Go-to-market (GTM) metrics are a beast to be conquered by any business. They must be aligned upon, and ever present in the minds of everyone in your organization to successfully orient leaders and contributors in the same strategic direction. The process of centralizing your company’s focus around one set of numbers however, isn’t an easy one. It forces you to answer a handful of important questions: What do we care about as a business? Which calculations give us the best indication of the health and direction of our business? What is our north star, by both department and the business as a whole, and are we all in agreement?
While considering all the ins and outs of GTM metrics, another set of questions often creeps up, sometimes filled with doubts, uncertainties and frustrations. Questions like: Is our data sanitized and current in such a way that we believe in the accuracy of our calculations? Is it consistently dependable? Are there some datasets that are so hard to connect, export, import, and query, that it’s detracting from our ability and desire to consolidate it? Is what the data is telling us helping to inform our future behavior as a business?
In this piece we’ll be bringing some clarity to both sets of questions, giving you a glimpse at the important GTM metrics we believe should be focused on here at Mosaic, with some concrete answers on what these metrics are, how to calculate them, and why they’re so critical to the successful growth of your business.
The answer to this particular question is sometimes different from business to business, but there are also some universal truths that make GTM metrics such a pain for finance teams around the world.
Data from nearly every department and tool in your business has to come together to nail these numbers. That means standardizing these metrics and the data used as inputs to calculate them can be hard at best, and inconsistent at worst. And unfortunately, it’s often both.
Siloed data living in different departments and different tools means connecting the dots is often a manual process. To arrive at the numbers you need your business to rally around, finance teams are grabbing one number from here, adding it to another number from over there, dividing it by another number that had to be calculated over there... It’s a never ending puzzle, with many formulas and nuanced versions of these metrics, agreeing upon which one you’ll use and sticking to it can be a towering task.
Again, because it takes data from multiple places to calculate GTM metrics, and manual calculations are almost always necessary to do it, it means your GTM metrics as a whole only give you a look at one point in time. As soon as you calculate them they’re out of date. These metrics often look like a newspaper from last month, instead of a real-time stock ticker.
If your business’s GTM metrics really are your north star, shouldn’t they be easier to calculate on a monthly, weekly, or even daily basis? And if it’s what you’re steering much of your capital and human resources towards, shouldn’t you be absolutely certain those metrics are centralized, correct, and up-to-date at any and all times? At Mosaic, we think the answer to all these questions is a wholehearted, “Yes.” More on that later. But for now, let’s talk about which north star (or stars) are the essential seven your business should be focusing on for the greatest chance of success.
Of course every business is different, and the metrics you care about should be tailored to your growth stage, acquisition model, and industry. But there are still basic measurements that most businesses benefit from tracking towards and improving upon.
MRR and ARR are your Monthly Recurring Revenue and Annual Recurring Revenue.
MRR is the sum of all monthly revenue you earn from your customers regardless of the contract length. To calculate this, you’ll divide the total contract value by the total months of the contract for each customer. Sum the total to calculate your MRR total.
ARR is the sum of all revenue derived from customer contracts that are 12 or more months in duration and are active at the end of the period.
Annualized MRR is an ARR alternative calculated by taking your current MRR and multiplying it by 12, to push it out to a year. This method is more indicative of your annual run rate if you have contracts of various lengths, but can create choppiness in your metric over time if your shorter length contracts are not as predictable or one-time in nature.
MRR is essential to understanding momentum across your entire customer base. The number gives you short-term certainty into total monthly revenue, but doesn’t provide great long term visibility into how much of your revenue will reoccur next year. ARR is a better metric to help signal predictability in revenues that will appear again.
MRR and ARR are essential metrics in tracking product-market fit, knowing your short and long term momentum as a business, and understanding your trajectory of recurring revenue to know how and when you can invest in the business. MRR & ARR are point in time metrics so it's also helpful to understand how and why this metric changes over time (new business, customer churn, upgrades etc).
CAC stands for Customer Acquisition Cost. It’s the average amount of money you spend to acquire a new customer.
Add your entire acquisition specific costs (generally sales and marketing spend) for a time period, and then divide it by the number of new customers you acquired over the same period.
Tracking CAC helps you understand how scaleable your sales and marketing functions are at attracting new business. Sales must be generating enough income to cover the cost of attracting new customers. When CAC is placed against other metrics like Lifetime Value (LTV). The combination of the two metrics helps you know the solvency of your business, and whether you can afford to invest in acquiring more customers, or if you need to refine your acquisition methods to grow more efficiently, which brings us to our next metric.
