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The one metric that shouldn't go up and to the right is CAC Payback, and it's doing exactly that.
Rather than trying to fix CAC, there's another solution.
***
Rather than trying to fix CAC, there's another solution.
- (00:00) - Introduction
- (02:53) - CAC Payback
- (05:59) - Look beyond CAC:PB
- (09:13) - Drawback of CAC:LTV
- (10:50) - How do you get there?
- (15:00) - The other thing is product
- (19:20) - What have you done for them lately?
- (21:54) - Aligning newbiz and existing biz
***
This episode is brought to you by Growblocks. Finding and fixing problems in your GTM shouldn't take weeks. It should happen instantly.
That's why Growblocks built the first RevOps platform that shows you your entire funnel, split by motions, segments and more - so you can find problems, the root-cause and identify solutions fast, all in the same platform.
***
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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.
[00:00:00] Toni: Hi everyone. This is Toni Hohlbein from Growblocks. You are listening to the Revenue Formula with Mikkel and Toni. In today's episode, we are discussing that you actually don't have to lower your CAC Payback right now. I know, counterintuitive, but bear with us and enjoy
[00:00:15]
[00:00:19] Mikkel: Everybody knows it. Make a GIF and then you'll go rocket ship.
[00:00:23] Toni: Series
[00:00:23] Mikkel: A, B, C, D, no problem. Straight to IPO. That's all. What all the big folks
[00:00:29] Toni: do this. I think you just explained it.
[00:00:31] Mikkel: Yeah, I explained it. We can do a book on this.
[00:00:32] So here's a GIF. That's why Snowflake IPO'd, here's a gif, why Dropbox IPO'd, here's a gif, why we
[00:00:40] Toni: it's, it's gonna be, it's gonna be leaked. hidden truth. Yeah. Behind Snowflake, IPO.
[00:00:47] Mikkel: didn't know about. The gifs. Mm hmm, but it is actually a perfect segue.
[00:00:53] Toni: Was that the intro
[00:00:54] Mikkel: I don't
[00:00:55] Toni: While we didn't talk about kids. Yeah, exactly. Jesus.
[00:00:58] Mikkel: No, it's kind of crazy. Like, it is the perfect segue when you think about it, right? How do you grow while you make a GIF? And then now in this environment with all the metrics still being terrible? There's this CAC Payback metric, even worse, even worse, through the roof, in a bad way.
[00:01:13] Toni: It's one of those metrics that shouldn't go up and
[00:01:17] Mikkel: Yeah, and you look at it's like no, no, no, no, it's like the oil gauge in the car. It's a funny story actually my My best friend he he told me a couple of years back. There were him and his now wife. They were driving home from Someplace in Denmark, far away, far away. There were
[00:01:36] Toni: Everything in Denmark is basically
[00:01:38] Mikkel: close.
[00:01:39] Yeah, but this was like two hours in the middle of nowhere, in the middle of nowhere and car breaks down. And then he was like, yeah, I don't think I put oil in the car ever. I'm like, you idiot, you idiot.
[00:01:54] Toni: This is actually what sold me on Tesla. It's like no servicing. Yeah. No servicing. It's like, okay, do I have to do the tires sometimes? Yes. I was like,
[00:02:02] Mikkel: Yes. Clean it?
[00:02:04] Toni: maybe I stay with the
[00:02:05] Mikkel: But honestly, cleaning a car with kids, that's A task in itself.
[00:02:09] That's a task in itself.
[00:02:10] Toni: What do you mean? I mean, it's like.
[00:02:11] Mikkel: Gets dirty as crazy.
[00:02:13] Toni: No, it gets, well. Okay. That's what you mean. Yes. Yes, totally. It does. Uh, it also does this by yourself, by the way, but, um,
[00:02:20] Mikkel: Oh, I have to clean my Tesla. No. So, um, we're going to talk about Yeah, yeah, yeah, yeah. It's called employees. Uh, sorry, Bart.
[00:02:30] No, so
[00:02:31] Toni: it's called the marketing
[00:02:32] Mikkel: Yeah, yeah, yeah. Um, so the thing is, here's the thing. Here's the rub. Every metric is terrible. Um, and the favorite operational metric you and I have, and it's very nerdy, people are going to hate us for it, is CAC Payback. It's like, by default, we love it. Great, great, great, great metric. The thing is, we've not talked about why it was so great to begin with, actually.
