Sales:

Early Stage

At the earliest stages of scaling, sales and customer success (“CS”) metrics give us an indication of what your company is becoming. They also give a sense of whether the product has achieved product-market fit – what’s the potential of the product and which types of customers are most likely to buy. As an investor, at this stage we’re looking for companies that: • Solve a broad, real market problem in a large market. • Close a high proportion of the sales opportunities they encounter. • Add new customers and drive revenue growth at an exciting pace. • Have happy customers that renew their contracts. Four sales and CS metrics are fundamental to Early Stage success: Win Rate, New & Expansion Bookings Growth Rate, Net Promoter Score (NPS) and Gross Revenue Retention (GRR).

Early Stage Indicator #1: Win Rate

Win Rate is one of the most foundational metrics in sales – how many times do you win when a decision is made? Win Rate indicates three things for this ScaleUp stage: 1) lots of prospects are engaged and like the solution – i.e., overall market demand; 2) the solution meets their needs, so they purchase – i.e., a measure of product-market fit; and 3) your GTM team has the skills to close the deal – i.e., sales execution. While Win Rate helps you understand the strength of your sales execution and the overall demand in the market, it also identifies the pipeline coverage ratio that your team needs to achieve their target. Required Pipeline Coverage is calculated as (1/Win Rate). This means that if you have a 20% Win Rate from sales qualified opportunities, you need 5X your target in pipeline to hit your goal. For new logos, we like to see Win Rates of 20-40%. If Win Rates are higher than 40%, then you’re probably qualifying out too many deals early in the process and missing out on market demand – or you are underpricing for the perceived value of your offering and missing out on revenue. Expansion Win Rates (both cross-sell and upsell) should be between 40% and 85%. Rates of this level show that your customers understand the value of your product and want to either buy more of it or buy ancillary products to expand the value. Overall combined Win Rates (at the Early Stage of scaling) should be around 30%.

Early Stage Indicator #2: New & Expansion Bookings Growth Rate

The next core element is all about growth – both new logo business as well as all cross-sell and upsell. This ratio is the clearest indicator of go-to-market traction within an organization. In the Early Stage, growth rates should be over 100%, but as the company scales, maintaining that level of growth gets harder. In later stages we’ll look at the New vs. Expansion Bookings Mix and what that means for long term growth, but in the Early Stage, mix isn’t as important as overall bookings growth.

New + Expansion ARR Growth Rate by Company Size (ARR)

New + Expansion ARR Growth Rate by Company Size (ARR)

Early Stage Indicator #3 and #4: NPS and Gross Revenue Retention

Gross Revenue Retention (GRR) gives a strong indication of the stickiness of your product and the value that your customers are getting from the solution. GRR looks exclusively at the change in revenue from your existing base, excluding any upsells or cross-sells. Think of your overall revenue as a large bucket. Sales is constantly adding water (new logos and expansion revenue) to the top of the bucket. However, there is a leak at the bottom of that bucket (customer churn and downsells). GRR measures the size of that leak. If GRR is high (e.g., 95%), that means that the revenue leakage is low and nearly every dollar of revenue generated by sales brings the water level higher. Low GRR (e.g., 65%) means the leak is larger, and a higher portion of the sales-generated revenue is simply replenishing the bucket before it contributes to growth. Low GRR makes consistent growth far more challenging.

Gross Revenue Retention vs Growth

Gross Retention

Consultative

Transactional / Solution

In Insight’s dataset, GRR ranges from 60-100%, with the most successful companies sustaining and growing this metric over time. Companies with more consultative sales motions and large deal sizes achieve the higher end of the range, as those contracts are often multi-year and those products stickier because of systems integrations. Since Early ScaleUps have fewer customers, this metric can be more volatile, especially when ARR is under $5M or when there is a concentration of revenue in just a few customers. Over time, GRR should stabilize at a high rate (>90%) and, because Mid and Late Stage ScaleUps rely more on growth from existing customers, GRR becomes more and more important.

