If your software business is focused on driving growth through a strong sales funnel, it’s critical to utilize sound marketing metrics to demonstrate success or to enable pivots. Whether you’re at an established company or a recently started venture, the marketing metrics you rely on are critical to the success of campaigns, and to the company as a whole. They enable proper strategic planning to ensure the right tactics are implemented to reach your goals and are crucial to being able to track your marketing performance.
At many businesses, teams focus on measuring the success of their campaigns through traditional marketing metrics, such as open rates, click-through rates, social media engagement, and website traffic. These are all useful metrics for marketing and sales teams in evaluating the success of their initiatives, however more granular metrics such as these do pose a challenge. Translating these metrics into results that’s top of mind for company leaders, such as revenue growth and profitability, can be difficult.
The misalignment in standard marketing metrics versus what leadership cares most about can make it difficult for teams to prove the value of marketing initiatives.
Critical Marketing Metrics
There can be difficulty in figuring out what marketing metrics are the most important to leaders. We’ve listed five of the most critical metrics to consider using to measure and report on the success of initiatives. We’ve also included suggested benchmarks, however these KPI’s should be taken into consideration alongside the specifics of your business, while factoring in your competitive landscape, industry, geography, and average annual contract value.
1. MQL-to-SQL Conversion Rate
Conversion Rate = Number of Sales Qualified Leads (SQL) / Number of Marketing Qualified Leads (MQL)
The MQL-to-SQL conversion rate shows the percentage of accounts that have been confirmed as having a good lead score by marketing, and then rendered qualified by business developers. The ratio helps businesses understand both the quality of their marketing leads and the efficiency of its sales team in following up on these leads to progress them through the funnel.
Lower conversion rates may reflect poor scoring of MQLs, resulting in sales not knowing which leads are worth prioritizing, or inconsistent follow up of MQLs by sales teams. Average MQL-to-SQL conversion rate sits at approximately 44%[1], however can vary across industries. For SaaS services within the Insurance and Financial Services industry, the conversion rate sits at 28% and 42% respectively[2].
2. Deal Win Rate
Deal Win Rate = Number of Deals Won / (Number of Deals Won + Number of Deals Lost)
This ratio measures the percentage of opportunities that the company has been able to turn into customers. By gaging success in closing deals, companies can gain insights on which strategies and initiatives are resulting in more customers, as well as showing whether you’re targeting the right buyers with your marketing and sales tactics.
Average win rates sit at 47%[3], however this can vary depending on the number of direct customers for your solutions. One of the critical pieces to look at is whether your win rate is improving or declining. If your business is closing more deals as a result of new marketing initiatives, you can increase investments in where you’ve seen strong results to garner continued success. If you’re looking to improve win rates, analyze past successful deals to identify your most likely buyers, and ensure your efforts prioritize these opportunities.
3. Pipeline Volume vs Goal
Based on the average number of conversions seen, marketers can figure out the number of leads they need to generate by working backward through the funnel. When the business sets a goal for a specific number of deals closed, marketers can calculate to determine how large the funnel must be at each stage to reach that goal.
Target Number of Opportunities = Target Number of Deals Closed / Win Rate
At each stage of the funnel, marketers can calculate how many leads will be required to meet the set KPI based on their average conversion rate. For example, if 100 opportunities are required to meet the company’s goal of 50 deals closed, you can divide 100 by the average SQL-to-Opportunity conversion rate, to calculate how many SQL’s you will need to obtain those 100 opportunities, and so on.
A comfortable volume for software businesses is to have 4 times the booking target in SQLs and 6 times the booking target for MQLs[4]. However, these numbers will fluctuate depending on your company’s own conversion rates throughout the funnel. The better your company is at converting leads, the lower the funnel size needs to be to reach your goal for deals closed.
4. Velocity Through the Funnel
Sales Velocity = (Number of Opportunities x Average Deal Size ($) x Win Rate) / Length of Sales Cycle
Having a baseline understanding of how long on average it takes to win a contract can enable you to determine how much revenue you can expect to earn over a certain period of time. The length of the sales cycle can be measured in days or months, between the point in time in which new leads are entered and when they are closed as new customers.
Sales velocity can improve by increasing the number of opportunities in the pipeline, the average deal size, or your win rate, as noted above. However, investments made to shorten the length of time it takes to close can make a huge impact in helping you win more deals. Redirected spending to demonstrated effective strategies in improving your velocity, such as high-performing channels, more impactful touchpoints, and sales outreach platforms, can be justified.
5. Return On Marketing Investment (ROMI)
ROMI = (Sales Growth - Average Organic Sales Growth - Marketing Investment) / Marketing Investment
By gaging the return on investment for each individual marketing campaign, project and channel utilized, you can demonstrate the value of your marketing initiatives, and push for increasing resources on high performing channels, while redirecting spend from low performing channels. A standard goal to have for an ROMI is a ratio of 5:1[5]. However, take this metric in consideration of your average customer lifetime value.
There can be challenges in attributing the incremental value of marketing separate from the sales baseline growth, particularly if there is a long funnel and time delay between initial marketing touchpoints and closed deals. Therefore, this calculation factors in the average growth in sales. However, this ratio should still be reviewed in context with the metrics listed above, as well as other marketing metrics such as impacts to brand equity and awareness.
Utilizing Your Marketing Metrics for Success
Once you have locked in which marketing metrics provide the most useful insights on the impact of your initiatives, you can then better demonstrate the effectiveness of marketing and sales efforts to the business. This enables general managers to see the direct attribution of how marketing is impacting revenue, growth, and profitability. Teams can use these metrics to refine and improve their own marketing strategy, while business leaders can determine resource allocation and how to align marketing and sales to improve overall long-term operational success.
At Vencora, we understand that implementing a strong, effective marketing strategy and reporting on its success can be a challenging undertaking. Many software companies have fantastic solutions but may require more resources to scale up marketing, in order to get their product to the market at scale. You can learn more about how Vencora supports marketing here, and contact us today to learn more directly on how we can support your software business grow.
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