[00:02:53] Toni: So, I mean, customer acquisition costs payback for, you know, all the uninitiated out there. This is really, it's about how much money you spend and how to acquire a new customer and how long it takes. That's not in terms of invoices, but let's just say monthly recurring revenue, uh, how long it takes until you have recouped that money.
[00:03:11] Right. And, uh, that means the shorter that CAC Payback, period is the better, the longer, the worse. And then there's, uh, for B2B SaaS, because we have like long contract periods and long, um, ideally good retention. it should be, you know, by now we are back into sane territory. It should be around 12 to 15.
[00:03:30] And then, yes, it depends if you're an SMB motion, it should be lower. If you're enterprise, it can be higher, but like 12 to 15 months, that should be what you're targeting.
[00:03:38] Mikkel: think the reason we love it is, it is a great metric to compare different motions and channels, segments, markets, et cetera, to see where, where is the efficiency and how can you kind of improve. next dollar you want to go invest into the engine. Um, so, so super important, and obviously it, it ties into this whole backstory of the faster you can recoup the money, the faster you can also reinvest it.
[00:03:58] So there's a couple of those things.
[00:04:00] Toni: and just to kind of, for people, you know, so no one is really confused by this, but, you know, CAC Payback is not to be confused with return on ad spend,
[00:04:09] Mikkel: No. Right?
[00:04:10] Toni: So return on ad spend is, this is the money that he sent to Google and to Meta and to LinkedIn and to wherever. That's that money that you compare against what it brought in, but that completely neglects the marketing team that had to put up those ads, the SDR team that had to work through those leads.
[00:04:25] They easily need to convert it.
[00:04:27] Mikkel: Basically the majority of the costs.
[00:04:28] Toni: exactly. Right. And and CAC basically does a full funnel cost. See it as a full funnel cost that it then compare against the, the outcome that that
[00:04:37] Mikkel: Yeah. And so in the past couple of quarters, I can see a CRO or revenue operation sitting in the back corner. in a basement somewhere and have the dashboard on the screen and then all of a sudden noticing yeah, of a billion metrics but then in the far right, lower right corner, there's this thing called CAC Payback and if you've been looking at it and it's like, now it's 10, now it's 12, now it's 14 and it just creeps up, right?
[00:05:03] And so what, what happens ever so often is then if you want to go and improve that metric, what do folks do? They look at the CAC and they go, okay. Let's cut. That's what we've seen in discriminant cutting across the board. Uh, let's lower the marketing budget, let's cut sales, CS, marketing, right? Let's lower the cost so we improve that metric.
[00:05:22] But there's kind of a path that's not being discussed.
[00:05:26] Toni: There is a different way. And maybe, maybe you're going to do like the ultimate guide to CAC
[00:05:32] Mikkel: yeah, we just agreed. We noted that it's now a task in Asana somewhere.
[00:05:36] Toni: Um, once you're done with the Tesla
[00:05:38] Mikkel: it done with? Yeah.
[00:05:41] Toni: um, and there are many different ways to optimize your CAC payback. but what we wanted to talk about today was something where.
[00:05:48] you know, we were discussing this with the team and then suddenly Lightbulb went off and was like, Oh, wow, I don't think anyone is considering that at all. Um, and, um, and the
[00:05:57] Mikkel: Always just stupid.
[00:05:59] Toni: stupid. Sorry. Yeah, well, we're not. Um, so the trick is, um, actually broadening your view. And not only looking at a CAC Payback, wow, you know, that's, that's the realization.
[00:06:13] So there's another metric that's super closely related to CAC Payback and it's CAC to LTV.
[00:06:18] Mikkel: Mmm.
[00:06:19] Toni: Yeah. So what does that mean? customer acquisition costs, that's the same as before. And then instead of saying customer acquisition costs, payback. Payback period, which is basically essentially divided by your monthly recurring revenue that you acquired with that CAC.
[00:06:33] It's looking at the lifetime value of, those customers that you acquired with that CAC. What that means is, you actually are now looking at something that should move towards a four to five times.
[00:06:47] Mikkel: Yeah.
[00:06:48] Toni: So what does that mean? It means you spend a million dollars on acquiring, a set of customers in a quarter.