How can you improve this indicator? 1. Focus on the onboarding process – Some say the renewal is won in the first 90 days after closing the sale. A formal onboarding process ensures that your customers get the value they expected from your solution, which increases retention and improves your chances for expansion. In the first 30 days, establish clear communications with the customer and truly understand their use case. You’ll want to build out a customer profile that details who the key influencers and users are and their goals for the solution. In the next 30 days, build out a targeted customer success strategy that maps out the customer touchpoints and escalation plan. In the final 30 days, begin the pattern of regular check-ins and quarterly business reviews (QBRs) to ensure that the customer is realizing value. By creating and standardizing the onboarding process, you can be certain that all customers realize the value that sales promised them, leading to renewals and expansions. 2. Ensure that the sales pitch is consistent and doesn’t oversell the solution – In Early Stage ScaleUps, the founder is often the primary sales rep. Over time, new reps learn by shadowing the founder. At some point (typically around 3-5 reps), the founder steps back from day-to-day selling and reps lose the chance to see how the founder pitches the solution. That’s when the “game of telephone” kicks in – new reps learn the pitch from established reps who learned the pitch from another rep who learned it from the founder. The pitch changes and may no longer reflect the actual capabilities of the solution. If the pitch deviates too far, then customers may be disappointed once they go live. Use a Conversational Intelligence tool (e.g., Salesloft, Gong, Chorus.ai) for monthly inspection of the pitches that the sales team delivers to ensure it meets your standards. Host “Pitch-o-Ramas” where reps compete against each other to see who delivers the best pitch and win prizes.

Net Promoter Score (NPS) is a gauge of customer satisfaction, and in the future, willingness to renew. NPS is calculated from responses to a single question: How likely is it that you would recommend our product/solution to a friend or colleague? At -100% everyone is a detractor; at +100% everyone is a promoter. For enterprise SaaS ScaleUps an NPS of 30-50% is considered strong and 50%+ is exceptional. Run the survey with caution: reps tend to survey customers / users that they know are happy to ensure good results. Periodically the leadership team should test the scores through customer conversations to understand how customers perceive product value. Ultimately, regular NPS analysis provides trends in customer sentiment allowing you to make necessary adjustments to ensure that your customers are happy and that retention stays high.

31%

24%

41%

4%

Early Stage ScaleUp Example – The foundations of long-term revenue building

Investors look for early signals that customers love the product and that it is easy to sell. Now that we’ve identified the key metrics to determine if an Early Stage ScaleUp company is on a long-term path to success, here’s an example to illustrate how Insight’s investors look at two comparable companies that are in their second year since product launch.

Both companies have $5M in ARR with a target of $9M (80% growth), but their Win Rates and GRR are very different. Let’s look first at Win Rate. With no churn or downsell, to get to $9M, they need to close $4M in new and upsell bookings. Company A needs to create $13M in pipeline ($4M/30%), while Company B must work twice as hard and source $27M in pipeline – for the same outcome.

Now put aside new bookings for the moment. Company B suffers from a leaky bucket: 75% GRR as compared to Company A’s 92%. Company A will lose $400K by the end of the year, while Company B will lose $1.3M in revenue. That means Company B’s sales team must close $1.3M in new sales just to keep ARR level. Now combine the two metrics (Win Rate and GRR) and the effects are compounded. To end next year at $9M in ARR, Company A must add $4M in net new bookings and replenish the $400K of churn and downsell, requiring ~$15M in pipeline ($5M / 30%). Company B, however, must source ~$35M in pipeline, about 2.5x as much, to get the same place. That’s a massive uphill climb for Company B, and this issue will only multiply as they scale.

Early Stage Summary

The four basic metrics an Early ScaleUp needs to track show critical information about a company’s ability to build a repeatable sales motion, which is the foundation for growth. At this Early Stage, market size being equal, companies with higher Win Rates, GRR and NPS will command greater valuations, and likely burn less money en route to scale and profitability.

Further Reading

Explore Other Sales KPIs

Mid Stage Sales KPIs

Late Stage Sales KPIs

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