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Need to be more efficient in your GTM? Then it's time to get serious about your burn rate.
In this episode, Mikkel and Toni break down some tactics you can start now to get your finances in line.
In this episode, Mikkel and Toni break down some tactics you can start now to get your finances in line.
- (00:00) - Introduction
- (02:42) - Reducing Burn
- (09:02) - Mastering Payment Terms for Cashflow
- (12:07) - Strategic Pay Raises and Salary Bands
- (14:32) - Effective Use of SPIFFs
- (16:31) - Navigating Budget Challenges in Recruitment
- (18:47) - Optimizing Sales Commissions and Performance
- (23:12) - Balancing Owned, Earned, and Paid Marketing Channels
- (27:28) - Reevaluating Tool Investments for Cost Efficiency
***
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Creators & Guests
What is The Revenue Formula?
This podcast is about scaling tech startups.
Hosted by Toni Hohlbein & Mikkel Plaehn, together they look at the full funnel.
With a combined 20 years of experience in B2B SaaS and 3 exits, they discuss growing pains, challenges and opportunities they’ve faced. Whether you're working in RevOps, sales, operations, finance or marketing - if you care about revenue, you'll care about this podcast.
If there’s one thing they hate, it’s talk. We know, it’s a bit of an oxymoron. But execution and focus is the key - that’s why each episode is designed to give 1-2 very concrete takeaways.
Introduction
---
[00:00:00]
Toni: Hey everyone, this is Toni Holbein, you are listening to the Revenue [00:00:03] Formula with Mikkel and Toni.
Toni: In [00:00:06] today's episode, we discuss two ways you can reduce [00:00:09] burn and get more efficient. Enjoy.
Mikkel: [00:00:12] I was just
Mikkel: gonna
Mikkel: [00:00:15] say,
Mikkel: I've been very much looking forward to this [00:00:18] episode [00:00:21] because number one warrants [00:00:24] rear view mirror and I can actually [00:00:27] participate in the conversation now. So it's not just, [00:00:30] and this is good info for the listener right now. This [00:00:33] is not just going to be a Toni lecture, not another one of [00:00:36] those.
Mikkel: It's, it's going to be one of the fun [00:00:39] ones. One of the good ones. One of the liked ones. [00:00:42] One of the saved ones. [00:00:45] I can't do any more rhyming. I'm at the end of the
Toni: [00:00:48] Was that, by the [00:00:51] way, the intro, or are we just hyping each other up?
Mikkel: up. A bit of [00:00:54] both. A bit of both. I mean
Toni: It cannot be a good [00:00:57] intro without a bad kid story.[00:01:00]
Mikkel: But do I have any [00:01:03] left?
Toni: I don't know. I'm just scanning through mine.[00:01:06]
Mikkel: The inventory is like DURURURU [00:01:09] be bop boing pew[00:01:12]
Toni: We need to supply our listeners with more [00:01:15] reasons not to have
Mikkel: Like,
Toni: that's, [00:01:18] that's in essence, what we got, we got [00:01:21] this feedback, uh, you know, the other day, [00:01:24] uh, which was now that I've listened [00:01:27] to all of your introductions, Toni and Mikkel, [00:01:30] um, I know for certain that I don't want to have any kids.[00:01:33]
Mikkel: Yeah.
Toni: Like we, uh,
Mikkel: you. Yeah, [00:01:36] I don't think that was
Toni: I don't think [00:01:39] that was part of the consideration to begin with, but the, you [00:01:42] know, we are, we are actively working against this [00:01:45] goal of, you know, Europe to get to 2. 1 kids [00:01:48] per, per, you know, couple or whatever.
Mikkel: know what? It's [00:01:51] to save the planet because everyone's talking about green [00:01:54] energy, this and that.
Mikkel: It's like, if we can depopulate a little [00:01:57] bit, yeah, that's going to help out. They talk about [00:02:00] cow farts being an issue. But who has thought about [00:02:03] human farts, honestly? No one. [00:02:06] Did I ruin the intro now? [00:02:09] So, here's how
Toni: reduce burn. [00:02:12] It kind of
Mikkel: kind of fits, it [00:02:15] kind of fits. You ripped it. Oh [00:02:18] man, no.
Toni: Let's go, let's go.
Mikkel: Let's [00:02:21] go. That part, cut now.[00:02:24]
Toni: I don't think we're gonna cut
Mikkel: Are we gonna cut it? No, we never cut it. We [00:02:27] say we will and maybe, you know, maybe actually this [00:02:30] will get cut because I'm on holiday when it gets produced and Bart is probably gonna [00:02:33] salvage this one. He's gonna be like, you talked about [00:02:36] farts
Toni: He's just gonna talk over it, you know, is [00:02:39] it's gonna put on his
Mikkel: I had to cut it out. You [00:02:42] morons.
Reducing Burn
---
Mikkel: Um, no, we're going to talk a bit about [00:02:45] reducing burn, reducing burn, a.
Mikkel: k. [00:02:48] a. Um, Maybe getting a bit more efficient, getting a bit more [00:02:51] conscious about, uh, the money being spent in the [00:02:54] organization. This is pretty key still because [00:02:57] times have changed and it's probably not going to snap back to [00:03:00] a, yeah, we can just burn a lot and sustain, a [00:03:03] crazy multiple on the business.
Mikkel: So actually reducing [00:03:06] burn, that is a key thing to prioritize as a [00:03:09] business right now.