[00:06:55] and let's just say for, you know, easy sake. you acquired 1 million worth of ARR with that. So that's a great 12 month payback, uh, CAC Payback. So one year CAC Payback. but then you have a, and I don't know actually kind of how to calculate that, probably like a, uh, whatever GRR,
[00:07:14] Mikkel: Hmm. Okay. Yeah.
[00:07:15] Toni: I don't know.
[00:07:16] and, uh, that then, you know, means that the lifetime of that 1 million. value, the lifetime value, over the next three to four to five years, once that cohort is exhausted is roughly 5 million in ARR, right? Because you have renewal and renewal and renewal happening, right? So that now means that you actually bought 5 million worth of money by investing 1 million in your CAC Payback, sorry, in your CAC, right?
[00:07:44] So that then gets you to a five times. This, this amount. The CAC, uh, the benchmark to shoot for right now is, at least last time I checked, still four to five times, right? That's actually what all of this thing is about. And now comes the, now comes the kicker around this, which basically is, okay, let's just say we are either shooting for, a higher CAC to LTV number.
[00:08:11] Let's just say you're at three and a half, you want to get to four or something like this. What this actually, and this is now a bit mind bending, what this actually means is once you hit that, all of the improvements that you then keep doing on your LTV, on your lifetime value, You can actually, you can then therefore actually increase your CAC because the ratio needs to be four to five.
[00:08:36] And let's just say you hit that ratio, but you improve one side of the equation, which gives you longer or more lifetime value. That means you can in sync, increase the other, other side of the equation as well.
[00:08:49] Mikkel: right?
[00:08:49] Toni: Right? So again. You basically instead of having three and a half million from this one million cohort You're kind of getting to four million because of we're gonna discuss it in a second that now actually means you can you know in In, um, you can increase also your CAC Payback, or you can live with a better CAC,
[00:09:07] Mikkel: Yeah, yeah, yeah. You basically make an affordable growth now. You, you can afford to have that higher CAC Payback as
[00:09:13] Toni: Yes. So what's the reason why we sometimes don't like CAC to LTV? Just want to kind of preface this, like, Toni, you're only telling us about this now? I
[00:09:21] Mikkel: this now? It's been a year,
[00:09:23] Toni: dude! So there are a couple of different ways of how you can calculate that.
[00:09:28] One is, for example, including your gross margin in there. and then the other one is dividing it by your, um, gross retention or sometimes even net retention. Sometimes that doesn't work out or hasn't been working out great because when you divide this by, you know, something that's larger than one.
[00:09:45] What happens? It's infinite. Yeah. You have like infinite lifetime suddenly. Yeah. so that, that's not working out great for you. The reason why, uh, we don't like it is because there are couple of other, components in here that just muddy the water a little bit and instead of having a pretty clear.
[00:10:02] This is, this is what we're putting into the funnel. This is what we're getting out of it. And we can all, you know, apples to apples compare and then maybe shuffle resources around. Here you suddenly have gross margin in there, which might be different from different products, or it's just something that the management team can't influence anyway, because it's kind of a product finance kind of thing.
[00:10:21] And then the other thing is suddenly you are, you're judging all of that. Uh, sales and marketing work, then also buy the churn coming out of this, which is still a lagging indicator. So you still need to wait a year before you actually know, et cetera, et cetera, and makes it a very, sorry, a very loaded metric, which sometimes then makes it heavy and hard to maneuver.
[00:10:41] But basically kind of what we are saying is like, well, you could look at this from an ad hoc perspective and use that as , as thinking, uh, in order to then, you know, try and, you know, put more money
[00:10:50] Mikkel: Yeah. And I think it's also like we discussed it's, It really becomes a competitive advantage. If you can afford the higher CAC, and we've talked about it in the past, that is a competitive advantage, right? Um, so let's kind of hop into, how do you then do it? If you want to be able to maintain a terrible or worsening CAC Payback, what are like the elements then to work on?
[00:11:11] Toni: Yeah, so what you need to
[00:11:13] And then this is not going to be, oh, you just need to, just need to have better gross retention.
[00:11:18] then you're done with this. Then you can put more money into CAC. So, um, I think the way you need to think about this is really think about it from a resource allocation perspective, where do you have resources that, you're currently investing somehow into a new business, whether that's calculated into CAC or not, doesn't matter, that you maybe want to move around, right?
[00:11:38] And there are two main ones that come to mind. One, super simple is actually around, uh, think about it like support, and, and maybe right now you don't, you don't invest it in either kind of, you have support, it's just there, um, but you could decide to take some of your CAC and put it actually into support, right?
