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Benchmarks are generally speaking not really helpful. And unfortunately, many are using them the wrong way - causing a lot of problems.
That's why we discussed benchmarks - and when it does make sense to use them (and how)
That's why we discussed benchmarks - and when it does make sense to use them (and how)
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.
[00:00:00] Toni: Hey everyone, this is Toni Holbein. You are listening to The Revenue Formula. In today's episode, we're going to talk about how benchmarking is very, very often used in a totally wrong way. Enjoy
[00:00:17] Mikkel: Okay.
[00:00:19] Toni: Mikkel, was your weekend?
[00:00:22] Mikkel: Pretty good. I was at a 18th birthday and I realized. It's 18 years since I had my 18th.
[00:00:32] And I
[00:00:33] was like, oh,
[00:00:33] Toni: I think listeners are shocked to find out how, uh, how young you are
[00:00:39] Mikkel: still.
[00:00:40] Is that from seeing me on the YouTube videos and going like, ha, dude's old.
[00:00:45] Toni: I had this weekend my first, like, uh, kid's birthday party.
[00:00:49] Mikkel: Okay.
[00:00:50] Toni: Like, five kids from kindergarten over plus parents. Suddenly you only have five people, but suddenly it's fifteen people there. You know?
[00:01:00] Mikkel: I thought we agreed to like, cool it with the kids now, the listeners, they're getting tired. It's like always this, you know, Oh, look at the picture of my son. And
[00:01:08] Toni: Let's rather talk about, uh, you hunting... Little innocent ducks.
[00:01:15] Mikkel: Hey, they're overpopulated, innocent ducks. I don't believe there's such a thing.
[00:01:22] Toni: During the dawn hours, the wee hours of the
[00:01:24] Mikkel: it's a fun sport. I'm telling you. It's really hilarious. Uh, and also serious. It's a gun. It's hilarious. You shouldn't, you should, you know, treat that with respect. But
[00:01:33] Toni: why do you need to treat the gun with respect, you know? What do you need to think about there?
[00:01:38] Mikkel: Well, it's live ammo, you know, things, things could go wrong. It's, it's
[00:01:43] Toni: ammo that really needs to be measured in the right way, right? Because otherwise something
[00:01:47] Mikkel: yeah, I see what you're, you're trying to stitch the Segway in here to, uh, to benchmarking. Should we get into that actually? Because there's this great, uh, origin story of benchmarking. And there are two, one within, you know, rifles and ammo, which I've not really been able to validate, but it's a great story.
[00:02:04] So we're going to tell it
[00:02:05] Toni: you saw it on Wikipedia.
[00:02:06] Mikkel: Yeah, so it's true. It's true. Everything on wiki is true. I
[00:02:09] Toni: I think you validated it by asking ChadGBT as well. And ChadGBT is like, yes.
[00:02:14] Mikkel: chatgbt as always. And if it said no, it's like, can you change that to a yes, maybe? Um, no. So the thing is, you know, if you go way back to the 1800s, uh, you had, uh, basically in an army, you had, uh, the use of crossbows and bows, right?
[00:02:28] And that was all cool and awesome. And then all of a sudden with the invention of gunpowder, you had rifles. And the thing is. Uh, there were a lot of variety in rifles as they started, you know, mass producing this stuff. they had to find the right combination of how long should the rifle be, what ammo should go with what.
[00:02:48] And the only uncertain factor was the marksman, so the shooter, right? And so how do you compare them? How do you benchmark these different variations? Well, they had a bench that was fixed, pointed at, you know, a target. It
[00:03:00] Toni: Which is called the?
[00:03:02] Mikkel: The bench.
[00:03:04] Toni: The mark.
[00:03:04] Mikkel: Yeah, the mark. And, uh, and basically, uh, they could then switch out the rifles and the ammo, uh, and had a consistent test to figure out where is the, the biggest spread where, you know, the most
[00:03:16] Toni: If Ray Rike is listening... He might be able to on the spot validate or disvalidate, you know, unvalidate this thing and, or he will dig into it and make it like its own podcast.
[00:03:26] Mikkel: its own podcast. Yeah. And I would love to be on that show.
[00:03:29] Toni: that show.