Toni: Yeah, absolutely. And I think, you know, for, for [00:03:12] the go to market folks listening to us, like, yeah, you know,
Toni: [00:03:15] sometimes when you sit in this management session and you [00:03:18] talk about, Ooh, we're going to create this, you know, conversion rate [00:03:21] uplift.
Toni: You're going to do this. All of that stuff is cool, but no one [00:03:24] understands this besides you. What they understand is, you know, how [00:03:27] much money are we burning and how much time do we have left? And, you know, [00:03:30] when, you know, and so forth. So I think a [00:03:33] couple of those go to market topics, you can also [00:03:36] repackage and think about it more from like, how can we reduce burn perspective?
Toni: [00:03:39] I think there's one today. And otherwise we're just going to talk [00:03:42] about some. You know, budget best [00:03:45] practices? I can't imagine me actually [00:03:48] saying this out loud. But [00:03:51] ultimately there's a couple of things I've used in my career and [00:03:54] seen in my career that go completely wrong. [00:03:57] That basically, and it's your fault as a go to market leader, by the [00:04:00] way, that I think just needs to be fixed.
Toni: So
Mikkel: So we have, Toni [00:04:03] spreadsheets, Holbein with us in the studio. Again, [00:04:06] the, the good old finance [00:04:09] background. It's so funny, whenever we do anything about anything, it's like, [00:04:12] well, I studied psychology or no, I [00:04:15] did some finance, you know, astrophysics. Yeah, I did [00:04:18] a bit of that.
Mikkel: We can talk about that. It's
Toni: You're just jealous [00:04:21] because you're always just the marketing guy.
Mikkel: [00:04:24] Well, it's just, I just find it funny how that
Toni: back, back on the [00:04:27] day when I was e commerce and was selling like
Mikkel: yeah, yeah, [00:04:30] yeah. But so the first, uh, point [00:04:33] we're going to get into is really the point where if you start talking [00:04:36] about this as a go to market leader, there's a really high likelihood [00:04:39] that the finance person will start falling in love[00:04:42]
Toni: with
Mikkel: They will really get googly eyes [00:04:45] or they will get seriously worried because what's coming out of your mouth, [00:04:48] it ain't adding up. Uh, but it's the whole budget rigor, [00:04:51] right? It's the whole budget rigor. And I think, [00:04:54] It's being run so differently across companies, at least what I've seen and what I'm [00:04:57] hearing out there.
Mikkel: But there has to be a process in [00:05:00] place to look at the budget you have and how it's being spent. Period. [00:05:03] Yes.
Toni: the [00:05:06] budget you have [00:05:09] and how [00:05:12] it's being [00:05:15] spent. Period. It's going to have a, you [00:05:18] know, what is going to have a positive impact on this? [00:05:21] Likely looking at this, bring this up in [00:05:24] one on ones, bring this up in team meetings, discussing it. [00:05:27] Why is this number down?
Toni: Shouldn't this number be up? [00:05:30] That usually leads to better performance, right? We know this. This [00:05:33] is like ingrained in us.
Mikkel: is the budget down? I [00:05:36] don't like what I'm seeing. Yeah.
Toni: Which is no [00:05:39] one says ever, like it doesn't happen, right? Kind of, it [00:05:42] only happens for this one. really [00:05:45] boring session every month. If you have a well organized [00:05:48] finance team where the junior [00:05:51] guy or lady of the finance team sits there and tells you, you [00:05:54] were like 14 percent behind, you know, this number. [00:05:57] And there's accrual over here and then, uh, like you, [00:06:00] you don't, you don't give a shit about any of that stuff.
Toni: Right. And it's like, it's always [00:06:03] off. Thank you for telling me how shit we are. Like that was [00:06:06] always like, you know, I'm basically zoning out. However, [00:06:09] It's not smart to do it like this. I [00:06:12] think , creating simple budget rigor [00:06:15] is a thing you should be doing. And I think it should be [00:06:18] coming from you, meaning go to market leader, revenue [00:06:21] operations, instead of a, you know, [00:06:24] finance business partner.
Toni: I think a finance business partner should help you put [00:06:27] those numbers together or put the numbers together and you then put it [00:06:30] together. But it's really important that you own those numbers. It's similar [00:06:33] to, Oh, let's have my sales person run the [00:06:36] forecasting meeting or let's my sales person kind [00:06:39] of, have difficult PIP conversations, but it doesn't [00:06:42] work like that.
Toni: It needs to come from you from the top [00:06:45] and you need to show that you care about it. [00:06:48] And once you do other people will as well.
Mikkel: Yeah.
Toni: And what you [00:06:51] want to do there is basically team by team, [00:06:54] month by month, just to make people aware. [00:06:57] Kind of what their budget is, what's still missing, [00:07:00] what their thoughts are about this, especially if they're behind.
Toni: And I'm not [00:07:03] saying revenue, but costs
Mikkel: cost. Yeah, yeah. Yeah.[00:07:06]
Toni: And just make sure that everyone knows that they're either [00:07:09] overspending or underspending and what the ramifications are and et [00:07:12] cetera, et cetera, et cetera.
Mikkel: I think a good model I've seen and [00:07:15] worked with in the past is L3M. [00:07:18] So the last three months where you basically [00:07:21] see a, however it's grouped, it will [00:07:24] vary obviously by function and company and blah, but [00:07:27] for marketing was like the different channels or activities we [00:07:30] were doing with high cost associated with it and we could see for [00:07:33] the last three months how that had been trending.