[00:11:57] You could make that decision. So why would you do this? Well, there's like pretty comprehensive research out there that if you have better support. People will stick longer
[00:12:06] Mikkel: with
[00:12:07] Toni: period. Um, if you currently are supporting only US hours or only EMEA hours, do it 24 seven or do it 24 five or whatever, whatever it might be, that will probably have an immediate impact.
[00:12:19] You don't need to. Build additional product. You don't need to figure out what to build. You can just hire two or three more resources in different parts of the planet, and you can have that continuous service all the time. You can use AI, whatever, chatbot, whatever it might be. You can do stuff in order to broaden that scope, right?
[00:12:37] And those are resources that you maybe previously had somewhere else in the organization that you're now putting into something like support, right? And really in this case, we're actually not even talking CS. So customer success, which is, you know, probably the tier up of support, but really I am in a, I'm a customer, um, I'm a user, I'm in a shitty situation right now in your product and you help right now and you help right now before I get my frustration threshold and then throw this product away and just move on.
[00:13:05] Mikkel: Oh, yeah.
[00:13:06] Toni: And you want to jump, be there, jump in, help them and get this resolved. that will be a plus one on the renewal side.
[00:13:12] Mikkel: No, I mean, we have this, uh, software, internally, remains unnamed for this episode. But it's literally whenever I have a problem. And it's like, oh, they have a chat, open it up, chat, like, ah, team is sleeping, uh, we'll get back to you.
[00:13:28] And then you get an email while I'm sleeping and it's like, you know what, now I'm so fed up at this point that, you know, we're going to replace it for sure. And it's that, that's what happens. This is a terrible experience. And by the way, I think. As a company we've, or an industry, we've been taught to really audit, let's say, the sales process, go to the website, request a demo, see what that experience is like, how quickly do they call you, what do they say, what emails are you getting, and the other.
[00:13:53] Try and logging in, reaching out to support with a problem, and actually start auditing that and see, do we actually have great support for our customers? No, exactly.
[00:14:01] Toni: No, exactly. And the, the other thing on this one is also, well, You can also position it as an upsell, right? Again, I mean, it depends a little bit on how many customers you have and how this whole thing works out, but people are willing to pay for 24 seven service. They are, period. Um, and, um, how much can you extract from the, I don't know.
[00:14:20] Uh, will it pay for the additional headcount that you put in there? I don't know. but usually, you know, those are things that you can fairly easily do from a commercial perspective. Don't need to talk to product. You need to talk to the CFO to shovel some resource around, but that's it. That have an immediate and proven impact on customer experience or user experience in general, right?
[00:14:40] So this number one, um, and again, and there might be other ideas out there, but we're kind of focusing on only on two kind of, again, this is money that you can now take away maybe from CAC and spend it on the customer, uh, side instead, and, you know, beef this up. There's a similar. Argument to be made for CS.
[00:14:58] I just, I don't know, maybe this is another episode altogether.
[00:15:00] The other thing you can do is thinking about product. Yeah. And really in a sense of what are the, you know, sit down with the management team, sit down with the, with the product leadership team and figure out what are the products that you pushed out?
[00:15:19] Because. You, want to get closer to your company vision. because, you know, some. A prospect mentioned that on, on a call, because someone said like, Hey, there's a deal breaker for us. Otherwise we're not going to sign all the stuff, all the product or marketing is like, Hey, we need to have a campaign idea.
[00:15:40] we, we need to push some cool product out so we can have a successful campaign, all of this stuff, all of the product that you build, all the resources you invest in on the product side to help your customer acquisition teams. Right. Versus what are all the things that you have built that are, uh, boring, that won't change your website, that, no one actually cares about really, like it's not fancy, flashy at all, but actually your customers are pretty happy happy about it.
[00:16:11] Mikkel: Yeah, yeah. Yeah, I was going to say, you're going to have like 10 percent of the customers going like,
[00:16:15] Toni: 10 percent
[00:16:16] Mikkel: Finally, it's here. It's fixed.
[00:16:18] Yes. Can't believe it.
[00:16:19] Toni: you, you wouldn't.
[00:16:21] and you, you wouldn't,
[00:16:22] You would be surprised how many small things that is. the, the thing now is, again, product is a resource that sits somewhere, not in your CAC, obviously sits somewhere, but yes, they have been focusing on maybe the new flashy stuff.