[00:03:30] Mikkel: No, so that's, that's kind of the, uh, The one
[00:03:33] So the other one is basically if you, you know, this is also way back, um, in, in simple carpentry and even you could probably call it engineering probably, but you had to chop wood.
[00:03:44] in the same size for construction. Carpentry. Yeah. You had to get it at the same size over and over and over again. So they basically had a bench with a mark on it. So they knew this is where we're going to cut it every time. So it's the same length, right? So benchmark, that's where it's coming from. Um, yeah, that's it.
[00:04:00] Super basic. You'd be
[00:04:01] Toni: So I wonder, I wonder what we're going to talk about today, Mikkel.
[00:04:05] Mikkel: I'm thinking we should talk about growth at all. No, no, we're going to talk a bit about benchmarking because, uh, ever so often benchmarks are being dropped. Uh, and there's, honestly, there's a ton of them out there. We've even discussed it internally with customers, with just internally within the teams, and you have to be a bit careful with what you pay attention to and how you use it.
[00:04:25] So we're going to get into benchmarks today, uh, and hopefully provide a good path for what can you even use it for, actually.
[00:04:32] Toni: it for?
[00:04:32] Oh, what are people using it for? And potentially wrongly so. Yeah. Right. And I think the, the, the, the first starting point here really is how, how are benchmarks usually being introduced to companies? And it is through blog articles. It's like number one. Uh, but then number two, uh, VCs. Uh, you go out, you want to fundraise and let's just even say it's not necessarily VCs, but it's investors at large, right?
[00:05:00] So this might be public companies with, you know, public folks, um, uh, doing the investing, not necessarily VCs in that sense. Um, so what are, what are all of them doing in order to compare all the different investment opportunities that they're having? Well, they're trying to figure out, I guess, which benchmark to follow here and try and kind of see.
[00:05:21] Okay, is this one performing better or worse than the other one? And, and depending on that, then I'm going to put my money rather there where it's performing best, right? What they also love a lot is, because companies are, you know, complex, it's, it's difficult. Uh, not only understanding how much, you know, revenue someone is making, but also to which customer and how and churn, and you have all of those different variables in there.
[00:05:44] So what VCs and investors in general really, really like to do is to simmer down every single company to one number,
[00:05:50] Mikkel: Yep.
[00:05:51] Toni: you know, one number and, and the public sphere, it might be earnings per share or something like this. and in VC land, it might be. I actually don't know which this one number might be, but there's probably something, you know, ARR, where you are, growth, CAC payback, net retention, what have you.
[00:06:09] All of these numbers will probably be kind of be part of this. And then obviously what you want to do is you kind of see all of those numbers next to one another and it's like, That's better. I want to invest. And then what the blog article tells you is like, that's how your numbers need to look like for you to be investable.
[00:06:23] Um, and I think this is where the story starts and where, where people maybe then kind of drift off and maybe go in the wrong direction here.
[00:06:31] Mikkel: the wrong So let's, let's get into this stuff because there's a bunch, out there. So there's a bunch of benchmarks in there. Let's hop into the chunky middle.
[00:06:40] Toni: Yes. So the, the real issue is actually that, um, you know, while the benchmark of you should be at 120 percent net retention rate, or you should be at 85, 90 percent gross retention rate, or you should be at 80 or more gross margin and so forth, there are all of those benchmarks out there that are, you know, helpful.
[00:06:59] And telling you what is the top percentile, what is not the top percentile and so forth. There are a couple of pieces below that, that basically kind of try and connect more and more so this top level understanding with what you're doing and practicality in the real world, on the operational side, right?
[00:07:17] And, you know, these things... They are really, really fucking misleading in many tests, right? This is like, that's, that's, that's really a problem. Uh, and let's start out with the first one. The first one that we've picked here is the OTE to target ratio. Yeah, so what does it mean? OTE is on target earnings of a sales rep and, what you would like to see?
[00:07:39] Let's just say someone is costing you 200,000, on target earnings. Standard salary, or has been a standard salary in New York, you know, San Francisco, London, a little bit less, Copenhagen, a little bit less. And, uh, then you want to, you know, leverage this against a target.
