Why Can’t We All Just Get Along? Aligning Finance and GTM with SaaS Metrics

Live from the Baker Tilly Technology Finance Symposium in San Francisco, it's SaaS Talk with the Metrics Brothers.

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

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.

We are indeed, Ray. How do we find ourselves here on this fine day?

Well, it was thanks to the kind people at Baker Tilly, specifically Chris Price. He asked maybe that Dave Kellogg and you could come and talk about SaaS metrics, and we said, well, let's do even better. Let's bring SaaS Talk with the Metrics Brothers live to the show. So here we are, Dave.

Good.

Well, given that so many of you listen, we don't need to introduce ourselves. Actually, let's Take that part of the script out. So I'm Dave Kellogg. I'm a long-term enterprise software person. I've been a CEO of 2 startups, MarkLogic, and then called Host Analytics, now called Planful. And I've been CMO of 3, all between $0 and $1 billion in revenue. And I've sat on 10 boards. So I'd like to bring kind of the marketing/CEO/board perspective to things.

Okay.

And I've got about 30 years of experience, operating experience in recurring revenue software companies. I know I don't look that old, but I do. And I've had 7 different companies over that time frame, starting with GE. So if you ever hear Seth talk with the Metric Brothers, we kid about being from Schenectady, New York, because that's where the R&D function of GE was.

Ray has like GE just imprinted on him. If you are old enough to remember like, like what the GE manager looked like, meet Ray.

I went through 10 years of training before I came out here. I was at Netscape. I led the e-commerce division at Netscape. And I've done a series of startups here from one IPO, 2 strategic acquisitions, and 2 PE acquisitions. So kind of seen a lot of things, including 2 very bad burn downs. So been there, done that. Nice.

So we're here today to talk about aligning finance and go-to-market. I think we're surrounded by finance people. We are the only 2 go-to-market people here. Ray's effectively sales and I'm marketing, so we fight a lot naturally. But let's talk about, well, first the podcast itself. We have what, 70 episodes about right now?

About 70 episodes. And I'm very proud 'cause I'm, you know, I get the sales background, ranked number 15 of all business management podcasts in the United States. So people are actually listening to it, I think.

Yeah.

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.

Yeah, yeah, yeah, it's good, Ray. And it's somewhat surprising because we try to do an episode per SaaS metric, right? So there's an episode on the CAC ratio, there's an episode on CAC payback period. But what are some of our—

the rule of X, the rule of 40 that Jeff talked about earlier this morning?

Stock-based compensation. What are some of the bigger ones? That's it.

Um, yeah, and then we cover a lot of benchmark reports. So if you ever read any SaaS industry benchmark reports, Dave and I have probably covered it and try to, um, talk about the good parts of it, the not so good. And we promise no live audience members will be hurt during the recording of this podcast. So you're safe. Maybe your feelings won't be safe, but you will. Okay, Dave, let's keep going.

Okay, let's cut to the chase here. So we're talking about aligning finance and go-to-market with metrics. So we'll start at the top. Ray, what's alignment?

Okay, alignment. So I believe it starts with having a strategy, this associated priorities, and a North Star that the entire executive team aligns upon. When I say North Star, I really am talking about a North Star metric because To me, the metric's the only way to measure if you're reaching that North Star. So that's the first thing. The second thing is that all the ELT members agree on what the measurements are going to be that's aligned to those company objectives. And third is that there's alignment of how budget is going to be allocated. So the CFO and CEO are aligned with the head of marketing, head of sales, head of customer success. on how budget and org structures are going to look. So that's my opinion, Dave.

Yeah, so I think I generally agree despite the script. Somehow I disagreed with you in the script, but when I hear you say it, I'm going to agree, call an audible here. I think the biggest problem I see is what I might call faux alignment, where— I mean, look, I'm going to speak as a GTM person now. Oftentimes we get handed targets on the GTM side from finance that came from a top-down long-range model, And we all kind of agree, you know. Yeah, but we're not really agreeing. So I think the only thing I challenge you on your answer, Ray, is don't be cheap about the word agree. Like, there's real agreement where we talked in a room for half a day about what does this mean. Oh, so we want to take the CAC ratio, my favorite metric, from 1.5 to 1.2. How are we going to do that? Not just finance said we had to, so go hack the driver so it pops out. a CAC ratio of 1.2, right? So I'm going to say, I don't know how to quantify real better than real, but, but I don't know what you say.

But the one thing I think that's really important is the company strategy. Like Nick Mehta, the CEO of Gainsight, for those of you who knew Nick, I was— Nick, I was talking about SaaS metrics and a framework that I have. He's like, Ray, if your executive team's not aligned around a vision and a strategy, then it doesn't matter what the performance metrics, because there's not really a grounding force. So I think the one thing I would say here is the CFO needs to help ensure that we have a business strategy that's connected to the actual metrics.

Got it. Just look at the horizon, Ray. This boat's really moving here. It is. I have to say, they've issued seasickness bracelets, which is the first time I've actually received one when giving a speech. So this is very exciting. And this boat does move, in fact. Um, so because I'm looking out, there's like, whoa.