Customer Lifetime Value (LTV) is the average amount of money you expect to receive from a customer over the life of their account.
The most basic LTV calculation is to take your average revenue per user per year (ARPU) multiplied by gross margin and divide by your churn rate.
Tracking the lifetime value that a customer provides over a relationship with you can help you understand whether or not you’re losing money acquiring customers, which is obviously an essential thing to know about your business. A CAC:LTV ratio of 3:1 is great goal, meaning the value of a customer should be three times more than the cost of acquiring them
The amount of time (generally in months) it takes your business to break even on a customer.
Add your Acquisition costs for a specific time period, and then divide that value by your net new MRR acquired multiplied by gross margin.
Your CAC Payback needs to be shorter than your LTV or you will never make money as a business. The faster you payback your acquisition costs, the faster you can get to profitability (or you can reinvest that customer profit in more growth).
Net Revenue Retention measures the total change in recurring revenue from your customers over a period of time.
Divide the current recurring revenue (MRR or ARR) for a cohort of customers by the recurring revenue for that same cohort of customers in a previous period (e.g. last month, last quarter, last year).
Net Revenue Retention is essential because it helps you know the growth trajectory for your business if you stopped adding new customers tomorrow. It’s a comprehensive metric that takes into account churn or downgrades (loss of customer value) and account expansion/upgrades (upsell to customer) to understand the health of your customers.
Magic Number isn’t necessarily all that magic, but it is a commonly used efficiency metric for the majority of software companies. At a base level it asks: “For every dollar you spend on Sales and Marketing, how many dollars worth of annual revenue do you create for your company?”
Current quarter ARR less prior quarter ARR divided by your prior quarter acquisition spend. (Note: This can also be calculated monthly or annually, depending on your normal sales cycle.)
Your Magic Number can help you understand how efficient your Sales and Marketing engines are in a specific time period, and tell you when to invest more or less in those engines. A number greater than 1 usually indicates you should invest more in acquisition however anything less than 0.5 and you may need to reassess your acquisition strategy.
Your Runway is the amount of time (in months) you have before running out your cash.
Divide your total cash by your company’s average monthly burn rate.
Alternative calculation - Divide your total cash by your company’s expected future monthly burn rate. The alternative is recommended if you have material changes expected in your business (future investing plans, upcoming lump payments for major software purchases, planned headcount hires, etc).
Runway is important because it can give you an idea of how long you have as a business to grow before needing to become more profitable or deliver another cash injection into the business.
Of course this isn’t the only list of business health metrics in the world. Searching for go-to-market metrics will get you lists of 5, 10, 22, or 30 and more metrics your business should be focusing on—all of these lists are both right and wrong in their own ways, just as this list is. But we’re of the mind that starting with your focus on these seven will have you well on your way to centralized business health data that steers your team onward and upward.
Mosaic connects your disparate data into one location and automates the calculation of metrics for you. Your acquisition costs may sit in your ERP and your customer data sits in your CRM. By connecting both your systems to Mosaic, you have go-to-market metrics at the click of a button without the pain and frustration of manually manipulating your data.
Mosaic has more than fifty pre-populated metrics your VCs and Investors care about (and you should too) directly into the app and can be accessed with a simple sync of your ERP, CRM, and HRIS softwares and analysis can be fully customized to your business.
Mosaic provides data integrity rails to ensure these metrics are always up to date and allow you to calculate them in real time from your underlying systems of records - let the data work for you instead of you having to work the data. Mosaic also alerts you if your data is inconsistent across systems (missing key fields, stale pipeline data etc.) with ability to fix directly in the software so you can feel confident that your metrics are accurate.
There’s no denying that executing on go-to-market metrics can be a complex and overwhelming undertaking. It’s a complicated exercise of deciding where to put your energy, and then getting the necessary data in place that will help you know whether or not your energy (and capital) are being well-spent. But of course, doing this exercise (and doing it regularly), is absolutely essential for the health of your business. A finance team and every business leader in the company needs to be in absolute walk-step when it comes to GTM metrics, to ensure that every single compass in the business is pointed in the right direction.
If your business is overwhelmed by the constant retroactive puzzle exercise that GTM metrics can be, have no fear: Mosaic is here. We understand both how essential these numbers are to you, and we know firsthand how frustrating it can be to collect and align these numbers on a regular cadence without a little (or a lot of) help. Aligning your business and thinking strategically about where you want to go based on sound and trustworthy data shouldn’t be nearly as taxing as it is. At Mosaic, we aim to fix that. Click Here for a demo of Mosaic to see just how easy metric tracking can be.