If your company is only measuring growth in ARR, it isn’t effectively measuring its growth. Revenue growth is the cornerstone of business success. Your revenue growth rate is your momentum, powering your perception in the market, including your ability to raise money and attract employees. If your growth is suboptimal, people and money are more expensive. When your growth is accelerating, everyone wants to work with you.
Unfortunately, leaders often track too many metrics or only one – ARR growth. To monitor for sustained growth, your entire company should see and track these five signals of optimized growth potential every month:
Increasing Number of Net Customers
If your marketing team is attracting interest and current customers are telling their friends, you’re well-positioned to grow your revenue. Customers-in-hand are worth up to twenty five times as much as prospects, as they enable subscription sales, upselling, and cross-selling. Once a customer has bought from you, they’re much more likely to continue, so keep an eye on your number of net customers quarter-over-quarter.
Current Customers Expanding without Incentives
When current customers expand their purchases, you can spend more money on customer acquisition because their lifetime value compensates for your sales and marketing efforts.
These customers must expand on their own: if you prompt their growth through discounts or coupons, they may not actually be satisfied and will retreat when you remove those incentives.
If current customers aren’t expanding, ask yourself:
- Are they satisfied by your product?
- Are they using your product more than they did the prior month?
- Are you providing them easy opportunities to expand?
Accelerating Number of New Qualified Opportunities
Today’s qualified opportunities are tomorrow’s revenue. The relevant metric here is not your total number of qualified opportunities, but your number of new qualified opportunities. A qualified opportunity is an opportunity that sellers have added to their pipeline because after discovery, that prospect meets the criteria for a viable customer. When a company is growing organically, the number of interested customers should increase, a proxy for public perception of you. During a growth stage, that momentum itself should be increasing. There is a close cousin which is a false signal – read more about the problem with Marketing Qualified Leads (MQLs).
New Sellers Close their First Deal within 90 Days
When a product is easy to understand, high-quality sellers can sell it quickly. Expecting a closed deal in the first month is a bit fast, but 90 days is more than enough time for them to learn which prospects are most likely to buy and guide those prospects to the finish line. If new sellers are consistently taking longer to ramp up, it’s not their fault, but either you don’t have product-market fit or your marketing, positioning and sales process is to blame.
At Least 70% of Salespeople are Reaching Quota
Of course, not every seller will succeed every quarter, but effective momentum and growing leads should enable the vast majority of them to succeed. When salespeople aren’t reaching quota, it’s time to ask whether they themselves are performing poorly or are receiving a low-quality product or the target market isn’t strongly interested in the product or your sellers aren’t properly enabled to succeed. The Revenue Flow Score is a highly efficient mechanism to determine which issue is likely slowing your growth.
…and 3 Signals that are Easy to Mistake for Growth
Instead of focusing on a small number of highly informative signals, go-to-market leadership often complicates their growth analysis with vanity metrics. If you’re aiming to grow, watch out for these mistakes:
Improving Win Rates
Win rate is an easily-hackable metric: You can increase your win rate simply by decreasing the number of opportunities you create or accept. While the company wants more opportunities and customers, win rates incentivize salespeople not to stretch. High win rates are often not a sign that you’re growing at your maximal capacity, but that you aren’t pushing hard enough. Of course, increasing net new customers, increasing ARR and increasing win rates are hallmarks of a company with GTM Flow.
If your company measures win rates, replace that measurement with net customers and accelerated opportunities. You’ll encourage more growth.
More Marketing Qualified Leads
By their very definition, marketing qualified leads (MQLs) have not bought yet. MQLs are often people who are being targeted by marketing and may have responded to a marketing outreach – but they are unqualified. While MQLs may turn into something valuable in the future, they aren’t worth anything today. You can’t pay salaries with MQLs. Unfortunately, if you incentivize your marketing team to acquire more MQLs, you’ll simply increase the number of poor leads added to the pile. In fact, excess MQLs create overhead to store, review, score and nurture for very little value. It’s easy for marketing to generate more MQLs – simply spend more money to get more clicks and actions. It’s a cash bonfire!
Low-quality MQLs do not turn into sales. Instead, they form the foundation of friction between sales and marketing: marketing complains, “We generated thousands of MQLs. Why aren’t you closing them?” while sales retorts “The MQLs are garbage.” As with any system, more garbage in doesn’t create more dollars out.
Instead of encouraging your team to produce more MQLs, incentivize them to produce more qualified opportunities interested in buying today. This will closely align sales and marketing, improve your ability to learn and drive growth.
Countless entrepreneurs proudly share that their company has grown by 100% in employees as a proxy for growth. Unfortunately, employees are a (mostly) fixed cost that dramatically increases the burn rate unless revenues are already growing per the 5 growth signals. But adding employees isn’t itself a signal of revenue growth – it’s just a signal of growth and maybe bloat. Growth of expense. Growth in complexity. Growth in conflict. Scaling up employees while accelerating growth is exceptionally challenging. The healthy company should monitor it’s revenue per employee and aim to keep it level or improving as the company grows.
Go Forth and Grow
Properly-executed growth can have incredible results. Twilio, for instance, has enjoyed year-over-year revenue growth of 61.99%, more than triple the S&P 500 and nearly quadruple their industry average. It’s no coincidence that the company is enjoying positive press and high employee ratings. Your team should execute well when you’re aligned without micromanaging.
If your company wants to unlock money, talent, and customer interest, the key to all of these is growth. Pay attention to the right signals and disregard the noise from the rest.