https://www.bvp.com/atlas/scaling-from-1-to-10-million-arr?centaur#page_top
Highlights
- But as you progress to $10 million of ARR, it’s time to explore natural upsell triggers or opportunities for expansion.
- At the $1 million ARR mark, you should think of your most engaging feature that captivates customers as a Trojan Horse. From there, sequencing new product launches is key in realizing your full platform vision
- Gross retention, you should evaluate gross retention on both a logo and dollar basis
- Net retention, good rule is that you should have strong net retention (for your segment) in your core before you allow yourself to expand your product suite. The sequence is: get to product/market fit, establish strong net retention in your ICP customer base, then broaden your appeal
- Product North star, a product metric that is a leading indicator of revenue, companies determine their individual product North stars. For your company it could be these, monthly active users (MAUs), or something else altogether.
- $1 million of ARR, typical—and expected—for a CEO to be in sales pitch meetings, However, it doesn’t scale. A CEO or founder can only do so much alone, which is why early-stage cloud startups need to transition from a founder-led to a sales-led model.
- Major business risk during this transition, though, is that hiring salespeople is massively costly, yet you cannot guarantee ROI since the sales process is still unknown
Honing Sales Process
What is your target average contract value (ACV)? Is it more effective to sell bottoms-up or top-down? How do you engage your champion, and what is the customer wedge?
You should be putting metrics in place even during the rep ramp periods to track the effectiveness of their scaling.
Start formalizing a customer success function.
“In the words of Teleport’s CEO, Ev Kontsevoy, “Before we ramped sales, we needed a crisp answer to four questions: What do we sell? Who is our customer? Why do they buy? And why do they buy from us?” This simple, yet critical exercise provides the clarity sales teams need to find prospects willing to buy, sell against specific use cases, and develop the pitches that will successfully respond to customer pain points.”
- By combining the two steps of understanding the sales process with evaluating sales reps against rep productivity and performance metrics, founders and CEOs can ensure that sales expense is justified by topline ARR, rather than just being a cost center.
- CAC Payback - Customer-acquisition-cost (CAC) payback is the rate at which the costs spent to acquire a customer are repaid by that customer, after which the customer becomes profitable to you. It will vary by segment, and we suggest measuring it on a quarterly basis at both the unit and sales org levels to determine overall sales efficiency. The shorter the CAC payback, the better.
- CLTV / CAC - Customer lifetime value (CLTV) helps to bound CAC as the total value that a customer represents to a business. After repaying CAC, your company will be able to count the delta between CLTV and CAC as its profit. Maximizing CLTV / CAC therefore is a powerful indication of strong sales efficiency and future growth potential, and only after CLTV / CAC is 1x is a customer profitable to you.
While not deterministic, growth endurance (the rate at which growth is retained from one year to the next) tends to be about 70% in private cloud companies, meaning that you should expect next year’s growth rate to be approximately 70% of the current year.
Start building out growth endurance into all of the companies you model… see how that growth rate plateaus as a % of the previous year
Absent of data, we use the following rules of thumb when to recommend hiring functional experts:
- Sales expert by $1 million ARR
- Product expert by $2 million ARR
- Marketing expert by $4 million ARR
- Finance expert by $8 million ARR
- R&D department actually captures everything to do with Product - product management, product development, engineering and design