Mikkel: to know whether that's [00:07:36] in line with also what we're, we planned for, what we [00:07:39] expected. But then you also use it to look [00:07:42] ahead and say, well, what about the next three months? How do we [00:07:45] envision that's going to happen? Because usually we will have [00:07:48] some insights, that's going to influence how we [00:07:51] spend money over the next, the next coming months.
Mikkel: So [00:07:54] one of the things you and I have talked about is if we can see a challenge [00:07:57] that it's getting more high, hard to build pipeline from a certain [00:08:00] motion or channel, whatever. You want to have that [00:08:03] conversation up front. It's the same with the [00:08:06] spent. If you see an opportunity or if you see a challenge [00:08:09] in being able to use the budget, you can have that conversation as well [00:08:12] there.
Toni: Yes. And now, you know, if you [00:08:15] jump from a, everyone is uneducated about budget to [00:08:18] everyone is educated about it world,
Mikkel: it. What do
Toni: you need to [00:08:21] realize is just as with other metrics that [00:08:24] you're kind of putting some pressure on, people start gaming it. [00:08:27] And, you know, some, you know, some, some of us probably [00:08:30] know, especially on the sales side, this whole idea of, you know, use it or lose it [00:08:33] budgets. you know, you get an inbound in [00:08:36] December from this company and talk to six months ago and [00:08:39] say, Hey, we have 20K left in my budget. Yeah.
Mikkel: our budget. [00:08:42] Yeah.
Toni: If I don't use it, I'm not gonna have it next year.[00:08:45]
Toni: Why don't you send me an order for 120K and we do this, you know, [00:08:48] um, so the same kind of behavior might start [00:08:51] to happen in your organization and to be prepared and aware of [00:08:54] that, right? It's, it's, I think a [00:08:57] better evil than not [00:09:00] caring about budget whatsoever.
Mikkel: Yeah
Mastering Payment Terms for Cashflow
---
Toni: Uh, just, just so you [00:09:03] know, another thing you can do, on the cost side and kind [00:09:06] of how can you, you know, almost finance side kind of create a better, [00:09:09] uh, you know, budget rigor if you will.
Toni: We [00:09:12] talked about this, um, change payment [00:09:15] terms to vendors and from customers, [00:09:18] like, you know, this is what, you know, big [00:09:21] retailers do like crazy. They basically, for them receiving [00:09:24] money is zero payment terms because on the checkout. But for [00:09:27] paying the, you know, the vendors that sent [00:09:30] them the stuff, they have 90, [00:09:33] 120, 180 days of payment terms, [00:09:36] basically.
Toni: And that is a massive cashflow benefit to them. Like it's [00:09:39] massive actually, right? So think about this a little bit. [00:09:42] You won't get to this level, but try and pay vendors. [00:09:45] Not on 30 day terms, send, you know, [00:09:48] pay them on 60 or 90 day terms. Usually very easy to [00:09:51] negotiate. Usually this is the AE doesn't give a shit about this.
Mikkel: about. What, what [00:09:54] I will say though, is not going to fundamentally [00:09:57] change the profit, is it?
Mikkel: It's more of the [00:10:00] cashflow. It's
Toni: Yeah. Well, so yeah, and burn, you know, [00:10:03] however you want to design burn, but burn is actually kind of around [00:10:06] cashflow, right? And as long as you can push that stuff out, yes, [00:10:09] it's going to happen. And people like, well, does it then matter? Yeah, [00:10:12] it can tell you it does matter. And your finance guys will know that, [00:10:15] but especially when you acquire a new software.
Toni: [00:10:18] Push to 60, 90 days. Push it, try and push it out. [00:10:21] Right. Kind of that's gonna give you some room.
Mikkel: But how do you then decide, [00:10:24] because the argument against, let's just say on the, [00:10:27] you're going to go buy software. The argument [00:10:30] against the, hey, I want to pay every [00:10:33] six months.
Toni: is.
Mikkel: It's also [00:10:36] leverage to say, Hey, what if we do multi year and for [00:10:39] payment upfront and you get a way better
Toni: [00:10:42] Sure, but that's different, right? I'm saying, the [00:10:45] invoices that you agree on, you pay them after [00:10:48] two or three months. Yeah. And then what you're talking about [00:10:51] is like, well, it's a 12 month term. I want to have [00:10:54] 12, four or two or one invoice. [00:10:57] And you should always try and maximize for as many invoices as [00:11:00] possible.
Toni: Like that's, you know, when you purchase, that's what you should be [00:11:03] doing. Right. So think about it like this and obviously [00:11:06] everything in reverse, sorry, for all of your [00:11:09] customers, start making sure that, your [00:11:12] AEs are not just giving away. 60 day payment [00:11:15] terms, 90 days payment terms, right?
Toni: Making sure that your AEs [00:11:18] don't just give away monthly billing and so forth. [00:11:21] You need to put some incentives, I would say, or some [00:11:24] dings, we call them, some decelerators in place [00:11:27] to be like, yes, I allow you to make the deal. Because you [00:11:30] need to have that flexibility. You just coming to me and saying like, [00:11:33] can I give this?
Toni: And you say, no, it's like, well, the dealer's dead. [00:11:36] What are you going to say? Okay. You're going to say yes. , but you actually want to give [00:11:39] that balancing to the AE and then, well, if he or she [00:11:42] says yes to some bad payment terms, [00:11:45] he or she should feel a little bit of a ding, so as [00:11:48] an incentive to kind of avoid that, right?
