Which SaaS metrics are best to determine your LTV and CAC? Keep reading for a full breakdown.
If you’re a LinkedIn lurker like myself, you have definitely come across those posts where sales and marketing people fight about who’s sending bad leads or who’s got 20 qualified leads going cold in their CRM. It’s painful, but it happens because people don’t see eye to eye: sales, marketing, and support funnels are not connected, and team goals are not set up properly. There are multiple ways to ensure that marketing, sales, and support work together.
From my standpoint as a marketer, I can tell you that, as frustrating as it is to spend so much time acquiring and nurturing leads only for them to sit in HubSpot untouched by sales, we’re also not angels, at least not always ;). For instance, marketers need to be careful with what we call a “lead” or an “MQL.” I’ve encountered some CRMs where marketers marked a whole list of tradeshow attendees as MQLs. I’ve also come across an account where firstname.lastname@example.org was blindly set up as an MQL and sent to sales. That’s what drives sales teams crazy.
We, marketers, need to do a better job. We can’t report on an increase in website traffic on a monthly basis or “leads,” and that’s it. We need to make sure that we’re focused on the metrics that actually drive revenue. We need to make sure that we look at social impressions and website views as well as pipeline volume, closed won deals, usage rates, churn rates, etc. Since we control the top of the funnel, we control what leads and customers sales and support are seeing. Crap at the top means crap at the bottom. High-quality traffic and educated prospects at the top means sales and support will love you. That’s just how you build a successful, sustainable revenue machine at your company.
There are two types of B2B SaaS marketing metrics that marketers need to include in their reports on a regular basis to ensure alignment with sales and support: leading indicators and lagging indicators. Understanding these two is the difference between a successful, revenue-contributing marketer and someone who will soon be looking for a job when revenue targets are not hit.
Leading indicators are metrics that can predict future performance. They give an early indication of what is likely to happen and allow marketers to change their strategy before it's too late.
Here are some examples of leading indicators in SaaS marketing:
- Website traffic: the number of people getting to your website through organic, direct, paid, or referral traffic. This is a good predictor of future performance and can provide insight into the effectiveness of your marketing efforts. You should look for spikes in traffic to understand how certain campaigns perform. Also, once you have enough historical data, you can use website traffic to predict future lead volume. It’s typically not the strongest indicator, but it could be super helpful if you have good historical data to rely on.
- Time-on-site: this is one that not many marketers pay attention to. How long are people staying on your site? What is your average exit rate? How engaging is your content? A long time on site is a good indicator that users are engaged with your website and content. And if your site is optimized for conversions properly, it is a good indicator of how much lead volume you should expect as well.
- Social media engagement: how engaged are people with your social posts? Are they liking your content? Are they commenting with questions? Are they visiting your site as a result of that content? A high level of engagement on your social media channels can indicate a strong connection with your audience, which can translate into website traffic, leads, and, eventually, revenue.
- Number of webinar/event attendees: are people interested enough in your content to attend a webinar you’re advertising? Did your tradeshow booth messaging entice enough people to stop by? Did you hit the right target with the right messaging for your LinkedIn ads? Those are all indicators of interest in your brand. And once you’ve got attention, then interest, it’s time to nurture and then close.
- Number of leads/pipeline volume: this is probably the most used leading indicator. How many leads do you have in your pipeline? How big is your pipeline? How big is your weighted pipeline? Those are all good indicators of what type of revenue (lagging indicator) you should expect.
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Lagging indicators, on the other hand, are metrics that reflect past performance. This is historical data you can use to determine, based on your growth goals, what leading indicators you should see. They give a historical view of how well your marketing efforts have performed and can help identify areas that need improvement. Here are some examples of lagging indicators in SaaS marketing:
- Revenue: sales revenue is, at the end of the day, your biggest goal as a marketer. It’s a lagging indicator that reflects the success of past marketing efforts and helps you understand what channels and campaigns have worked best. I also like to think of revenue as the metric that allows you to be creative. Marketing, to me, is the best combination of art and math. You got to have the numbers that make it worthwhile (revenue, appropriate CAC:LTV ratio, etc.), but then you can spend the time you want being creative and running cool campaigns that, in turn, help you drive more revenue.
- Customer churn rate: a high customer churn rate is a lagging indicator of poor customer experience, which can be improved through changes in your marketing strategy. Churn rate could also be tied to the types of channels, messaging, or ICP-fit you had set up in your marketing campaigns. As much as possible, your churn reports need to show what lead sources and messaging those churned customers came through. Maybe this is an indication of a lack of onboarding support. Maybe they churn because your product works well for enterprise accounts, not SMBs or some part of the industry. Maybe you need to return to your GTM drawing board and reassess your ICP.
- Marketing ROI: is your marketing department ROI positive? Do you have a healthy LTV to CAC ratio (see this blog for more on calculating LTV and CAC)? ROI is a lagging indicator that measures the profitability of past marketing investments.
- Lifetime customer value (LTV): LTV is a lagging indicator that measures the value a customer brings to your business over the course of their lifetime. Similar to churn, this tells you how successful your marketing efforts were. Are your referral leads staying much longer than all other sources? Do you see that accounts with 50+ users are the ones with the highest lifetime? This is a good indicator of high-fit leads you can use in planning new campaigns.
- Profit: is your company growing at the level you need? Do you have a good payback period? Can you keep your investors happy while growing your business? This can be a good indicator of the cost-effectiveness of your marketing efforts and team. Are they paying for themselves?
Using both leading and lagging indicators
Smart marketers use leading and lagging indicators when compiling their reports and forecasting pipeline and sales volume. Leading indicators provide insight into future performance, while lagging indicators reflect past performance. Combining the two can help you make informed decisions and identify areas that need improvement. For example, if you see an increase in website traffic but a decrease in conversion rate, it may indicate a problem with the user experience on your site that either one of those metrics on their own wouldn’t show.
The most important takeaway
Track both your leading and lagging indicators in the same dashboard. Start at the top with website views or impressions and go all the way down to revenue, CAC:LTV, and profit.
Leading and lagging indicators play a critical role in determining the success and growth of your SaaS marketing efforts. Understanding the difference between them and using both in your reporting and forecasting can help you make informed decisions and avoid missed opportunities.