In the fast-paced world of SaaS, data-driven decisions are the backbone of success. The ability to accurately predict growth and set attainable goals is essential for scaling your business effectively. One way to understand this process is through a simple yet powerful formula that helps forecast annual contract value (ACV) based on monthly recurring revenue (MRR).

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Understanding the Compounding Formula

Let's break down the concept with an example. Imagine you aim to acquire one new client per month over a 12-month cycle. The compounding formula for this scenario is as follows:

78×n=12×n+11×n+…+1×n

Here, n represents the new MRR generated each month.

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Setting and Achieving ACV Goals

Consider your goal for 2024: achieving an ACV of $1'000'000. In 2022, your ACV was $220'000. In 2023, you need to generate a new ACV of $780'000. Dividing this by 78, you find that your new MRR target is $10'000 per month.

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SaaS Metrics in 10 Steps

To reach this MRR goal, you need a clear, data-driven plan. Here’s a 10-step guide to help you achieve your target:

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1. MRR Goal: Set your monthly recurring revenue goal. In this case, it's $10'000 MRR.
2. Average Monthly Subscription per Customer: Determine the average monthly subscription per customer. For example, if your average deal is $500 MRR per customer.
3. Deals per Month: Calculate the number of deals you need to close each month. With a $10000 MRR goal and $500 MRR per deal, you need 20 deals per month.
4. Win Ratio: Understand your win ratio. If your win ratio is 1:4, for every four SQLs, you win one deal.
5. Number of SQLs Needed: Based on your win ratio, calculate the number of SQLs needed to achieve your deals/month target. With a win ratio of 1:4, to close 20 deals, you need 80 SQLs.
6. Inbound vs. Outbound Leads Split: Decide the split between inbound and outbound leads. Suppose it's 60:40.
7. Inbound SQLs: Calculate the number of inbound SQLs needed. For a 60% split, you need 48 inbound SQLs.
8. Conversion Ratio: Understand your inbound conversion ratio. For example, if it's 10%, then you need to generate 480 MQLs to achieve 48 SQLs.
9. Number of MQLs Needed: Based on your conversion ratio, determine the number of MQLs needed to meet your SQL target.
10. Outbound SQLs Needed: Calculate the number of outbound SQLs required. For a 40% split, you need 32 outbound SQLs.

This step-by-step approach helps you set clear, data-driven targets and understand the effort required at each stage of the sales funnel.

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Conclusion

Data is the lifeblood of SaaS sales models. By leveraging detailed metrics and understanding the nuances of your sales funnel, you can set realistic goals and devise effective strategies to achieve them. Whether it's setting MRR targets, understanding win ratios, or calculating SQL requirements, a data-driven approach ensures you stay on track and continuously grow your business. Embrace the power of data to navigate the complexities of SaaS sales and drive your company towards success.

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Blog post was inspired by the book:
Blueprints for a SaaS Sales Organisation by Jacco van der Kooij and Fernando Pizzaro
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