So Dave, why don't we do this? Why don't we talk about What does alignment look like to you?

Sure. You don't want to talk about the boat anymore, right? No. So, so look, the thing to me, I've already said, but my piece on this one, which is just it has to somehow be real. And I think finance's role can be taking the time to say, do we really buy in this? Do we really understand it? I'm just going to pick a simple example. So we think sales productivity can go from $1 million a year to $1.2 million next year. Why? How? Let's stop rather than just take that and go, everyone aligned on that?

Yes.

Check. Let's go ahead. to say, well, how's that going to happen? And do you guys believe this is a doable target? Do you believe this is an achievable target? Right, because, because what happens a lot is, uh, increasingly the software companies are owned by PE people in particular. You get these top-down kind of benchmark-driven— evil benchmarks— uh, driven targets that aren't really necessarily realistic for this company, right? The other thing that goes wrong is to look at metrics in isolation, right? My favorite example there is, okay, our CAC is— I ran a company where the CAC was 2.0. Sorry, apologize. But the reality was we did a lot of 3-year prepaid deals. Not bad, right? So, 'cause when your CAC payback period is 18 months or 2 years, but you're doing 3-year prepaid deals, your cash CAC ratio was actually zero.

Right?

So you have to like look beyond the metrics and go, now wait a minute, ostensibly, if we just compare you to a normal SaaS company, your CAC ratio is high, but you're able to do this crazy deal structure. And as a result, you have very low churn. Maybe it's worth it to pay $2 for $3 worth of prepaid ARR, right? 'Cause you're actually making cash in that transaction, right? So that's, to me, it's almost intelligence or alignment to not just— 'cause the anti-example of that is looking at them one and off in isolation. Right? The average family has 2.5 kids, you need to have 2.5 kids, right? The average CAC ratio is this, the average LTV is that, the average GRR is that, the average NRR is that, right? You look at all these metrics, but they need to go together, right? Like another common example would be small land, big expand. So if you have one of those strategies, your initial CAC cost will be high unless you hack the CAC metric the first 12 months or something. But if you just look extensively, wow, that customer costs us $2 to acquire. Yeah, but they expand to $3. right, by year 2, right? And that's the thing, sometimes people get this kind of metrics myopia. They're just looking at one at a time, and, and that's wrong. That together they should tell a story that maps to strategy.

And I'll add to that, you know, what is alignment? So think about when you're doing the annual planning and you come up and say, okay, we're going to do this much new ARR and this much expansion ARR, and the CFO and CO collaborate on that. They go to the executive team and they're like, okay guys, here's our 2026 number. And then the next thing is, okay, sales, how are you going to achieve that? Then I turn over, it's like, marketing, how are you going to help sales achieve that? And then customer success, how are you going to achieve that? So establishing kind of stovepipe and silo kind of performance goals and measurements that you hold sales responsible for theirs. and marketing responsible for theirs, that's not alignment. In fact, that's a lack of alignment. Alignment is, hey, our new ARR goal is $10 million this year. Okay, marketing, what does that mean for you? What do you need to deliver? I need to deliver this much pipeline, this much pipeline that converts. So part of my belief is the CEO and CFO, they really own kind of helping to align The company financial goals with the departmental goals, and they all work in harmony. I don't know, do you think that's a good example of alignment?

Yeah, I think the thing you're evoking to me, Ray, as the former CEO of a company that sold financial planning systems, right, is that this is a more subtle form of non-alignment. But what can happen is you start the process and we say, here are strategic goals, everybody build a budget to meet them. And people do that. And by the way, you are singularly responsible. Like, I quit my first job because somebody asked me to do that, and I built a budget that was 300 units. They came back and said, oh, you only have 50. And I'm like, well, if somebody told me that in the front end, maybe I wouldn't have got myself all excited about building this. They're like, what do you want to do in product marketing next year, Dave? And I'm like, oh, I, you know, and I don't know how often people make that mistake these days in finance, but it's horrible to be on the other end of it. It's like, hey, if I only have 50 units, just tell me, right? But don't tell me to dream big and then slash me. I think most people don't do that anymore. But the thing that I do see happen is where we agree in the meeting, we're gonna do this, we think we know what our budgets are, and then we go through a squeezing process. And this is a chance for finance to weigh in. Nobody ever stops and says, okay, now that we've squeezed you 3 times, can you still do what we said, right? So you have this, once again, my thing is, alignment, like we're all aligned that we could have done those goals with this budget. But during the process, the budget's now here. And I think finance has a chance to say, okay, I've squeezed it 3 times. Is this still doable? Are we still bought in? Right? Because no one else is going to say that. And you're just going to squeeze them. I'm the CEO. I squeeze people. We do it, right? You twist the arm far enough until they scream and then you stop, right? That's the normal budget process in my experience. So what do you think?

