Once a company starts projecting revenue, I find myself asking the same Go-To-Market (GTM) questions at every board meeting — whether the company is billing $100K/quarter or $100M/quarter:

• How was last quarter?
• Will we make this quarter?
• Is making the quarter good enough?

At the board meeting, various executives (CEO, CFO, VP Sales and VP Marketing) take turns answering these three simple questions. The answers then trigger many follow up questions. And then, a vigorous discussion ensues as everyone focuses on a different GTM question and metric.

Since this process is so common, I thought we could simplify it by (i) highlighting the three questions and the typical follow up questions and (ii) showing a simple but consistent way to present the data for discussion (ie, numbers for the quarter).

First Question: How was last quarter?

To help answer that question, I appreciate it when companies present the GTM numbers for last quarter in a simple table like the one shown below. Then I can answer eight follow-up questions by myself.

The most important GTM questions concern (1) predictability, (2) growth rate, and (3) GTM efficiency.

If the answers to these three questions are good enough, we can assume that the remaining GTM questions (4 to 8) are in good shape.

Predictability: This helps me understand the company’s ability to predict its business.

Less predictability means the company may need to adjust its operating expenses accordingly in order to manage its burn rate. If the company made only 70% of its planned billings, did it spend only 70% of its planned operating expenses? Most don’t, but some amazingly do. Usually the operating expenses are based on the plan billings and not actual billings.

Growth Rate: Fast growth trivializes all other GTM issues.

But, every growing company claims to be fast growth. So, is the growth really fast enough?

Neeraj Agrawal from Battery answered the question with his excellent analysis: “The following chart gives a real-life illustration of how seven high-profile, public SaaS companies we have identified — Marketo, NetSuite, Omniture, Salesforce, ServiceNow, Workday and Zendesk — each roughly followed this triple, triple, double, double double (T2D3) growth path to achieve their success.” More detail in Neeraj’s blog post here.

GTM Efficiency: We have all painfully learned that companies can brute force growth through excessive spending on sales and marketing.

One simple GTM efficiency metric is to track total billings divided by sales and marketing expense.

A 1.8x ratio is a good target for GTM efficiency, as shown in the chart to the left for Marketo, Salesforce, Workday and Zendesk. “1.8x” means every $1 spent on sales and marketing generated $1.8 in billings. More detail in my blog post below here.

Another useful metric is Net New Billings divided by the sales and marketing expense (also known as the “magic number”). This focuses on the cost of acquiring new business. But, it is a difficult metric to calculate and compare consistently across companies, unless one assumes that renewals require no sales and marketing effort. But, renewals are never easy, and always seems to require some-to-major sales and marketing effort.

At this point the most important questions have been asked, but if there are any flags, I continue with questions 4 through 8. They help me diagnose any GTM issues.

Renewals: In a recurring business model, renewals are the core business.

There are two common ways to look at churn. One looks at all customers equally and focuses on the customer count churn rate. The other looks at the happy customers and focuses on the $ retention rate with up-sells. The latter assumes that some existing customers may not be a good fit for the company and should churn, while the happy existing customers continue to buy more.

For either approach, the table on the left shows the minimum renewal rate required to be good enough (in other words, to go public). More detail in my blog post here.

Top Down Analysis: Analyzing the sales pipeline provides a good high level view of the sales engine. The three primary pipeline metrics are:

1. Pipeline Amount. In addition to the total amount, I find it helpful to know the number in the last to late stage (such as in contracts).

2. Win Rate. Ray Carroll (from Marketo and Engagio) shared this simple but insightful table.

3. Sales Cycle. Although we would all like 90 day deals, the average sales cycle varies tremendously as shown in this analysis of deal size (ACV) and sales cycle (days) performed by Jacco van der Kooij and myself. More detail in our blog post here.

Bottoms Up Analysis: In contrast to the top down pipeline view, the sales rep view looks at the fundamental unit of any sales driven GTM, the individual sales rep. The primary metrics for the individual sales rep are:

• Highest producing Sales Rep. Knowing this number over time helps to understand the potential sales productivity of the current sales model and to set the right quota per sales rep.
• Target Quota per Sales Rep and Actual Billings per Sales Rep. Setting the right target quota is a delicate balance. Too high will demoralize sales. Too low will result in a failed business model.
• % of Sales Reps Making Quota. With this number, we can guess the number of unhappy sales people. More importantly, the company should help the sales people not making quota by analyzing the ones making quota. This also provides insights on the right profile for sales reps.
• % “Extra” Sales Capacity. The difference between sales capacity (quota x # sales reps) and plan billings is the extra sales capacity.