[00:16:38] Um, instead maybe think about more shifting, more resource in the other direction, right? Because really what you need to ask yourself, and that's really, that's pretty darn tough. The CAC Payback has been going up and up and up in the last two years, all kinds of reasons. Don't get me wrong, but did the product that the team pushed out help there at all?
[00:16:58] Did it have any impact? Did it make any dent in this whole thing? And sure, you can always say like, well, you know, if we hadn't done it, it probably would be worse. But would it? I mean, it's really difficult to prove a negative. Don't get me wrong, right? So you can't really prove it. But if you're really honest with yourself, you know, have those things really had an impact?
[00:17:18] That you think, uh, makes it, makes it so that the product team and the resources spent there will like spend on the right spot.
[00:17:26] Mikkel: Yeah. and I think it's like we talked about now with this whole AI craze. I'm pretty sure every SaaS company out there, they're going to have a component in the roadmap that says AI. Right? This new novel thing. And I think we have, we'll soon have an episode with, um, funny enough, an AI company, I believe.
[00:17:44] And, uh, what one of the co founders said, well, You should prioritize utility, not novelty, because utility is what the user is going to care about at the end of the day. And I've been on the marketing side seeing those, let's say, novel releases. And also, you know, it's been helpful to generate a buzz, but it didn't really do much other than that, right?
[00:18:03] And then You can end up with a product that needs to be maintained, there's going to be bugs, there's going to be more development on top of it, versus the core use case customers actually have, right?
[00:18:13] Toni: was also talking to another founder the other day, and, um, uh, both of us are not in the AI business.
[00:18:18] business. we're
[00:18:20] to be dead next year. Um, but, uh, both of us have like this. Oh, you know, we could do this, this AI play, and we both looked at it as like, it just feels like a bolt on. It feels like an attachment. It feels like a, oh, we need to come up with an AI narrative. Um, and, and the, the dangerous thing, and again, right, kind of, we had this Anthony Pierri kind of episode about messaging and, and, and how the founder messes that up.
[00:18:45] That's another thing where like, then the founder is like, Oh, you know. For us to raise more cash, we need to have this AI feature. So we need to build this thing.
[00:18:53] So you're not even using your product resources to help your CAC. You're now using it to do your investor relations. And I get it. I'm, I'm sitting in this, I'm sitting in my own boat here, over here.
[00:19:04] Right. Um, but, um, you, you kind of think about how you use your product resources. And instead of pushing them towards the newbiz side or investor relations side, Push them towards the customer side and that can actually help you improve your gross retention.
[00:19:20] Mikkel: no, but it's also, at some point a customer is going to get a, Hey, you're up for renewal and they're going to sit and think. What have you done for me lately? Actually, they're gonna sit and think and then out of all those releases like yeah, you added this AI thing It was kind of just an attachment of we can't really use that We have a you know, yes, you're a US based company and we are as well But we have team members in EMEA and in Asia and you don't offer any support when they're stuck and then we can't move forward And you also increase the price on us and you know what?
[00:19:51] I'm going to fire you. That's what's going to happen. They're going to quit on you. They're not just going to be churn. It's going to be as an overall thing, not just the software, right? And I think that's just pretty important to, to kind of keep in mind. So when we talk about these elements, they're pretty critical to extending the lifetime of a customer.
[00:20:09] Toni: Yeah. And I think it's, I think the, the sales and marketing thinking around this is just first of all, it's usually dominating the conversation. when you think about product roadmap, there's a marketing side usually kind of wins.
[00:20:22] So that's, that's kind of one of the culprits here. Um, and the other one is that, um, CS has been gutted over the last one or two years, more and more and more. sometimes because of good reasons, by the way, sometimes also simply, okay, our ARR is going down or whatever. And then, you know, with that, the CSM teams to go.
[00:20:41] so they're, they're standing in the organization is I would say even worse than sales and marketing. And I would say even, more in question than ever before. Right. So once you're, once you're on your heels as a team, it's going to be even harder and honestly, it's, it's a political thing. It's going to be even harder politically speaking to get those features prioritized.
[00:21:01] And yes, you can look at all the data and all this jazz out there. It's like, oh, you know, we had 5 million dollar pipeline lose because of that one feature. And then you build it and it's like, where's the 5 million? Oh yeah, it's, there was five other things as well, know,
[00:21:14] What? And and uh, CS usually has a harder time, uh, because You know, screw most of the data, by the way.