You know what, why don't we, why don't we pivot a little bit? Yeah, because I actually think stories are interesting, right? We all have stories of non-alignment. So why don't you tell one of the stories that you just didn't have an aligned strategy between the COO, CFO, and the—

Yeah, this was more of a funny one, but, but, um, so people, oh, let's align people with metrics, right? Well, that sounds like a noble goal. So one time I was at a company, a big company, like a $500 million plus company, and I was CMO. And we get this new highfalutin CEO and comes in from a billion-dollar-plus company and tells us all how to do things. Very nice guy, by the way. But, but he shows up and says, we don't care enough about customers. Okay, that's an easy thing to say. So, so, so yeah, I guess, yeah, we all don't care enough about customers. So we're going to do an NPS survey. Oh, metrics. I like metrics, things we can count, see if people are happy. Cool. And we're going to give everyone in the company a bonus on the NPS survey result. Right, so you can see this unrolling, right? Ends up— but nobody bothered to do the math. Because when you actually took the amount of bonus they wanted to take from everybody and wrote it all down, the joke was the CEO's EA, executive assistant, called the bonus the one shoe bonus. She was like, well, if I get my CLI bonus, I can buy one shoe. I can't even buy a pair of shoes. I could buy one shoe. So it wasn't meaningful. And then even more hilariously, I hired a statistician to do market research for us. And he determined that everything we were measuring was, was just fluctuations within the confidence interval. So management, in my mind, looked like clowns. So anybody who was good at statistics, the whole company is basically saying, come on, 7 every quarter. It's a random outcome.

Come on, 7.

Boom, I could buy a shoe. And if we get 7 next quarter, I can buy another shoe. So when this stuff goes wrong, that was all good intentions. It was all from the best business books. And you trickle it all down and go, oops, failure. Here's— what do you got, one?

I got one, but highfalutin, I haven't heard that since I grew up on a farm in Ohio, moved out to San Francisco, started working at Netscape, went back home, was talking, you know, big stuff to my parents. My mom looked at me and she's like, you're pretty highfalutin for a farm boy, right? So, but here's my example. So company raised about $30 million Series B, and they invited me in to run just sales. I hadn't ran just sales for 20 years. I'd been running sales success and marketing for almost 20 years. And they said, okay, here's the goal. And the goal was like $10 million of new ARR. And we had done like $4 to $5 million the previous year. So I went into the CEO and I actually asked the CFO to come with me because I developed a pretty good relationship with them already. And I'm like, Okay, here's our performance metrics. Here's our pipeline conversion rate. Here's our close rate. Here's our ACV. All these things have been going up pretty well. But I said, but our pipeline coverage ratio, starting at the top of the funnel, actually had increased. Instead of 3x, it was 4.3x. And I'm like, unless we do get at least $12 million more of pipeline than we've ever done before, We can't make the number. And he looked at me and he's like, giving up? It's like, no, I'm not giving up, but let's bring marketing in and let's talk a little bit about what we need to do together. And do we have the capacity to build that much pipeline? And we can all get a little bit better together, but I actually had to force our CEO and CFO to bring all of us in together and say, is this doable? Versus, hey, sales guy, you can't make your number, you must just be giving up. So that's my worst-case example.

All right, I'll give you one more. Um, this is the thing I see commonly happen. These are all examples of stuff that goes wrong in the planning process in my mind in GTM. Uh, but another one would be like sales productivity. Uh, it's a— like we want to increase sales productivity from $1 million to $1.1 million next year. Um, and as we all know, right, I mean, any good Excel hacker knows I can make a bunch of little changes, multiply them, and I get a really big change. Right, uh, and this is the path to hell in planning in my mind, right, the Excel-induced hallucination as it's called, right, where you take all these drivers and move them a little bit. Um, so, so my natural response to that, I won't tell a war story, but I'll just say that's a pattern I'd say, uh, my natural response to that is basically if we're going to change the driver, I want to know why, right, right. So, so we, we, real example, we ran last year with a 1-to-1 AE to SDR ratio, quite high by industry standards, but maybe for our business model, it's the right thing. Okay, you want to cut it in half, 1 to 2. So a BDR should be serving 2 AEs instead of 1. Okay, that makes CAC ratio look great. So, but how again is that going to work? And sometimes you hear a great answer like, oh, we've bought a new— we've bought outreach and we're going to automate sequences and we're going to do this. And sometimes you get It's a wish, right? And I think that's finance's job is to kind of determine, okay, where are you wishing? Where are you just making small tweaks hoping to get an— and where's their plan? And by the way, who owns that? So I always have 2 questions. Why is it ever going to change, right? And who owns it? And by the way, another classic example would be sales enablement. We're going to hire a couple of sales enablement people. They're going to make salespeople more productive.

Great.

That's measurable. We can measure sales productivity here. So what is sales productivity? You go from what to what because of those enablement people, and then we're going to tell them that's their job, and that will scare them, by the way. It's kind of scary. But, but that's why we hired you, right? Like, the only reason your department exists is to make that number go up. If they can sell just as much without you as with you, we don't need you. Sorry. And that's a tough conversation, but it's one you need to have. As a CMO, I've always felt that way, right? Like, if sales doesn't sell more because of our existence, then get rid of us all. Right. So back to you.