Toni: So putting those things [00:11:51] in place that will help you, with your burden, with your budget rigor, [00:11:54] right? This is a [00:11:57] big one. People laugh sometimes at [00:12:00] me. It's, it's a standard. No, it's
Mikkel: just about that, [00:12:03] but
Toni: yeah, well, it's a, it's a standard, uh,, [00:12:06] in big organizations, obviously.
Strategic Pay Raises and Salary Bands
---
Toni: Um, But it's [00:12:09] sometimes a little bit of a forgotten thing, especially in the scale up startup [00:12:12] kind of space, create a [00:12:15] budget for pay raises.[00:12:18]
Toni: So why am I saying this? [00:12:21] Startups usually pay too low, period. [00:12:24] That's why we have warrants and all the
Mikkel: other things.
Toni: wonderful [00:12:27] things. And when you're paying too low, to a degree [00:12:30] when you then get a pay raise. You expect a proper step [00:12:33] up, not like a 3 percent inflation adjustment. [00:12:36] You know, you're talking 10%, many cases, [00:12:39] right?
Toni: But what happens if everyone wants to have a 10 percent or [00:12:42] more, you know, increase, suddenly you're sitting there [00:12:45] and your labor costs just went up 10, 15%. And that's just [00:12:48] maybe just too much. So what you should be doing in the [00:12:51] executive team, create an, a budget that's kept, that [00:12:54] it can also communicate, let's just say 3 percent on average, 5 [00:12:57] percent on average, and then basically say like, well, [00:13:00] Your budget for pay raises is [00:13:03] X.
Toni: You can give all of this to one person
Mikkel: you
Toni: if [00:13:06] you're silly enough to do it, but you need to create some [00:13:09] scarcity for them to kind of start creating some trade offs, [00:13:12] right? So my wife is working at, [00:13:15] Novo Nordisk, for example, massive organization. I don't know, soon [00:13:18] to be a hundred thousand people or something like this.
Toni: And I think they [00:13:21] have some, let's just, I don't know the exact numbers, but let's just say they have like a 3 [00:13:24] percent pay raise. Pay raise, budget across [00:13:27] the, it's a lot of money, but basically what it [00:13:30] means is someone is getting a four and a half point [00:13:33] increase, which is a lot, which is a lot, [00:13:36] someone else has to get only a [00:13:39] 1.
Toni: 5 increase,
Mikkel: percent
Toni: basically kind of, [00:13:42] they, they, they know, and this is how this thing works. It's like, [00:13:45] if someone is getting a more than average, increase, someone [00:13:48] else needs to get less than average to kind of balance the whole thing out. [00:13:51] And that kind of. Thinking in a [00:13:54] manager's head creates, you know, I would [00:13:57] say a lot of good behavior from a budgeting perspective.
Toni: So that's why I can [00:14:00] only encourage people, you know, create some [00:14:03] kind of, , guardrails around this to try and keep this under [00:14:06] control.
Mikkel: I think there's probably also a point in time where we want to think a bit [00:14:09] about, salary bands.
Mikkel: Now we should get, now that we should get into this [00:14:12] right now, but thinking a bit about the different [00:14:15] layers that people basically, you basically have in [00:14:18] the org, and what are the limits of those layers. So [00:14:21] if someone is at the low level versus a manager versus [00:14:24] a director, it might be a good idea to at least think about that.
Mikkel: [00:14:27] Think about those elements as well to know what are the [00:14:30] limits that that you kind of have in place, right?
Effective Use of SPIFFs
---
Mikkel: [00:14:33] Um, yeah, so, uh, the other thing you also mentioned [00:14:36] is, uh, SPIFs.
Toni: SPIFFs.
Toni: Yes, SPIFFs,[00:14:39]
Mikkel: Performance Incentives or [00:14:42] something, something, Dockside.
Toni: So basically, you [00:14:45] know, not commission stuff, but hey, [00:14:48] let's do a SPIFF this week. Who can book the most meetings? [00:14:51] Let's do a SPIFF, whatever, a [00:14:54] thousand dollars for the first deal above 20k, whatever it might be, kind [00:14:57] of all of those little incentives.
Toni: And the trick here [00:15:00] is, that. Whenever you as a [00:15:03] management team come up with a new SPF. [00:15:06] Usually the business case is kind of in your favor. It's [00:15:09] like, you know, let's just say we're going to pay [00:15:12] 500 for the most, you know, meetings booked, [00:15:15] but everyone is probably going to book one or [00:15:18] two more than they would.
Toni: So in the end, we're [00:15:21] really paying pennies on the dollar here. So let's totally do that. Let's [00:15:24] go for it. The thing is though, as the [00:15:27] incremental RIs feels always positive, you know, [00:15:30] positive. And there's some caveats to [00:15:33] that. You will get into this mode of like, why don't we do more and more and [00:15:36] more and every time and all the time.
Toni: And that, you know, [00:15:39] psychologically for the people that you give the SPF to has some issues, [00:15:42] but also the ROI at some point starts to, [00:15:45] you know, be a bit stale. so what I would recommend is [00:15:48] simply to create a budget for SPFs. [00:15:51] Like this is what we've not, you know, you can, you can simply see, this [00:15:54] is what have you seen over the last three months.