[00:07:56] Mikkel: Yeah.
[00:07:57] Toni: and let's just say in this sense, we're saying 1 million dollars.
[00:08:01] Which then would get you... Let's say you are 250, 000 in, you know, on target earnings to 1 million gets to a ratio of 4. so this is a widely held belief or kind of a benchmark, where VCs are telling you, well, your on target earnings for a rep should be in the range of 4 to 5 or higher, to the revenue that they're bringing in on target.
[00:08:26] Yeah. So what now happens? Is that especially folks in the earlier stages that are just trying to figure out what is the right, uh, target to give, what can we expect and so forth. you know, the CRO thinks really hard about this and maybe the RevOps person thinks really hard about this and then the CFO comes in, sorry, you know, maybe grilling, roasting CFOs here again, but the CFO says, ah, it's easy.
[00:08:50] Uh,
[00:08:53] Mikkel: I have my sheet.
[00:08:54] Toni: you know, I saw this at this blog post. Um, and, uh, Hey, we're, you know, we're paying the market rates. So let's just say we're paying them 200,000 dollars. So if they're really bad.
[00:09:05] they're only bringing in 800K, but we really want to have them more on the five, right? Because we want to be top percentile. So let's give them a target of a million dollars.
[00:09:14] And everyone was like, yeah, that sounds reasonable. Because, hey, it's also the benchmark, so we can't be doing anything wrong here, right? Um, so and then basically kind of, okay, that's what it is. And you know, there you go, that's your target. Um, and obviously, uh, this has very little to do with the reality of, well, how many opportunities can you give them?
[00:09:33] You know, how can they actually work through it? You know, how, how achievable is this 1 million? And et cetera, et cetera, et cetera, all the hard and heavy lifting that really needs to be, you know, done in the background to figure this out. And then as an, uh, you know, even on top of this. Uh, then you have, folks, and I was myself one of them for a while.
[00:09:50] I was like, Ooh, you know, this guy, he wants to have a pay raise. He wants to be a senior account executive. And let's just say it goes from 200K to 250K or whatever. It's like, well, we need to increase his target, you know, because we need to kind of keep the ratio up. And it sounds pretty logical when you think about it and, uh, and all of that stuff, but at the end of the day, you know, you can, and you maybe even should do that, but it doesn't change the fact that you still need to supply him or her with the right amount of opportunities.
[00:10:18] Mikkel: And actually also, I'm just thinking, so this is just, you're looking at one part of the entirety of your funnel.
[00:10:25] Let's say you now have an NRR of 150%. Should you have four to five, uh, like OT to target ratio? Does that, does that still make sense? Yeah,
[00:10:33] Toni: to target ratio? Yeah. Does but the problem is actually, and this is the problem with all those benchmarks, they are an outcome, I would say, they're an outcome.
[00:10:44] Right? And this is what, you know, then folks like VC see as good. Um, and then what then people are doing is they're taking those outcomes, using them as an input,
[00:10:55] Mikkel: Yeah.
[00:10:56] Toni: and then some, somehow they're getting it wrong. Some, some way, right? And I think this is, this is where this is coming from. What you would actually need to do in this example.
[00:11:05] So there's this complicated math with, you know, how many opportunities and ACV and how much daylight do they have to even operate all of that stuff. And what do we then get to? And then you could realize, okay, how much money can we actually pay those folks? Can we pay them 250K? Can we, not? it's really difficult if you've hired them already and already kind of locked in a deal with them.
[00:11:24] You know, that's, you're kind of, kind of in a corner now. Um, and only then you will realize, okay, what is actually our OTE to target? and if the number is three, then yeah, you now need to figure something out how to kind of go away from this. But the answer I can tell you will not be just to increase the target.
[00:11:41] That's, that's not going to be the answer. Okay, so this is the 4 to 5x OT to target ratio, um, that, you know, I'm hearing mentioned a lot.
[00:11:51] Let's jump into one of our other favorites, like all kinds of people ratios, yeah? so this is, This is a very convenient way of operating, and I gotta say, I see the upside, um, there are ways where you can say, okay, this is a pod of people, and, uh, we just need to add more pods, and, you know, then we scale with it, right?