Well, let's, let's bring this up a level, right? Because one of the things we wanted to talk about was, you know, aligning and using metrics to align. But before you talk about the metrics, you have to make sure you have a good strategic plan in place. So why don't you talk a little bit about what your belief is with the CFO and their responsibilities with the strategic plan? I know I skipped ahead on you.

Yeah, that's okay. This is kind of out the window at this point. It's too bad. We did a lot of work on it. Some really good stuff in here.

We told you it was live, it's an experiment.

So I think this is where you want me to go. So on the strategic plan, look, my request, I'm just gonna phrase everything as a request, is let's put the strategy back in strategic planning, 'cause it gets lost too much. And one of my little semantic twists is what's a plan versus a budget? Like most of us use those words interchangeably. And I think we can all agree what a forecast is. I always start there. What's a forecast? A forecast is what we think is going to happen. period, right? Doesn't matter if it makes people angry or happy, sad, doesn't matter. It's what we think is going to happen. That's a forecast. A plan or a budget is something at which we're held accountable, right? So those are my kind of basic definitions. And then to me, I actually draw a distinction between a plan and budget, which is a budget is kind of a thing produced by finance that nobody really buys into, that just got handed to us and we try to execute in spite of it. And a plan is something where we drove from strategy, right? We started with a set of strategic goals. drove down. So I think the office of the CFO and the finance team, the first thing you can do is, hey, could we put the strategy back in strategic planning?

Yeah, and I think it's really important. But then we get to, okay, now we have the plan and the budget and we have to hit it. One of the things that I found with the CFOs I worked with when I was running GTM that I loved was when she or he got really involved in our operations and actually understood our our performance metrics, which were leading indicators and input variables to the output metrics that he or she are reporting to the board of directors. Simple example, you need to have a 22% win rate and you need to have a pipeline conversion or coverage ratio of 3.4 to hit it. When that CFO says, okay, let's talk about how that's performing today. Let's look at the full funnel from those qualified leads to become qualified opportunities that marketing's help driving, and/or sales development, and your sales organization saying, okay, from stage 2 opt-in to when my close rate is 22-24%. The CFO's like, well, that's went down over the last 3 quarters by 1.5 points. What do you see for next quarter? Why do you think you're going to get it back up to 22% or 24%? Because if you don't, we're going to miss our plan, right? Or where you're basing it on a 75% quota productivity. So for that $10 million of quota that you hand out, you know you're going to get $7.5 million of that, right? But what if the CFO or FP&A team says, well, we're at 68% over the last 2 quarters? Why is it going to change? Because GTM, especially salespeople, can be a little optimistic. So having a CFO who really understands that next level of leading indicators is really going to help the head of sales and the head of marketing. Sometimes you might think you're getting into his or her business. Quite frankly, what you're often doing is uncovering blind spots that we don't even have. Oh, I didn't even realize that the pipeline coverage ratio actually had decreased that much. over the last 2 quarters. You might think that's her job or his job. It's really the CFO's responsibility to provide that insight sometimes. What do you think of that?

Yeah, no, I agree. I was just remembering I had a VP— I had a CRO who hated our head of FP&A, who I loved because the head of FP&A would just kind of call it like it is, and that was the job. It was like, hey, just—

you're—

to use an old Star Trek metaphor, you're Mr. Spock. Just bring us the data dispassionately, and like, it is what it is. It was 67% realization of quota. Period. I'm like, you could not like that, that's okay, but it doesn't change the fact that's what it is. So I think that's a very special part. I always view FP&A in particular as a trusted partner in that because they bring data and fact. I want to take where you did and go up a level, Ray, which is, you know, sometimes— so Ray was talking about sales productivity there, and sometimes we can't solve these problems overnight, right? And so there's another thing I think finance can do to be very helpful, which is Most of you probably have a long-range model, probably a 3 to 5 year model. It's actually usually detached from your budget, often built in a different system, right? 'Cause the budget has to be mapped to general ledger accounts and include depreciation and amortization, a lot of GAAP stuff in it, right? But whereas the long-range model doesn't. So it tends to be a driver-based 3 to 5 year model. I was at Salesforce. I used to work at one market at Salesforce, and we, I think, had a 7 year LRM, a really long— to me, it was the longest one I've ever seen. company I worked at. And I like LRMs because they can help— finance can help GTM with this scenario.