Toni: Let's just start there. [00:15:57] Like, you know, that should be the budget now. And if you want to go above, that's [00:16:00] cool, but you need to go to this person, have a conversation, and then there's a [00:16:03] yes or no, right? And again, this is, those are just [00:16:06] ways where you can create a little bit of like, in someone [00:16:09] else's mind, like, oh, oh, shit, I can't just do [00:16:12] this right now.
Toni: I can just take out my credit card and slide it. I [00:16:15] actually need to talk to someone. So, you know, maybe I need to double think this [00:16:18] year if this is really the right thing to do, right? So, you know, [00:16:21] doing all of those. Kind of straightforward, boring, [00:16:24] mature things will help you get more [00:16:27] budget rigor, will help you, you know, manage burn in a better
Mikkel: [00:16:30] Yeah. Yeah.
Navigating Budget Challenges in Recruitment
---
Mikkel: I think the other, the [00:16:33] last thing on the budget side, which tends [00:16:36] to be incredibly costly is recruiting. [00:16:39] And I'm not just thinking, or we [00:16:42] at least are not just discussing around the internal costs. [00:16:45] It's actually if you go through agencies Yeah. And consultants, which is a [00:16:48] very common approach.
Mikkel: Especially if you wanna hire either someone [00:16:51] very specialized or someone's
Toni: [00:16:54] No, someone very
Mikkel: [00:16:57] Yeah. I thought we were gonna say senior, but uh, okay.[00:17:00]
Toni: Cool.
Mikkel: Looking forward to hear about that one.
Toni: So [00:17:03] it's always easy, right? Kind of those recruiters, they take, I don't [00:17:06] know, around 20 percent plus minus, uh, for the [00:17:09] annual
Mikkel: Yeah.
Toni: and, Hey, this is a third party. [00:17:12] Let's just go there and squeeze them. And I've done [00:17:15] that. And the results are kind of mixed.[00:17:18]
Toni: I've used a lot of recruiters for [00:17:21] SDRs. SDR recruiting is difficult, because you can't [00:17:24] just go on LinkedIn and put in like, Hey, I would like to have a [00:17:27] list of people that have no experience, um,[00:17:30]
Mikkel: Yeah.
Toni: are kind of outgoing, you know? And many of [00:17:33] those folks that would qualify that might not [00:17:36] know that there's this SDR role and that they're good for that.
Mikkel: [00:17:39] algorithm. So
Toni: you very often end up actually using [00:17:42] recruiters for this that are very good at attracting those, you know, [00:17:45] inbounds and then handing them through basically. The thing is, [00:17:48] and you need to be aware of that, you might succeed and negotiate down [00:17:51] the, the recruiter, but what happens [00:17:54] is they have a great candidate where they're going to go first with [00:17:57] that candidate. They're going to go [00:18:00] to the highest paying customer that they have. And [00:18:03] then when they get a no, they get to the second highest [00:18:06] paying and so forth. You know, you don't want [00:18:09] to be the worst paying customer or client. [00:18:12] Because then you only get the stuff that 5 others already [00:18:15] have said no to, and then they land at your doorstep, [00:18:18] right?
Toni: So you need to be a bit careful. You know, what [00:18:21] I would recommend is basically kind of locking in maybe on, you [00:18:24] know, 10 hires you want to place for this [00:18:27] amount. And you know, through that maybe get a discount, [00:18:30] but still they need to work through this in order to unlock it and so [00:18:33] forth. You need to find some more creative ways in order to [00:18:36] negotiate with, those recruiters, but you really actually don't [00:18:39] want to squeeze them.
Toni: I think if you squeeze them, you might end up hurting [00:18:42] yourself. So it's kind of a difficult one to be very rigorous in [00:18:45] terms of budget here.
Mikkel: here.
Optimizing Sales Commissions and Performance
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Mikkel: [00:18:48] Okay, let's hop over to the go to [00:18:51] market side, because now we talked a lot about the budgetary [00:18:54] elements.
Mikkel: And on the go to market side, [00:18:57] one of the first pieces, at least that's still [00:19:00] being heavily discussed, is commissions. Commissions [00:19:03] for the sales team in particular, right? And I [00:19:06] think one of the recent guests we had on was Ryan [00:19:09] Milligan. And I think at least that was [00:19:12] an episode where we talked about, well, are those commissions [00:19:15] aligned?
Mikkel: All those incentives, are they aligned with your [00:19:18] goals as a company? And it's not that you have to have a goal [00:19:21] that's profitability. If you do, that's all great. [00:19:24] But just saying, if you want to reduce burn, this is certainly an area [00:19:27] where you can look.
Toni: Yeah. So, and I think the whole commission stuff, [00:19:30] like to restructure it and so forth, it's gonna be [00:19:33] painful, but you need to make sure you're not out of whack. The [00:19:36] other thing I would actually do in connection with [00:19:39] commissions and really on target earnings, so [00:19:42] OTE is actually, um.[00:19:45]
Toni: Instead of, you know, finance does that for [00:19:48] the investors, they create a, basically an ROI for [00:19:51] AEs. Like, okay, those are our sales costs [00:19:54] per AE, or those are AE costs. [00:19:57] This is how much revenue they're bringing in. We [00:20:00] know that we are supposed to hit a one to four ratio. [00:20:03] So, you know, they're bringing four times more than [00:20:06] they're costing.