Combining Pipeline and Sales Rep Views: For companies with relatively small pipelines (ie, can be shown in one or two pages), it makes sense to combine the pipeline and sales rep views into a single sheet as shown below:

The shaded box is the pipeline presented earlier in the quarter at the prior board meeting. The unshaded box is the pipeline at the end of the quarter.

With this report, it is relatively easy to answer some questions: a) what percentage of late stage deals actually closed, the win rate? any common reasons for winning or losing. any common competitors. b) what was the average (and lowest and highest) sales days for all closed deals. c) what is the performance by sales rep. d) what is the performance by lead source. e) were there any fast moving deals? added to pipeline and closed before the end of the quarter.

Quality of billings: The company may have nonrecurring billings, such as professional services or license revenue, as well as recurring billings. I separate them, because nonrecurring billings are generally less valuable than recurring billings and do not add to renewals.

Pipeline: Looking at pipeline additions is a good way to predict future quarters. To understand the pipeline, I break it down into two views — Top level and bottom level.

In the top level view, I’m evaluating whether or not the pipeline can sustain future growth. The pipeline should be growing (pipeline adds/total pipeline) faster than the desired growth rate.

In the bottom level view, i’m evaluating how many new deals/rep were created last quarter. To keep making quota, the sales rep needs to be fed with quality leads.

Once these views have been evaluated, I ask my self the following questions: What are the source of the pipeline additions? What percentage is generated by sales (ie, prospecting) versus marketing (ie demand generation)? Marketing generated pipeline additions (known as Sales Qualified Leads or Marketing Qualified Leads) is a good way to measure the company’s demand generation efforts.

Second Question: Will we make this quarter? And, next quarter??

After understanding last quarter, the next key question is also simple — will we make this quarter?

To help answer this question (and the followup questions), I appreciate it when companies present the GTM forecast for this quarter in a simple table like the one shown below:

With this simple table, I can answer many questions by myself.

Beat Plan? I can easily compare the company’s latest forecast with the plan.

Linearity? This helps me understand the company’s progress to date for the quarter? As a note, many companies close 50% of their quarter’s business in the last month — some in the last two weeks. Also, I can then compare the linearity with prior quarter’s by remembering this table from prior quarters.

Same GTM Metrics? Are the assumed GTM metrics similar to the calculated GTM metrics from last quarter? If not, which ones have changed and why?

The table on the left shows a simple model to estimate this quarter’s billings based on the prior GTM metrics — $ retention and sales and marketing productivity (whether New billings/S&M op ex or New billings/sales rep) — and the projected Sales & Marketing spend or projected # of sales reps for this quarter. If the Most Likely billings forecast differs significantly from this simple model, then there must be a major change in a key GTM metric.

Enough Pipeline? Is there enough pipeline to make the forecast?

Usually, it comes down to comparing the quarter not yet done (ML forecast minus QTD) vs the late stage pipeline times the historical close rate. For early stage companies, late stage pipeline is usually deals in contract review.

Alternatively, we can compare the sales forecast to the entire pipeline. Although we have heard that 3x is the number, the right pipeline coverage ratio depends on the close rate and sales cycle. 3x is the right ratio for 90 day deals with a 33% close rate. More detail in my blog post here:

Adding enough pipeline for next quarter? Same point as item (8) under the first question.

Third Question: Is making the quarter good enough?

Everyone relaxes when the company beats plan. But, we are not done yet. We need to ask: is the plan good enough to succeed?

That requires going back to understanding the growth rate and GTM efficiency, as shown in items (6) and (7) of the table.

As a side note, it is much appreciated when the company reminds everyone of the prior forecast and plan for the quarter. Otherwise, I have to find the number in my notes. Also, reminding everyone is the first step toward creating a culture of accountability.

After reviewing the GTM metrics, I can relax and learn about the company’s specific GTM innovations and thoughts. I find that fascinating!