So the—

I'm just gonna pick on PE people today, sorry, but the PE guys show up and they say the benchmark is your CAC ratio needs to be 1.2 and yours is currently 1.8, right? And the question is, are we gonna fix that in next year's plan? Probably not, in my opinion. I mean, you might be able to, but probably not. So the answer, of course, is to get out your long-range model and calculate the SaaS metrics in your long-range model, pick the benchmarks for when we get to $100 million or $500 million in ARR, this is where we want to be, and kind of sell the notion of what I call glide slope planning, which is, look, I'm not exactly where you want me to be right now, but my plan is doable, right? The executive team is willing to sign up to execute it. Very important. Sometimes PE guys don't care that much about that. But we have to remind them that a plan that the team doesn't think they can attain is not a good plan. And we can have plenty of plan misses and we'll get a new executive team after that, right? My favorite Marc Andreessen quote— not that I like what he has to say too much these days, but he still had one great quote of the past, which is, you have a problem, you fire the CEO, now you have 2 problems, right? So you build an unrealistic plan, you miss the plan, you fire the executive team, now you have 2 problems. You're missing plan and you need a new executive team. So I think something you could do is help keep asking people, okay, I know I did my job, we're hitting the financial constraints, but can you guys actually do this? Can you people hit this plan? And if they're like, nah, no way, snowball's chance in hell, then you gotta kinda call it. And one way to call it out is this notion of glide slope planning. Say, look, we're all on the same team here, PE people, VCs, whoever it is on board, we all wanna get to that CAC ratio. But, but to give you an honest answer, we don't think we can get it to 1— from 1.8 to 1.2 overnight. So we're going to need a couple of years. We think we can get it this year from 1.8 to 1.5. And good news, we can do it on a plan that we think we can achieve. So it's easy for me. I can make a plan that is 1.2. I can make a plan that's 0.9. That's really easy. But, but, but can they actually do it?

And this is— we're going to get into some practical kind of SAS metrics things now. But I always said long-range models or long-range plans, they can help align you, but last quarter's performance defines you. It really does.

Profound, right?

Having been fired 2 times in my life, I know exactly. I had beautiful models, I had beautiful metrics, I just didn't hit the plan, right? But so what I like to do once I get the annual plan, I think a great alignment strategy that the CFO— I truly believe she should lead this is you define and identify your top 5 performance metrics that you're going to be reporting to the board. It might be net new ARR or your ARR growth, right? Maybe it's your net revenue retention, very important top 3 metric that impacts enterprise value to revenue models. Maybe it is your CAC ratio, right? Sales and marketing fully loaded expenses divided by your new ARR. So let's say those are the 3 top ones. So you have this metrics framework. Now you're like, okay, so if those are how I'm going to report our performance to the board, what are the departmental metrics that are both leading indicators and have a causal relationship to those company metrics? So let's say it's, um, net new ARR. Well, for marketing, it's like, well, I'm going to be the quarterback of the pipeline. I know I have a pipeline coverage ratio of 3 3.5x, so I'm going to need to be responsible for generating 3.5x times the new ARR number, which is $12 million. So now you have marketing aligned to that. The sales organization says, well, I'm going to be getting this much pipeline, and if I have a close rate of 24% at this ACV, then I'm going to be able to contribute my new ARR. And then the customer success organization says, well, We need to grow existing ARR, expansion ARR by $3 million. So to get our NRR number, so I'm going to generate this many customer success qualified leads, this much pipeline that sales or account management is going to close. But you see how it's all aligned to what the CFO has, but that's only down to the executive team level. The next level, whether it's your directors or frontline managers that 80% of their objectives should be measurable in metrics and are leading indicators to their department heads. So if you have a sales development organization and they're responsible for 20% of the pipeline, you need to make sure that they have a measurement that says it's not just 100 qualified meetings, it's 100 qualified meetings that become 20 opportunities that generates $1.4 million of new ARR. So you see how they cascade down. So that's something I believe, and I always wanted my CFO to help us get aligned between sales, marketing, and customer success by having those cascading metrics. What do you think, Dave?

Um, I like cascading metrics. Um, there's a question of how far to cascade. Um, some people get overexcited by this concept, GE people in particular, um, and they, uh, they'll try and cascade. I don't know if anyone's old enough to remember the balanced scorecard. The— it was actually a strategic finance thing in the probably late '90s, early 2000s, Kaplan and Norton. It was a balanced scorecard, and it became religion for the management consultants and for many finance types. And it was, we shouldn't just look at financial metrics, we should look at 4 quadrants: finance, customer, organization, and process, I think, were the 4 boxes. So, and that would be your balanced scorecard. It's not a bad idea, by the way. The basic concept of don't just look at financial metrics is a good one. and to try and get metrics in 4 categories, a good idea. But the other thing they had was cascading metrics, and you cascade all the way down from the company's strategic plan to literally a balanced scorecard. You were supposed to print on the janitor's pay stub their KPIs for that week, and, you know, insanity in my mind. So I like 2 levels of cascading, like let's get the company metrics, let's get the CMO-level metrics, let's align them, but It gets awful artificial sometimes. Like, I don't know, product marketing, for example, is a very hard area to quantify. So we're starting my career, I know a ton about it, but like, I still don't know how to measure it, right? I can't tell you. And I love measurement. I love product marketing. Can't tell you. I mean, I have one trick. I used to make a quadrant. Here's how I actually measured it, just not to cop out. I ran a survey of sales and said, who have you ever heard of on the team and who would you bring on a sales call? And I made a quadrant and that was my measurement. I just say, nobody's heard of you, you need to get out more. Or like, well, everyone's heard of you, but bad news, they don't want to bring you on a sales call. Or like, everyone's heard of you and they all want to bring you on a sales call. Or the best-kept secrets, nobody's heard of you, but they all want to bring you on a sales call. So, so that was it, but very hard to measure some of the stuff. So I don't think you can start with, you know, ARR growth goal is this and get to, you know, my data sheet got downloaded 1,500 times.