[00:21:21] CS usually has a harder time being political about this and kind of getting their stuff prioritized.
[00:21:26] Mikkel: Yeah but they, I mean, so the things is, I've heard this about the department, they are the voice of the customer right? So you definitely want to listen to them
[00:21:34] And you kind of mentioned before we hit record we’ve worked as an industry a lot on sales and marketing alignment, which, you know fits with this whole CAC payback narrative and when you look at the bowtie from winning by design. it's literally half your business. So, you know, how, how do we go from there to then aligning on the, the Yeah.
[00:21:53] Right hand
[00:21:54] Toni: So, and this is, this is a bit, Reverse psychology, let's just say it like that. So bear, bear, bear with me a little bit. So you have this whole, uh, marketing and sales alignment that kind of works out because both of them are in a bind.
[00:22:08] Both of them did this revenue number, uh, marketing really begs you to pick up those MQLs and sales, like, uh, I don't get enough of them. And you have all of this, Oh, you know, those web webinars, we shouldn't have worked on them. We should do it like this. MQLs need to be segmented out of better targets and so forth.
[00:22:25] Of that Jess. Um, but the thing is, you know what I've been thinking about a lot and no one is caring too much about it, is new biz and existing b biz alignment. Kind of how do you align those two things Actually, and I gotta say it's um, when you're, when you're ruthless, the thinking through each of these different roles and what they need to achieve because that's actually where the whole misalignment comes from.
[00:22:48] Everyone is busy with hitting their own targets. Yeah. There's not really any penalty coming out of, you know, sales pushing bad customers to CS. The penalty between sales and marketing is pretty clear because if sales is not cooperating well in marketing, they're not going to hit their goals, right?
[00:23:09] And only really, really silly, stupid, uh, CROs don't get that, right? Kind of those two things need to work together, but that same thing can't be really said about pushing bad customers over to the CS side. Now, you know, some ideas are like, Oh, you know, why don't we incentivize the AEs and then, you know, no, you shouldn't do that.
[00:23:28] so what we were basically discussing before we hit record here was this, thinking around CAC to CLTV, so Customer Acquisition Cost. Customer lifetime value can actually be a way how you, at least on the VP or in the CRO level, CRO, in this case, being kind of a senior sales leader, align the new business side with the existing business side, because you basically say, okay, we have a target of four, whatever the target might be.
[00:23:59] And maybe this is what you're currently doing. Maybe you're currently at four basically. And then the only way in this current climate, you can increase your sales and marketing expenditures. So your CAC, is, not by getting more funds from finance because that's not how it works, but what you then could do is you could focus collectively as an organization.
[00:24:21] On increasing your customer lifetime value, which then would actually lead to, Oh, now the customer lifetime value increases, the CAC stays the same. So you're potentially even going to a four to four and a half to five X multiple, but our target is four. So that now actually means. That whole additional value we've created, we can now reinvest in the CAC side.
[00:24:45] So in the sales and marketing side, which, and you know, I know it's a bit like, okay, I need to write this down and kind of read it five times, but that's actually how I could align those two sides by saying, okay, we're currently at this CAC to CLTV ratio. if we get this up. We can actually put more money into, uh, into the sales and marketing side, which then collectively gets us back to the original CAC to CLTV ratio.
[00:25:08] Right. So this now is an incentive for, sales and marketing probably not to change the trajectory of, uh, deals that they're letting through. I think that will still be kind of the same. But what it does do is, um, help them to say, okay, let's maybe add some more product features on this side.
[00:25:26] Let's maybe shift some resource around. Let's maybe not be completely silly about the deals we're letting through and so forth. and that is, that is something that, you know, you need to be pretty educated as a, as a sales and marketing leader to start figuring this out. And you're welcome. Yeah. Um, but uh, that can be actually a way of how you can over time align the new business side with the existing business side.
[00:25:48] Mikkel: Yeah. I think there's also a point to be made that, you know, just asking the question to go to market meeting we have with leadership, is product ever in there? At all.
[00:25:59] Toni: So this is a whole other episode actually.
[00:26:01] I like, um, you know, when, when you currently say GTM, I feel the, the, the, the field is split on who is actually in there.
[00:26:09] Mikkel: Yeah, exactly.
[00:26:10] Toni: Is it, is it the bow tie or the product as well?
