goal. When I say, let's have conversations About the business using metrics. It's not conversations about the definitions of metrics. It's not what is an MQL. We all know that, we agree to it, it's written down, foundation layer stuff. Now let's talk about how MQLs are changing. What does it mean? Where are they coming from? How do we get more? How are they converting? That's a conversation about the business using numbers, not, not, not a conversation about the numbers.

That's why I love my little phrase I use, metrics-informed decision-making. I'm talking about the business decisions, not about the metric. But we got to wrap up here. So, take us home with Level 5 maturity, that penultimate, here's where we want to get to.

Yeah.

So, we've talked on this, Ray. I mean, to me, once you've got, I mean, look, if you can get to Level 4, you're in really good shape because you've got a metrics-driven culture, you know, with metrics linked to strategy that you trust, that are all, you know, well-founded. That's awesome. Most people aren't there. Once you get there, then to me, you start looking further out and you work on your strategic trajectory. You build a long-range model. You show the values of those drivers in the model. You have the difficult conversations with the board about what your long-term targets are. We don't just take your benchmark, much as I love your benchmarks, and go, oh, Ray said it should be 1.4, shove in 1.4, right? We talk about for our business, our competitors, our sales model, what should the CAC ratio be? Finally, we talk about timeframe, right? When are we going to do what? And then also sequencing, which doesn't get much term. But like, for example, say we think we need to open in Asia Pacific and we need to have a second product. Well, which are we going to do next year? And you can use a model that says, show me the default plan for next year. Now overlay a product launch. Now, now take that off and overlay an Asia Pacific launch. And now show me both. Right? And doing this kind of layered scenario analysis to determine what you think you could afford to do when is a fantastic use at this level 5.

Perfect.

So, Dave, we got to wrap up and I just want to summarize the 5 levels. And then maybe you can just let people know where they could go see a little bit more about this because I think it might be in your SaaStr presentation. But before we do that, level 1 of the maturity model is getting the right foundation in place. Level 2, Making sure you build trust. Number 3, ensuring there's strategic linkage of the metrics to corporate strategy. Level 4 is to really have a culture centered on metrics-driven. And then 5th is that trajectory you just talked about. Is that— did I get it?

You did, Ray. And in terms of if you want to see this stuff, the best place to go is the Kellogg. You could just kind of— I would Google Kellogg SASTR 2023 video. And it'll take you to a video of the entire presentation along with— and that post itself includes a link to the slides.

Perfect. Dave, thank you so much. I really enjoyed these last 2 episodes and I really look forward to our next one.

Thanks, Ray. It's been a lot of fun.

Okay. Bye-bye now.

Bye-bye.

The Metrics Brothers AI, SaaS, and More is a production of The Metrics Brothers Growth and CAC and a member of the Benchmarket 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.

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