Yeah, we typically stopped it with the cafeteria and how much Keurig single cups we had. to make sure we had enough caffeination, but we're at 40 minutes. So maybe we take, if it's okay, Chris, I'd— we'd love to ask you, the audience, what specific metrics questions do you have? There's nothing off, off the table.

Go ahead.

We still have not gotten to a point where we're beginning to see the real force of AI in terms of ROI, corporate performance, etc. Yes, efficiency, 30%, 40%. But where I'm interested to see is, there were like the optimists and there were the pessimists, right? So there were 2 sides to the same coin. Now I feel the answer could be in between. The doomsayers were saying AI is gonna like kill SaaS. SaaS as an industry we know, maybe we're seeing like the end of— beginning of the end of it. And then The pessimistic side. The optimistic side is, you know what, this is really gonna change the game. The power of AI with SaaS is only gonna turbocharge it. So I, at a personal level, like, because, you know, I used to be in software, moved into the investment side, it'll be good to see people who live, you know, breathe, live, breathe SaaS day to day. You know, good to get your perspective. Yeah.

Can I go first?

Please do.

So, um, there's an old saying back— again, it's 20 years old, I'm going to do all these dated references, but it was a great quote, which is, you can see computers everywhere but in the productivity statistics. Uh, and it was true at a kind of a national economic level. You couldn't see them for a long time, and eventually they showed up. But, um, AI is a little bit that way right now. You can see it everywhere except in next year's operating plan. Like, like, I don't— the companies I work with, nobody has a radically improved P&L because of AI. I don't know if anyone's seen it. And the question is, do I believe they will, right? Battery went on record saying—

30% decreased headcount per dollar of revenue.

So that was Battery's prediction of the impact, and that was on sales and marketing, I believe. It's just the GTM part of the P&L that AI would save 30%. And I tell all GTM people, your board's gonna be asking about that statistic, which they will be. I think this is kind of indirect answer to your question. I'll let Ray give you a better one, but my belief is this will be the year of the AI SDR, just to kick right back to GTM. Like, how is AI going to impact go-to-market? I think this is the year where everyone's going to try it. I personally think it's going to work. Like, so we will see reduced CAC ratios, right, and reduced sales and marketing as a percent of revenue as a result. We haven't seen it yet. No one's willing to sign up for it in the operating plan, which is why we haven't seen it in our budgets, because the CRO is like, yeah, I'll try that, might work. Oh, am I gonna, you know, reduce sales and marketing as a percent of revenue? Because on the combat No way. But, but if it works, I think we'll see it next year, right?

Yeah, it's still experimentation. Anybody tells you anything else in the go-to-market is experimentation. A lot of these things, tools, they'll try, they'll try for 3 months, 6 months, they don't see improvement, there's not adoption, they throw them out and they try something else. Most of the adoption of AI today in go-to-market on a marketing team, it's content creation, both images and text, making better emails. On the sales side is primarily research, data enrichment, data cleansing, and some of the outbound outreach emails, but they still kind of suck, they're not that personalized yet. So you're not seeing the impact today. In fact, if you look at public SaaS company benchmarks, remember at the end of 2021, we were highly inefficient. For public SaaS companies, the median sales and marketing expense as a percent of revenue was 44%. the median growth rate was 27%. So not even quite a 2-to-1. Today in public SaaS companies, the median growth rate, 17%. The median sales and marketing, 36%. So we've seen actual CAC ratios going up in the last 3 years, not coming down. So we're gonna have to get there. But we sure in the hell aren't there yet.

So wait a minute, just because you threw a lot of numbers at us, are you saying that as we cut, our growth got cut in half, our sales and marketing got cut by about 20%? Oh wow, okay.

So that's not looking good, right?

Depends on your point of view. CMO looks great.

Any other questions? Quick question, um, what kind of advice or what suggestions would you have for early-stage startups in terms of where to allocate their precious resources on GTM for their first million of AR and their first $10 million of AR in this economic climate?

Do you want to go first?

I don't want to give Ray disadvantage.

No, please go first.

You offer your microphone.

It's a hard one.

So I actually do a lot of this work, so I'll take this one. Look, zero-to-one is the founder-led sales is the buzzword, right? And I'm a big believer in founder-led sales. So I think that's the short answer. And what founder-led sales is basically like an AI human personalizing your outreach email, because it's the founder looking at your LinkedIn profile, right? And reading about your company and writing you a very personalized email that says, I'm the founder of Trumbull and you need to talk to me about this problem. So I think the short answer to me is I haven't really seen it change. I think a lot of the AI impact, tying to the prior question, it's more about scaling. It's more about the machine and the engine, but the zero-to-one phase to me hasn't changed. It's still founders reaching out to people with highly personalized outreach through network introductions to try and get a conversation going. So I haven't seen a big change. I don't know about you, Matt.