Toni: And see there we had 4. 1. [00:20:09] Great. But what you should be doing [00:20:12] for your part is instead of bulking [00:20:15] and everything together, you should be looking at [00:20:18] this AE each being a line item [00:20:21] and try and understand, they're probably not all at 4. [00:20:24] 1. They're probably, some of them are at 6. 1, and some of them are at [00:20:27] 1.
Toni: 1. You can be breaking out like this, and it's a [00:20:30] different way of checking performance. Because you might have [00:20:33] some, and I had this, some senior profiles that you pay a little bit more [00:20:36] for, but actually they're not working out, but they're kind of [00:20:39] working out because they're closing as many as in much as the other folks.
Toni: [00:20:42] But overall, this is actually not working out. So you need [00:20:45] to be looking at this, right? And this overview gives you a little [00:20:48] bit of an idea where some of your hotspots might be, [00:20:51] but mind you. I've gone down this rabbit [00:20:54] hole, and got it completely wrong, because the [00:20:57] person with, you know, the highest, basically.[00:21:00]
Toni: also consumed the most inbounds and [00:21:03] outbounds and opportunities and basically got fed so [00:21:06] much that was kind of easy for him to hit [00:21:09] that high number in comparison to his salary. He [00:21:12] was doing great, but full funnel perspective, he kind [00:21:15] of wasn't. So instead of you trying to create a [00:21:18] big kind of CAC Payback per AE kind of [00:21:21] exercise, What I would just recommend is [00:21:24] just next to this, OTE to
Mikkel: to [00:21:27] ARR
Toni: ARR ratio, just put the [00:21:30] conversion rate that they're having in the ACV.
Toni: That will give you a [00:21:33] bit of an understanding if someone is in the green, but [00:21:36] it's in the red and ACV and conversion rate, that gives you some [00:21:39] indication that something isn't working out. And I'm sure some of the Excel [00:21:42] spreadsheet kind of warriors here can build some kind of a, [00:21:45] you know, equation that then kind of normalizes all of these [00:21:48] things in a sensible way.
Mikkel: way,
Toni: You know, looking [00:21:51] at like this. Great. And then you [00:21:54] sort somewhere and then you say, well, those bottom [00:21:57] 10%, maybe they need to go, maybe they need to go. , [00:22:00] and you know, you, you do this not on a pure performance [00:22:03] basis. You do this on a, you know, cost to performance basis, [00:22:06] which is, it's more kind of a budgetary item than [00:22:09] it is a, a sales leadership thing.
Mikkel: item. I think it's also, [00:22:12] I mean, it's potentially a lot of money we're talking about.
Mikkel: If [00:22:15] you've got 10 percent of AEs here, that will definitely [00:22:18] extend runway.
Toni: end of the year.
Mikkel: thing is also like, [00:22:21] you know, we don't need to kid ourselves, kind of the revenue that they are clothing.[00:22:24]
Toni: That's not going to disappear just because you cut them. [00:22:27] Like it, some other AE is going to be like, [00:22:30] no, I can take that opportunity. It's no [00:22:33] problem.
Mikkel: easier for me to hit my quota.
Toni: There will be a [00:22:36] transition in the pipeline, you know, in the active pipeline, when you make the [00:22:39] change, there will be, you know, that, that pipeline will not [00:22:42] convert as well as otherwise.
Toni: But at least kind of [00:22:45] going forward, like it's, uh, it's, it's kind of probably going to [00:22:48] be pretty, pretty good. Yeah. And
Mikkel: I think it's like, [00:22:51] We've in previous episodes discussed, like, when is it [00:22:54] really time to hire another AE?
Mikkel: And it's when they're lying on [00:22:57] the floor, unable to breathe, basically. [00:23:00] And, uh, I think in, for many organizations, at [00:23:03] least right now, unless they have made those cuts, [00:23:06] chances are cutting 10 percent will be pretty easy. Probably they're gonna be [00:23:09] okay. Probably they can manage. So that, that's definitely an [00:23:12] impactful element.
Balancing Owned, Earned, and Paid Marketing Channels
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Mikkel: Um, I think another, if [00:23:15] we go outside of the sales realm is the [00:23:18] whole, owned versus paid.
Toni: Yeah
Mikkel: So I think,, [00:23:21] this used to be a topic, I want to say years [00:23:24] ago in marketing that you have owned [00:23:27] channels, earned channels and paid channels. So what are the different [00:23:30] ones? Owned? Well, an owned channel is your email [00:23:33] list.
Mikkel: You own it, no one is going to take it away from you. [00:23:36] Earned would be press mentioned. You earned [00:23:39] that someone actually mentioned you, your company in TechCrunch. [00:23:42] Yeah,
Toni: media asset.
Mikkel: And paid is like, oh, you [00:23:45] paid for a billboard and now you got some exposure.
Toni: Yeah.[00:23:48]
Mikkel: I know from experience, talking with a lot of [00:23:51] founders through interview processes, at least here is [00:23:54] ABC.
Mikkel: Come in, spend some money [00:23:57] on paid, feed the sales team. That's what we want you to [00:24:00] do. And while that's all good and dandy, I [00:24:03] think if you keep going that route, [00:24:06] over time, the balance between [00:24:09] owned and earned and paid is gonna [00:24:12] get a bit out of whack. Tilt it more into the paid [00:24:15] dimension. Now, why does it matter?