[00:12:16] And the ultimate idea is that you want to create a unit that is in itself sufficient. That's, that's the overall idea. And 20 years ago, that sufficient unit was the account executive. he or she could travel from, you know, door to door. They, they didn't have an SDR. They didn't have a solution engineer.
[00:12:36] They didn't have like anyone, um, which is they, they was self sufficient, right? They. The phone, uh, the car and the yellow pages, that was a self-sufficient unit at that point in time. Uh, now everything got a little bit more complex. So what people are now kind of seeing is, oh, we know we need, um, SDRs, we need, you know, CSMs, we need solution engineers.
[00:12:55] And that then becomes a pod over time, right? We talked, I think about this, also in a, in a previous episode, pod versus round Robin and all of that stuff. And the idea is that, hey, if you have this pod, it's super easy to kind of scale this out. There are upsides and downsides to it, however, Where some of this is going wrong is when, again, it's being used as an input to the idea.
[00:13:15] So when you ask someone at Salesforce, Which is, by the way, the worst benchmark to use. Um, if you ask someone at Salesforce, how many AEs to SDRs do you have? What's your AE to SDR ratio? They're going to tell you, well, it's around four to one. And then, and then you're going to be, well,
[00:13:35] four to one, one of each, you know? And what they're going to tell you, which is going to be very confusing for you, potentially, they're going to tell you it's four AEs. And one SDR. So how the F are they figuring, you know, how are they pulling that off? Well, the SDR is really taking all the inbounds and, uh, the SDR is actually not, um, the idea is not that the SDR is fully supplying all of those reps, but those reps have a book of business and they need to bring half of their business themselves and so forth.
[00:14:06] So there's a lot of self prospecting going on. That's how you can manage this four to one ratio. If you go to another business, they might also say, well, it's four to one, but it's four SDRs and one AE, you know what, you know, the economics here are difficult to kind of make this work, totally appreciate that.
[00:14:22] But you know, those, those ratios exist out there. and if you then. Because everyone is all over the place with these things. If your CFO, sorry, or the COO read the wrong blog post,
[00:14:32] Mikkel: Yeah. Uh oh.
[00:14:35] Toni: they're going to come with random ass number, uh, say, well, it needs to be, you know, one, two, you know, pi or something. and using then that as an input again, right? The way this usually goes is, we want to go from 20 to 40 million for, you know, this is 20 million in newbiz ish, whatever. We have 10 reps already.
[00:14:54] They can do 10 million.
[00:14:57] That means we need 10 more because they need to each do, you know, a million as well. Let's forget about ramp up. and, uh, then the next thing that you need to figure out is, okay, now we have 20 reps. How do we keep them busy? and, and this is where then thinking about, okay, what's the ratio?
[00:15:10] Yeah. What's the rap to SDR ratio or whatever ratio and then you look this up and someone says two. I was like, okay, cool So I have two AEs here and you know, they each get one SDR. And that's how you get to your to your headcount plan in the beginning. You lock this in and you're done. But again, this is the wrong way around.
[00:15:28] The right way around is like, okay, how many SDRs do I need in order to get those AEs busy? Do I need, do you need those AEs in the first place? Uh, how much money is, how many opportunities is going to come from marketing? And then once you're done with all of that stuff, and maybe it's been working for a year or two.
[00:15:43] Yes, you can almost settle in on this ratio. It's now, now it becomes a rule of thumb basically that you can use in your planning. It's like, well, for the last two or three years we kind of grew X and we always kind of kept this ratio. I think we can use this as a reliable benchmark going forward. but it's, it's using your own benchmark forward instead of taking someone else's and trying to
[00:16:02] Mikkel: Yeah. I think it's also sometimes you might end up, so in this case, if you're, you know, going from, let's just say 20 to 40, you have to realize also you're in a completely different spot than Salesforce.
[00:16:12] So, you know, making that comparison, it's just not going to be very helpful for you. And especially if you're then at a point in time where you're building up a motion or rapidly scaling it, the rules are just going to be different. And benchmarks will not encapsulate that in many cases. So
[00:16:29] Toni: The argument says, but Salesforce, I just tune out and you've lost.