I'll add one other thing. Often we raise our— we get to a billion. We go out and raise our Series A, right? What's one of the first things people do? They hire salespeople. Oh, I'm gonna hire 4 new salespeople. 2 of those are gonna be enterprise and they're gonna kill it. But poor marketing didn't get much incremental investment and they cannot generate the air cover to support those 4 new salespeople. Huge mistake. And then 6 months later, the salespeople are unhappy, the CEO and the CFO is unhappy, and marketing's like, You expect. So my recommendation is don't underinvest in marketing at the beginning of the scale stage. I would actually overinvest in marketing, which I know might surprise you.

Yeah, and in general, let me just weigh in on this one. So one of my favorite metrics that I invented is the sales-to-marketing expense ratio, and I would literally just start tracking it because the question as a finance person is, if it's changing, why? Because the default state of affairs is it will go up. Sales to sales expense divided by marketing expense. I absolutely guarantee you, in your company, in the absence of other forces, it goes up.

Why?

Because the salesperson is a better negotiator than your CMO, right? If they're not, you've got another problem, right? So the salesperson's a better negotiator and they have more leverage because they're negotiating the number. So in company after company that I see, because, because Ray described a specific instance of the sales to marketing expense ratio being out of kilter, And I'm just going to argue that if you're in kilter today, watch how that ratio changes over time. And in the absence of other forces, it goes up. And US finance and the CEO need to say, why is it going up? Once again, is it going— or are we creating what I call the baby robin problem, where all the little baby robins are staring at the sky waiting for marketing to drop pipeline in their mouth, and there's no mommy there to do that, right? No one's dropping in, all the baby robins are like, I want pipeline, I want pipeline.

And I'm going to give you a recent benchmark. We just did this B2B SaaS only. Company, SaaS companies, and this is size independent, we did it, we tested it across all sizes, 10% investment in marketing as a percent of revenue, that was a median and they were growing at a median of about 18%. Companies that invested 15% and above had a median growth of 34%. So what I'm saying there is that's another thing, look at marketing, look at how much money they're getting And if you can increase that compared to sales, measure the number of inbound leads. When I say leads, inbound opportunities that become new ARR, you'll be very shocked that the more money you spend in marketing upfront, if it's efficient, will generate a higher efficient ARR growth downstream.

Thanks for selling marketing, Ray. I see we have a question over there. Uh, somebody could float a mic over, that'd be awesome. Um, very kind of you to be pushing for marketing budgets today, Ray. When founder-led sales is a large portion of the outbound effort, right? Like, like, how do you factor in the effort that the founder is putting into these like early stage go-to-market metrics?

I'm going to answer it first and let you take it.

Go ahead, Ray. Yeah.

If you're looking at efficiency metrics and you're still doing founder-led sales, why in the hell are you doing that? Because at $1 to $2 million of ARR, you're a voyeur. You're not informing your decision-making by that. So I can tell you that sales and marketing investment for a company under $2 million looks a hell of a lot better than $2 to $5 million. Why? Because they don't have the VP of sales or VP of marketing yet. So I don't think they're that important at that stage.

I'm gonna pile on kind of, but I literally tell founders, if an investor asks you your CAC ratio and you're less than $5 million in ARR, walk away, right? You don't want that person on your board, right? 'Cause you just haven't built a model yet. It's too early. And we can start doing allocations, right? I mean, I can get you an answer. Put a gun to my head, I'll get you an answer. But what can I do with it? Answer, not much. By the way, I want to tie back to something Ray said in response to your question, which is really back in that 0 to 1 phase. I think the smartest thing you can do is hire one salesperson with runway, meaning that they've been a sales manager before. So if you can, as founder, and you're 0 to 1, if you can hire a person who's a district manager or an RVP at a company who's managed 10 people and have them come in and be your first seller. And that person can be glued to you for 6 months while you go sell the first customers. There's literally nothing better than that because after those 6 to 9 months, they've been through the world's best training program because I've been glued to the founder for 6 to 9 months on every call. And then I can do what I already know how to do, which is hire and train salespeople, right? And the problem most people have is to hire one salesperson who has no runway, right? And they have no idea how to do that. And 9 months in, they either have, they have a Hobson's choice, right? Terrible choice of, okay, do I promote this guy to be a manager even though they've never managed salespeople before and take that crazy bet? Or do I bring in a new person who just didn't get the world's best training program and try and have them learn? And so I try to avoid, there's only one way to avoid ending at that crossroad, which is to go back in time and hire your first seller to be somebody with runway.

Chris?