Mikkel: Well, [00:24:18] over the last couple of years, the cost per [00:24:21] click on Google, Facebook [00:24:24] Instagram, blah, up, up, [00:24:27] up, up. It's gotten kind of crazy to be [00:24:30] honest. And it's not getting any better, right? And [00:24:33] so it basically means the acquisition of, you know, the [00:24:36] majority of your inbound, you can call them inbound, [00:24:39] quotation mark channels, it's getting more expensive.
Mikkel: [00:24:42] Whereas the owned, you know, over time [00:24:45] will return something, right?
Toni: right? And, and I [00:24:48] think what's crazy about this, right? Kind of, Hey, LinkedIn Organics that owned [00:24:51] or earned kind of, what is it? How does it actually work? So I [00:24:54] don't know, but ultimately, email [00:24:57] Is a great thing. Like keep building your [00:25:00] email list and kind of working that, that is own stuff.
Toni: You can [00:25:03] for free send them information. And, and [00:25:06] neglecting that, not building up that asset [00:25:09] over time. I think that's pretty silly. Right. And, [00:25:12] and also when you kind of do the calculation and maybe, [00:25:15] maybe you, you can look a little bit further than three months, [00:25:18] like maybe you have an ambition more than six or 12 months [00:25:21] out. Maybe it might actually be better [00:25:24] for you to take that money out of spend and [00:25:27] invest that into building your own, your own [00:25:30] database, basically, and then use that going forward, right? [00:25:33] Because then you can reuse it and reuse it and reuse it again.[00:25:36]
Mikkel: It's also like the cost, [00:25:39] Over time decreases, right? It's not a [00:25:42] marginal kind of almost cost with a transaction [00:25:45] tied to it.
Mikkel: It is something where the cost will, will decrease over [00:25:48] time. So the returns can be kind of wonderful in that [00:25:51] sense. And all I'm saying is you as a business probably [00:25:54] just wanna look at how are you and have you historically stacked [00:25:57] the budget, and what is the output of those [00:26:00] elements where you own the channel.
Mikkel: Versus you're paying [00:26:03] to play, right? And I just think you might [00:26:06] realize that, hey, we're Most of our money goes into [00:26:09] paid, but most of our revenue comes from organic. Well, [00:26:12] what would happen if we reprioritize the budget? You could probably cut the budget [00:26:15] in half and still up the investment on your organic [00:26:18] channels and see a benefit.
Mikkel: It comes with one [00:26:21] warning, which is takes longer. The reason we [00:26:24] like paid is it's very instant returns, highly [00:26:27] measurable, very confident in, oh, you know, [00:26:30] at least you know what's happened, [00:26:33] right? That might not be the same for the own side.
Toni: And I think, [00:26:36] you know, having this conversation with your finance guys, I think they would probably love that.
Mikkel: [00:26:39] that.
Mikkel: Yeah. It's kind
Toni: it's kind of have that conversation that would probably challenge you. Well, can you [00:26:42] still deliver X, Y, and Z? And that's where you as a marketing leader come [00:26:45] in and need to answer this. But ultimately I think this [00:26:48] is, you know, this is where you [00:26:51] can move some budget around and we're [00:26:54] not saying cut it all.
Toni: We're saying kind of be a bit measured about [00:26:57] this. Because you also, you know, paid is also an [00:27:00] important lag for you, but doesn't need to be that sizable, right? I [00:27:03] think that's almost what we're
Mikkel: I would, I would venture a guess that for many, many, [00:27:06] many, many companies out there, honestly, they could go and [00:27:09] cut spend on paid 80 percent and [00:27:12] suffer almost no ramifications, [00:27:15] uh, because they've just been going about it wrong.
Mikkel: And, you know, [00:27:18] long term it's going to hurt. For sure, eventually it's gonna, [00:27:21] it's gonna come bite you in the ass, but if the objective is to [00:27:24] reduce burn until you can raise another round, totally fair [00:27:27] game. Totally fair game.
Reevaluating Tool Investments for Cost Efficiency
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Toni: Let's go to the last one, which is [00:27:30] our, like, favorite one.
Mikkel: Yeah, don't [00:27:33] buy tools.
Toni: Ha ha ha.
Mikkel: We love
Toni: Don't buy tools or [00:27:36] churn them, cancel them.
Mikkel: yes, cancel
Toni: I think, [00:27:39] I think here the following thing is, is I think what [00:27:42] goes through our head is, we've gone through a period [00:27:45] now where, people have been doing this, doing it again and again and [00:27:48] again. I think there probably still is room if [00:27:51] you're kind of really honest.
Toni: I think even tools, [00:27:54] and we're not bashing anyone here, but even tools like think [00:27:57] about, think about gong. Really difficult [00:28:00] to imagine for us using Gong, to [00:28:03] imagine a world where, Oh, you know, this isn't being recorded. I can [00:28:06] just jump in. I can just do the excerpt, you know, it's like, [00:28:09] but then again, [00:28:12] um, for the past 15, 20 years that I've [00:28:15] been working in this line of business, [00:28:18] we didn't have Gong.
Toni: And I also worked [00:28:21] and was also fine. I was also okay. And. [00:28:24] So this is one thing, just kind of go through a stack. It's [00:28:27] like, you know, is it really maybe loss [00:28:30] aversion that kind of glues me to this [00:28:33] tool or is it really matched with the [00:28:36] value that we're getting? And I think in many cases, you know, you could say [00:28:39] like, Oh, let's go away from Gong and go towards something like [00:28:42] Otter AI, which is just meeting recording.