[00:26:12] Mikkel: But you know what, it doesn't matter. With this conversation, what we're pos proposing here or suggesting is if you increase the CLTV, then it's okay to have the current CAC payback.
[00:26:22] Or even better, you can invest more to increase your CAC, there's a competitive advantage, you can grow fast, blah, blah, blah. But the only way you're going to get there because it's dealing with your customers is you also need to do stuff on the product side. So it's natural that you're going to be there. And I think if, if I was in RevOps, I would probably also create a report that just says, I'm going to map every single release over the last one, two years.
[00:26:43] I'm going to say how many were based on, let's just say customer requests, how many were bugs and how many were new builds supporting existing use cases. What were new use cases and then have that split and just have a conversation on. How much of our resources are being invested in improving CLTV? And you're going to find that it's probably lower than it should be for you to move it.
[00:27:05] And there's a reason, like when you've listened to Dave Kellogg on planning, he literally says that some of the metrics, whether it's win rate or velocity, it's a multi year planning thing.
[00:27:17] Toni: Also, you know, uh, I think kind of that ad hoc thing could be, it could be a really cool project for someone on RevOps to take care of in like a two, two weeks kind of span.
[00:27:25] Um, and also look at, did it help us with conversion rates? Did it help us with, I don't know, signing up more people on the web?
[00:27:34] Mikkel: Yeah, you
[00:27:35] Toni: there's so many, there's so many things that will influence all of these things. Don't get me wrong. You won't be like doing a one to one attribution because it's so far removed.
[00:27:44] But, you know, mapping this stuff out, and then seeing that all the numbers went in the wrong direction, then it's also, well, why are we doing
[00:27:51] Mikkel: But it's also like we talked about, hey, maybe you want to extend your support hours. You got to make the case for it. So maybe look at, well, how many users are logged in off support hours?
[00:28:00] Which accounts are we dealing with? How much ARR does that represent? It's like all of a sudden, it's going to be pretty easy math to say, you know what? Yeah, we're going to hire an intern, a part time, whatever is required to just have someone there to say, hey, I'm going to try and help. Yeah.
[00:28:15] So,. hel That's kind of, uh, that's kind
[00:28:19] I hope everyone kind of was following my, my rambling story
[00:28:23] It's Monday.
[00:28:24] Toni: not, I wasn't, I wasn't, I'm only one tea
[00:28:28] Mikkel: Yeah.
[00:28:30] Toni: by the way, on the weekends, I, you know, drink a coffee here and there
[00:28:33] Mikkel: Yeah, you never drink coffee in the office. I've not seen it,
[00:28:36] Toni: no, no, no, but, but in the weekends when I'm not in the office,
[00:28:39] Mikkel: you're indulging yourself.
[00:28:40] Toni: I'm drinking a coffee here and there.
[00:28:42] and there, and,
[00:28:43] and I can actually feel the caffeine again.
[00:28:46] It's like, I'm like,
[00:28:47] Mikkel: in tea! There's also caffeine in tea!
[00:28:48] Toni: But I mean, it's like a fraction
[00:28:50] Mikkel: that's not what I do. When I get home, it's like, we're looking at each other, should we have coffee? He's like, no, open that bottle
[00:28:55] Toni: Every everyone out there is like,
[00:28:57] Mikkel: like They're
[00:28:58] Toni: Everyone out there is like, can they please wrap up the show right now? So, okay, yeah, we talked about, uh, CAG payback actually being our favorite metric. but then saying, you know what, actually let's expand that across the whole bow tie and add CLTV to it. Yes, makes the picture a little bit more complicated, but it gives you another lever of how you can argue for higher CAC and actually even for higher CAC payback.
[00:29:20] Right. Kind of way you can afford it because you have so much more value coming from the customer side. and then we talked about, you know, two potential resources that probably melt more ideas out there, but two potential main resources you can shift around from the newbiz perspective to rather the customer side.
[00:29:36] One is support and the other one is product resources. Right. And if you do that, and if you, as a sales or marketing team actually helped to align around this. This might actually kind of provide you with an opportunity that you can discuss with finance in order to get more resources. Right. So this is a way to align the left and the right hand side of the bowtie.
[00:29:55] Mikkel: That's it.
[00:29:56] Toni: That's it. Thanks everyone for listening. Thank you Mikkel and have a great day. Bye bye.