I'm not sure that we'll end up having enough time for you guys to really dive into this. I'm going to be talking a little bit about it in my own presentation, but I'll say, you know, with as much usage-based activity that's happening and the impact that GenAI is going to continue to have on that, I do wonder how much you guys have thought about the impact that that's going to have on some of our traditional metrics. I suspect you're smiling here, Ray, because you probably have a session coming up on that or a podcast where you guys might be covering that topic. Um, would love to get if you've just got any quick thoughts on that.

None. There's no— we're the denial brothers. There's going to be no impact.

Come on, it's SaaS talk. It's not usage-based talk. But, um, Dave actually covered this at SaaSmetricspalooza last year, so I'm gonna let you take it first because you had a really good idea about that.

I mean, the short answer is— so first, let me tell you a point of view on what's happened. What's happened is in the old days, SaaS was an annual contract, right? So it was kind of a forward— ARR was a forward-looking metric, right? It was how much I'm going to get in the coming year. When the more variable become and the more you're kind of billing in arrears for stuff that happened, the more it kind of becomes a lagging metric. And then you can go, wait a minute, I sell prepaid credits, so I'm getting cash up front, but actually how much they burn down, right? It gets to be kind of tricky accounting problem, which I don't have to share with you folks. So the first part of the answer is, as soon as you go variable, ARR kind of loses meaning, right? And the problem is ARR is atlas of SaaS metrics, right? Every good SaaS metric is either ARR, ARR growth, CAC ratio, which is about ARR, CAC payback period's about it, like their GRR, NRR, everything's about ARR. So we've built this huge foundation, this house on top of a foundation that is kind of becoming meaningless, right? Because it's like, wait a minute, ARR kind of isn't really a thing anymore. Um, so, so what do we do? What people have done thus far is they create— they are kind of in denial that they, they pretend ARR still exists and, and they create proxies for it, like trailing 12-month spend. Okay, but we'll just call that ARR. Now, if you do that, it's a perfectly acceptable answer, by the way. It's one I, I use. I use trailing spend as, as the As soon as you're variable, I go to trailing spend because ARR doesn't mean anything. And the problem with that is you just gotta be careful interpreting metrics because that's now backward looking, not forward looking, right? Like the famous example of this is Snowflake's NRR calculation is 2 years ago divided by 1 year ago, right? And in traditional SaaS, the GRR calculation would be this year's, the coming year's ARR, right? How much should I renew you for? 105 units. divided by last year's ARR, 100. So we've actually changed the perspective in time of the metric from a year ahead, kind of one foot in the future, one foot in the past. That's what NRR used to be, and now it's past compared to distant past.

And, you know, I co-founded this thing called the SaaS Metric Standards Board. You can look at it online. We have a lot of the metrics actually standardized, or we attempted to. It starts with your income statement and your chart of accounts. So we highly recommend that your income statement has subscription revenue, the variable subscription revenue services, and that when you do your metrics, you have 2 versions. You have like just that committed or contracted ARR that's guaranteed, and then you can have that contracted ARR plus your variable ARR.

Yeah.

And it's also really important that your investors know that, right? It's like, oh, it's 50% of your revenue in the last 4 quarters, was variable. So we think that's really important.

Yeah, I hate that definition, as Ray knows. So just, this is why we're the Metrics Brothers, 'cause we bicker like brothers. You could do that if you want to. I would argue that's part denialism. It's like, hey Ray, the world changed. It's not, you're hybridizing it, right? And to defend Ray's point of view, 'cause who owns all these companies, right? PE and VC. My favorite VC's definition of ARR, you remember this one? ARR is what happens in the coming year if we don't mess up.

Right.

And it's not a bad— right, that's the way that people who own these companies think about it. That's why they like ARR, right? Because we can mess up and still do 100, right? Because we renewed 100 or we— so, and Ray, the good news about your formula is that the non-variable— you're getting a lower bound for ARR in my mind. You're getting the contractually committed part. But in reality, if you wanted to know what we're gonna get next year without screwing up, I'd probably do a forecast. Because I, I know it's not going to be zero, the variable. I'm not getting zero, the variable, and that's the problem.

And that's the muscle you better develop if you're in a usage-based pricing or outcome-based pricing model. Forecasting— you better be really good at understanding product utilization trends so you can forecast out the next 1, 2, 4 quarters. And today, even on new business, the, the median error margin on new business forecasts is plus or minus 11%. So if you can't even forecast Right, you're, excuse me, closing new accounts. We have a process that's got gates and stages. How are you going to forecast your customers' utilization, especially if there's macroeconomic and geopolitical impact of product utilization? So something to really think about.

I still think it's easier to forecast customer stuff than new stuff. Surprising for a sales guy to say that, but I disagree respectfully there. Back to you.

No, that's great.

Well, guys, really appreciate it.

What a treat to have these guys speaking in front of us. You could tell it's a wealth of knowledge. Again, if you have not listened to their podcast, which we did not have enough hand raisers, uh, you absolutely should. So let's give Ray and Dave a round of applause. It's a real treat.

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 Kack Kellogg is based in Silicon Valley and available on X at Kelblog. Skedectity, which is French for unspellable, is not our actual production location. Thanks for listing.