[00:16:33] Once you you use Salesforce, you've lost the argument. Done. Moving on. Right. okay.
[00:16:40] Uh, the next one, Next one is an obvious one as well. Pipeline coverage.
[00:16:45] Mikkel: we love that one.
[00:16:48] Toni: IBM said, well, you need 4x pipeline coverage, or, uh, that, that's the number PLC, and, uh, where is this coming from? Well, yes, they have figured out over their, it must be a hundred years or so that they're operating
[00:17:02] Mikkel: now. I don't know.
[00:17:04] Toni: like they're old. They must have figured this out over those 100 years of operating that when they enter a quarter, roughly, You know, you need four times as much in order to close and hit the target there.
[00:17:20] That's what they figured out.
[00:17:21] Mikkel: Yeah.
[00:17:21] Toni: There's tons of complicated math, especially because using pipeline and not anything else. Right. And they just, you know, it's, it's for, um, and what then happened is not only did some people write, you know, in this case, not blog posts, but HBR articles and so forth. And they have a large alumni network that then went and work everywhere else.
[00:17:41] Basically, everyone is thinking that PLC times four, that, that, that needs to be the number. And surprisingly it's not, it's not, you know, four is not the number for you. and if you go around this and it's like, okay, we want to hit 20 million. So we need 80 million in pipeline, uh, by, you know, the 1st of January.
[00:17:59] If this is how you then operate around this, you might be completely off. It might be too much. It might be too little, it might be too much too early. Maybe you kind of, you chunk it out and so forth. And I think this is again, you know, you take an outcome Yeah. You know that you understand and then apply it on the top again.
[00:18:18] and you might not understand what really is coming out of this.
[00:18:20] Mikkel: really is coming out of this. Nothing like applying an outcome. But I mean, so we also did an entire episode just tearing apart. Pipeline coverage. And I remember specifically one of the conversation points on this was IBM You also got to realize is heavy enterprise and that's gonna be very different if you're a mid market, SMB Then that number is gonna change, right?
[00:18:42] No,
[00:18:42] Toni: SMB, then the, and the realization is also that if you're enterprise, I think the metric will be pipeline that you're navigating towards.
[00:18:48] And that's totally fine. But you still need to figure out, uh, how much do you, do you actually need? how much, you know, when you're scaling, uh, or when you're growing, then the mix of the channel would change. Which means the high converting pipeline for marketing will have a lower and lower percentage of the overall and you know, this other stuff, maybe you need a 5 PLC on the other stuff.
[00:19:09] and, and not getting this right, that's kind of what, what ruins
[00:19:12] Mikkel: and I think it was also just one of the, the big mind, mind fucks, if you want to put it like that is if you have a, uh, if you have a pipeline coverage of four, you basically have a win rate.
[00:19:22] That's like 25%. And just let that simmer for a little bit. Maybe look at the numbers where you are today. So if you're at 10, that is a massive leap to get to 25.
[00:19:34] Toni: Yeah, there's, there's some, so I discussed this back and forth with a couple of folks. Because you look at the pipeline at day one of a quarter, you will have different vintages of pipeline in there. Some of them that have been just created today. And, and that, that conversion rate might be 10%. But you will also have vintages in there that are maybe 90 percent because they're basically a slip from last
[00:19:57] Mikkel: Yeah. All
[00:19:58] Toni: So, so all the Q5 deals. So that's why, that's why the, you know, the 25 percent of pipeline coverage to kind of closed one Is not, is not exactly the same as conversion rates. Um, but it's, you know, it's roughly there, right? Yes.
[00:20:12] Mikkel: Okay, good.
[00:20:13] Toni: So, um Maybe this is kind of an overall one, and I don't have a specific topic for this, but all kinds of funnel metrics are usually kind of useless as a benchmark.
