Goals Matter

Revenue operations professionals help marketing, sales, and renewals set the right goals.

Goals are important for the success – in business & personal life. Ambitious goals motivate us to push harder and achieve great things.

Case in point: I recently interviewed a demand generation as part of survey. She shocked me when she described her company. Her #1 success metric is lead creation each month, but she has no specific goal or target. Her manager tells her to get as many as possible.

People don’t work that way. Without clear goals and good feedback, it is hard to stay motivated. Imagine running a race without knowing the distance.

You may start sprinting, hoping that this would be a short track. You may instead jog a reasonable pace, assuming this is a long distance. Without any progress markers, your strategy will almost always be wrong.

This problem is only magnified for B2B companies. The individual race becomes a relay. Marketing, sales, and customer success must now coordinate to succeed.

How can revenue operations coordinate these three functions? And forecast how each is performing?

Revenue Funnel Management to the Rescue

Allow me to introduce Revenue Funnel Management.

Revenue Funnel Management (RFM) is a business framework for  revenue operations. It provides the tools needed to forecast & manage marketing, sales, and renewals. Think of it as the “Laws of Motion” for B2B revenue.

RFM is not rocket science. It isn’t even particularly original. It takes several well understood concepts and ties them together in a simple way. That makes it understand and easy to explain to others in your organization.

statusquota revenue funnel management roles rfm

Revenue Funnel Management Rules

Rule 1: The marketing team generates interest in product. It then converts that interest into opportunities for the sales team.

Rule 2: The sales team closes deals. Put another way, it turns opportunities into customer accounts for the renewals team.

Rule 3: The RFM renewals team reduces account churn and growing lifetime value.

I designed RFM using three principles:

Simplicity: Each team creates a single output

Continuity: The output of one team is the input of the next team in the sequence

Actionability: Each team’s output is in their control. They have levers to pull to impact performance.

Of these principles, continuity is particularly important. Think of it like an assembly line. Each team creates an output. And that output is an input for the next team in line. So you can create a simple math model to represent the revenue generation process. In my model, a single equation represents each team. You can always make this more complicated, but the principles are most important.

Now let’s restate the Revenue Funnel Management Rules in mathematical form:

Rule 1: The projected number of qualified opportunities generated by marketing is equal to the number of marketing qualified leads multiplied by the lead velocity rate multiplied by the MQL-to-opportunity conversion rate.

statusquota revenue funnel managmeent rule 1

Here we define the lead velocity rate as the number of marketing qualified leads in the current month divided by the number of marketing qualified leads in the previous month:

This is a simple reformulation of the lead velocity rate as defined by Jason Lemkin of SaaStr. Jason is a huge fan of LVR as a predictive tool for managing a growing SaaS business. And I agree with him ? My version of LVR predicts how many opportunities there will be in a future period. To focus on opportunity creation in the current period, you can exclude it from the equation.

This equation shows marketing has 2 ways to influence the revenue generation process:

1. Generate more MQLs (improve lead volume)

2. Increase the conversion rate of MQLs to opportunities (improve lead quality)

This is a simple reformulation of the lead velocity rate as defined by Jason Lemkin of SaaStr. Jason is a huge fan of LVR as a predictive tool for managing a growing SaaS business. And I agree with him ? My version of LVR predicts how many opportunities there will be in a future period. To focus on opportunity creation in the current period, you can exclude it from the equation.

This equation shows marketing has 2 ways to influence the revenue generation process:

1. Generate more MQLs (improve lead volume)

2. Increase the conversion rate of MQLs to opportunities (improve lead quality)

statusquota rfm mql table

This equation puts marketing on the hook for creating opportunities, not leads. This is a great way to get marketing aligned with sales. Too many sales & marketing teams fight about lead quality. Complex SLAs aren’t needed to fix this problem. Instead, make marketing’s focus the one thing sales cares most about.

Click to Download StatusQuota Churn Metric Visual Guide

This makes sense on another level. Incentives drive behavior. Marketing teams that only have lead targets can game the system. It is easy to fill the funnel with low quality leads to hit the number.

Rule 2: The projected bookings made by a sales team over the length of a sales cycle is equal to the number of qualified opportunities that the sales team works multiplied by the opportunity win rate multiplied by the average contract value.

statusquota rfm rule 2

This equation projects the total amount of closed deal value for your sales team. This projection covers a normal sales cycle.

Many companies have multi-month sales processes. For them, it is important to understand how much expected bookings each month or quarter. To find that number, divide each side of the equation above by sales cycle length in days. This allows you to calculate estimated daily bookings:

statusquota rfm rule 2a

This modified form of the equation can estimate how much revenue the sales team should book each day. This version of the formula is the sales velocity equation.

The sales velocity equation identifies four levers for the sales team:

  1. Increase the number of qualified opportunities worked
  2. Increase the win rate on opportunities
  3. Grow the size of won deals
  4. Reduce the length of the sales cycle

statusquota rfm velocity table

You may have noticed that this formula provides dollars. But the RFM 2 output is accounts. So we will need to make a conversion from bookings dollars to accounts won. To do this, we’ll divide both sides of the original RFM 2 equation by average contract value:

statusquota rfm rule 2 accts

Rule 3: The account churn % is equal to accounts churned during the period divided by the sum of the average number of customers each day in the period.

statusquota rfm rule 3

There are many versions of the churn equation. Many are much simpler than this one. But I prefer this one for a few reasons. It accounts for periods of high growth. When there is a lot of growth, customer count at the beginning of the month is much smaller than end of month. It also is easy to switch to different time windows (weeks, quarters, etc.). All you have to do is change the number of days summed.

statusquota rfm rule 3 churn table

Revenue Funnel Management is a powerful tool to manage marketing, sales, and renewals. It links the components of revenue operations in a logical way. Use the insights from RFM to identify problems in your revenue generation engine. Then figure out what tactics you can use to improve performance and measure results.

Leaving growth to chance is a recipe for disaster. Through thoughtful planning, you can drive significant performance improvement. All you have to do is crunch the numbers.

statusquota churn metric narrow cta 

Print Friendly, PDF & Email

About the Author

Remen OkoruwaCEO
Remen is a co-founder and subscription strategist at StatusQuota. He is passionate about helping SaaS businesses reduce customer churn, and loves chunky guacamole.