Toni: It's not the [00:28:45] sales part. It's just the meeting recording. And the difference is [00:28:48] I think 90%, by
Mikkel: the way. Yeah.
Toni: you know, [00:28:51] you can make those jumps. I think some jumps between, I don't know, [00:28:54] a, uh, Clari forecasting and something [00:28:57] else forecasting. I think the difference will be minor. You know, [00:29:00] ripping and replacing for that.
Toni: I don't think it's worth it. [00:29:03] Um, but for the other stuff, it might be. And then ultimately think [00:29:06] about just not having that function at all. Right. [00:29:09] Um, I think, I think kind of that's, that [00:29:12] needs to be a little bit more of the mindset, especially if you're a little bit more squeezed [00:29:15] to just say like, you know what, fuck it, we're just going to cut
Mikkel: cut it.
Mikkel: It's like [00:29:18] the, I don't dare poking the bear [00:29:21] because I'm afraid of the ramifications. I've seen this in some [00:29:24] cases where people. Join a new marketing [00:29:27] team and they've been running some obscure [00:29:30] ads and they're afraid to turn them off because What [00:29:33] if they have an impact that I don't know of or something will kind of [00:29:36] blow up over here because I switched it off I think [00:29:39] it's also rarely the case though to be very honest I think [00:29:42] it's rarely the case and by the way quite often [00:29:45] with some of these things.
Mikkel: It's not like it's not irreversible
Toni: [00:29:48] Yeah. Well, that's also true, right? I'm, I'm, [00:29:51] I'm still also a little bit on this tooling thing. One other mind that [00:29:54] just comes, uh, thought that comes to mind is.[00:29:57]
Toni: I have bought a, quite a couple of, especially [00:30:00] sales tools that were like, um, [00:30:03] Hey, if you buy this, the business case, so let's just [00:30:06] say like a Clearbit or Lusher or, [00:30:09] um, you know, some of those other data aggregators, [00:30:12] um, the business case is, well, [00:30:15] you really just need to find five [00:30:18] opportunities with this new tool or close one deal.
Toni: And this whole [00:30:21] tool is kind of ROI positive.
Mikkel: right?[00:30:24]
Toni: And you, you know, I bought a lot of tools [00:30:27] because of it. I don't think I've seen the ROI
Mikkel: this.
Toni: [00:30:30] right. And it's like, you know, you, you spend a lot of [00:30:33] money, you kind of have a business case, it should kind of work out, [00:30:36] but did it work out? Did it really actually work out?[00:30:39]
Toni: And, and if the answer is no, you should just scale back. It's [00:30:42] like, you know, sorry, no, it didn't happen.
Mikkel: happen. I also just think on [00:30:45] some of the, let's say, the simpler [00:30:48] to replace tools, they might have been way more [00:30:51] commoditized. So think about, uh, web chat. [00:30:54] Very commoditized. Sure, there's like two or [00:30:57] three household names that are expensive, but I bet [00:31:00] you if you move down that list, you're going to find something that is like, [00:31:03] 10 bucks a month, easy, where it's like [00:31:06] that, but that's the core of what you need.
Mikkel: So why go for this [00:31:09] grand promise of something major that that's costing [00:31:12] you 10, 50 X a month, right? [00:31:15] I think it's not, it's probably not what's fundamentally [00:31:18] is going to change your burn, but it all [00:31:21] stacks up at the end of the day.
Toni: So this is actually one of those [00:31:24] mindsets that I started to come to hate.
Mikkel: hate.
Mikkel: Yeah.
Toni: Honestly, it's [00:31:27] like, ah, really, Toni, 200 bucks a month [00:31:30] more. Is that going to, is that going to kill the business? [00:31:33] No, but you know what actually, yeah, it is like, [00:31:36] yes, I think the, the 200 bucks isn't killing the business. [00:31:39] The mindset is killing the business, right? Kind of, you know, who [00:31:42] cares? You know, 200 more or less.
Toni: I mean, we pay this and that for [00:31:45] like a salary. So, and I think that's the problem and [00:31:48] people should like. Um, that people should be [00:31:51] actually watching
Mikkel: Yeah, [00:31:54] for
Toni: sure. Mikkel.
Mikkel: So, no, I've always been [00:31:57] stingy. So that's good. Yeah.
Toni: that's good. [00:32:00] So, I mean, now we're helping people to, um, reduce their burn, [00:32:03] hopefully. And maybe, you know, for [00:32:06] go to market leaders to have a little bit more finance speak in
Mikkel: [00:32:09] Yeah. I mean, you could draw a line from reducing burn to saving the [00:32:12] planet. You could.
Toni: It's, it's there. It's already [00:32:15] drawn. It's already there.
Mikkel: is. Yeah. So, um[00:32:18]
Toni: Same goes with not having kids in the first place.
Mikkel: Exactly.[00:32:21]
Toni: Wow. We
Mikkel: want to say to the listeners, thanks [00:32:24] for supporting us in saving the planet, uh, by reducing [00:32:27] burn. We really appreciate
Toni: the way you do it the best is [00:32:30] by like, follow, subscribe, share, like, [00:32:33] send it to your, you know, friends and stuff. That's [00:32:36] how, no, honestly, this is how you're gonna help the planet survive. That's [00:32:39] what it is.
Mikkel: Yep. And on that note, thank you very [00:32:42] much, Toni.
Toni: Thanks Mikkel. Have a good one. Bye
Mikkel: Bye.