[00:20:25] There are very few occasions where it makes sense, for example, um, you know, no shows, so show rate, uh, from a meeting booked to a meeting held. You want to have that in the mid market, 15 percent in the SMB, maybe 25 percent in the enterprise, maybe only
[00:20:42] Mikkel: Yeah,
[00:20:43] Toni: 10 so
[00:20:43] that drop off, right? There's a little bit of that, that I think kind of is good, but otherwise, in terms of your, um, your closed won conversion rates on outbound, maybe should be 10 percent up, uh, will be difficult to get it to 20, et cetera, et cetera, et cetera. Um, further up the funnel in terms of MQL to SQL and so forth. I don't, I don't know. Um, there's, there's nothing that, you know, consistently stands out for me. and the reason is number one, Maybe there isn't anything that's the same, right?
[00:21:15] That's kind of a hypothesis number one. Number two, the reason why it's so difficult to get those benchmarks, uh, really working for you is, everyone is defining all of those different steps differently. And what's super confusing this now from having kind of done, quite a couple of rollouts to customers is, um, yes, everyone is using MQL, SAL, SQL, SQO, uh, all of those wonderful words.
[00:21:42] But the crazy thing is that they mean all different things. so we sometimes jump from customer to customer and it's like, okay, you know, SQL here means something completely different than SQL over there. so when you then, when they then ask you, what's a good SQL conversion rate.
[00:21:59] Mikkel: rate? Yeah.
[00:22:00] Toni: It's, it's, it's a tiny teeny bit difficult sometimes, but, um, you know, that's, that's why I think why that's the main reason why it's difficult to have funnel conversion rates.
[00:22:09] Um, and, um, and usually they're not even used for planning. It's more like, Hey, you know, where do we see, uh, you know, revenue leakage or GTM erosion? Where do we see stuff that isn't right and, you know, should be jumping on. Um, and I think this is one of the best things about benchmarks.
[00:22:25] Actually the, the only good thing about benchmarks, let's say like this, it gives you a bit of an hunch of an idea where you are below average, which then means a lot of people around you in communities like Pavilion and so forth.
[00:22:40] They should be able, there should be many of them that could help you. If you're on one specific area below average, that means a lot of more people, you know, are above you and then you should, you know, your hit rate for someone to help you should be pretty high, right? But, um, that's the thing.
[00:22:55] Mikkel: I think it's also interesting sometimes, especially if you look at... So, so in marketing, it's also a common thing to talk about return on ad spend, right?
[00:23:03] And I think quite often what I've heard from, from folks is when they're searching for that, they're searching for justification that they're doing a good job, even though the downstream numbers might not look great, but hey, the return on ad spend is awesome, right? And it's also just difficult because you running an ad, you might be taking a fundamentally different approach than someone else.
[00:23:23] You might be in a completely different spot than someone else. Are you comparing same markets? That's a massive driver in what you can expect as well. So I think there's a lot of bias sometimes baked into the samples that makes it really difficult for you to compare. And I think one of the better benchmarks to use is your own and see are you actually improving?
[00:23:42] So I think, yeah, it's definitely tricky with all those funnel
[00:23:46] Toni: I think, I think on that end, so because you're kind of talking about ROAS, right? I think, yes, CAC Payback can be a good indicator here. Right. So instead of doing a return on ad spend, you would do marketing CAC Payback.
[00:24:00] Yeah. Uh, you need a bit of math, slicing and dicing, all of that good stuff. but that can give you an indication. what I've seen though, is that, uh, while there's lots of CAC Payback, um, benchmarking going on out there. And by the way, you need to look at CAC Payback benchmarking by your ACV band. And the reason for that is, um, the higher your ACV, usually the lower your churn, which means you can allow yourself for a longer payback period.
[00:24:29] If you have, $5,000 annual contract values, you're probably going to have a 20 25 percent churn rate. which really means that, um, you can't allow yourself to have two years of CAC Payback behind those, but if you have, uh, 500k ACVs for almost 10 year deals, yeah, it's okay if your CAC Payback is two, maybe even three years, um, and there's then something to it, uh, how you can cycle the cash through and all of that stuff, but, um, that's okay.
[00:24:58] So when you are looking for CAC Payback benchmarks, be aware. Uh, which one you're picking for your ACV band. Um, but what I usually don't see is a good, uh, benchmarking for, Hey, this is the Marketing CAC Payback. That's the Sales CAC Payback or, you know, whatever you want to do. And that then leads, uh, in many cases because people, you know, and once you explain it to folks, how easy it is to split those two things.
[00:25:22] you know, then it's a different story, but, you know, usually, um, and especially in, when it comes to cutting, cutting parts of the funnel, or the inverse, you know, where to invest, people don't really have a good sense of where to either put the next dollar or take the next dollar away from, and, um, and that really comes from not being able to split those CAC paybacks out.
[00:25:44] and, um, and then figure out, you know, where, where you should be investing the best dollar, right. And this is the internal benchmark, if you will. and on that level, comparing it to something else also really difficult, right. Um, and then my last point on this will be that, if you are the, the CFO and you are seeing in our ACV band, we should be at 15 month CAC Payback.
[00:26:06] If you then do your budget based on, okay, we are 20 million, we want to go to 40. That's 20 million of new business, let's just say that. Um, so we exactly have a budget available for sales and marketing. That's 25 million. that is a good way to give a super simple, you know, in the middle of the board room session, Hey, that's what that would be.
[00:26:30] but what really is then necessary to substantiate that with a proper bottom up, kind of how many people do you need for this, et cetera, et cetera, et cetera. And the thing might be, you might come out of this and might not hit that benchmark and that's okay. but if you kind of set expectations wrong, you might have maneuvered yourself into a corner right there.
[00:26:50] Right. So again, it's a little bit of a case of, taking an external benchmark, using it as an input. Um, and then, then basically kind of landing at something that simply doesn't work in your organization. Right. And instead you should be. what's our true CAC Payback and by the way, look at last year, that's a good indicator and what can we change in order to get this now?
[00:27:12] Um, and what should our target be? And then use the, the, um, the, the benchmark for that, you know, what the target should be, what the benchmark is and or below that.
[00:27:22] Mikkel: Yeah. I'll redefine how I calculate CAC.
[00:27:24] Toni: Yeah, right. Change the MQL definition if
[00:27:28] Mikkel: if you're... Yeah. No, so you kind of answered the question I prepared now because I was like, well... So we're kind of saying benchmarks, they suck to when you use it as an input, right? Then they're terrible. And then I was basically going to ask, well, how do you then use it? But you just, uh, gave at least a partial
[00:27:43] Toni: No, just kind of repeat that. Maybe use it as a target, what you would like to achieve and, and figure out what you need to tweak. in order to try and get there and make those, those things that you want to tweak, make those specific projects in your organization and don't take on too many. You're not going to jump from 24 to 12 in a day or two.
[00:28:05] Um, you need to kind of really figure out, you know, how, how you're going to do this. And then number two, in a, in a funnel world, it can also be extremely helpful simply to understand, where you are performing worse than someone else, which is not going to solve any problems for you, but what it will do is will help you a little bit on, okay, you know what, It seems like we have a lot of, we're pretty behind on, you know, compared to benchmark over here.
[00:28:34] Let's figure out what we can do there because it seems like it's a low hanging fruit. Right. Um, and that's, I think those are the two best ways to actually go about this.
[00:28:44] Mikkel: I think it was also just funny with some of these, um, benchmarks is in, in, when you go to university, you'll learn to kind of review the sources and critique them and really take, you know, a critical stance.
[00:28:54] Somehow, when you see a benchmark in a blog post, it's just like, yep, that's the number, now let's go. You just, you don't think about it. And we didn't go deep into the whole, the buyers and the samples, how they conducted the surveys, it's self reported, there's a bunch of things as well.
[00:29:09] Toni: bunch of things as well. But we went deep into, uh, you know, how Benchmark was created in the first place.
[00:29:13] Oh,
[00:29:13] Mikkel: the first place.
[00:29:13] Oh, that's true. And you can use that. People are going to be really impressed.
[00:29:17] Toni: You know, I think you can pick up someone in the bar with
[00:29:19] Mikkel: I mean, I can see someone at a
[00:29:21] Toni: me tell you about Benchmarks.
[00:29:22] Mikkel: QPR with it. Like, so, uh, you missed the target on this benchmark. It's like, yeah, but do you know the origin of that word?
[00:29:31] Toni: Thank you, Mikkel. Thank
[00:29:32] Mikkel: you, Toni.
[00:29:32] Thank you to the listener. Bye.