How to spot Fat/Bottlenecks with CAC:PB
How to spot Fat/Bottlenecks with CAC:PB
How an unblended CAC Payback helps you spot fat and bottlenecks in your engine
👋 Hey, Toni from Growblocks here! Welcome to another Revenue Letter! Every week, I share cases, personal stories and frameworks for GTM leaders and RevOps.
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Last week I talked about how to solve high CAC Payback on Dirk Sahlmer’s saas.wtf blog. You can read the entire article here.
As a quick recap, here’s the TLDR:
Everyone in SaaS is struggling as CAC Payback periods have gotten worse year-over-year.
Among other things, higher sales cycles and lower win rates are to blame.
A blended CAP:PB is useless because of Simpson’s paradox.
If you want to find actionable efficiencies, you need to unblend your CAC:PB by motion and segment.
As I wrote the article, I ended up glossing over some concepts for the sake of brevity. So with that in mind, I wanted to go a bit deeper this week.
So in this article, I’m going to talk about:
How to unblend your CAC:PB
The usual suspects of high CAC:PB (and what you can do about them)
Step-by-step guide to an unblended CAC Payback
Unblending your payback periods can get pretty complicated. If you want a quick guide, here’s a template spreadsheet to get you started.
In short, the first step is to distribute costs across different channels. The second part is about comparing the total cost of a channel with the revenue that it drives. This then gives you segmented CAC Payback.
The point of getting such a granular CAC Payback is that it gives you a better understanding of how each channel/segment/market is doing. This can then be the starting point for you to ask some pretty intelligent questions on how we can improve the efficiency of a specific channel, or to shift resources to better performing ones.
But in today’s part, instead of “slicing” the full funnel horizontally (by channel), we are going to look at it by each step.
Fundamentally, we are helping you ask the question if you are resourcing each part of your funnel correctly. If not, this gives you an opportunity to shift resources around and increase efficiency.
In general, this means do you have enough or too little “capacity.”
And we are splitting it in over-capacity (fat)
Or under-capacity (bottlenecks)
Signs you’re over-invested - fatty parts of your funnel
The classic: Too many AEs
One of the biggest mistakes everyone is making is hiring too many “Closer” roles, which Means Account Executives or AEs.
And this stems from a false belief that more closers = more closed businesses.
Instead, AEs are only “processing” Open Opps to Closed Won Opps. This means that their real limitation is “how many Opps can one AE process per Month?”
The simplest way to figure out if you are hitting this limit is to check your AE’s calendars. Are they mostly empty, or are they busy?
Once you know how many Opps one AE can process (and you should not rely on historical numbers here), you can figure out how many AEs you actually need.
Every additional resource should be moved to other parts of the funnel.
To either ease bottlenecks (section below) or to generate more inputs (CAC Part 1)
If you want to know more, we wrote an in-depth guide to capacity planning here.
Signs you’re under-invested - the bottlenecks
The forgotten child: Customer Success
Customer Success is (by default) almost always under-invested in. The reason is that you have a pretty strict benchmark around 80% Gross Margin. CS counts into that. And usually, this ends up allowing 10% of your revenue to be invested in CS.
While that makes sense in a spreadsheet, it might not actually work out in real life.
The real “bottom-up” way to figure this out is to map what a CSM needs to do over a year per customer and then see how many customers one CSM with vacation (it’s a European thing, fellas) and sick days can carry.
Then you get to the number of CSMs really quickly.
The question is now, do you have enough CSMs to actually service your customers?
And if not, what impact on the business does this have?
Well for one, CSM don’t have a massive impact on GRR.
But the main difference is that having CSMs drives upsell.
There is just one catch: For CSMs, the main value-adding tasks, like working on upsells, seem to be the last ones on their list, sometimes also because they are the least comfortable with them.
This means they will need to work through the bread-and-butter tasks like onboarding, adoption reports, contractual admin work, etc., first before they can set their mind to other tasks.
Ad-spend in a specific market
There is another classic under-investment issue. And you can bucket that also under “Sales & Marketing Alignment.”
But your super smart performance marketing guys will look at their dashboards and see that the CPL (Cost per Lead) is way up in one market and way down in another.
So what they will do is to shift budget from A to B. Overall that's great because now you get more leads for the same budget. Smart.
The big problem, though, is that these folks forgot that there are down-funnel resources like AEs, CSMs, and such who can’t just learn a new language and take those other leads.
So the overall funnel cost cannot be just moved to a better market.
Which means you are generating costs due to a bottleneck. In this case, your specific marketing budget is one slice of your revenue engine.
Finding and fixing problems in your GTM shouldn't take weeks. It should happen instantly.
That's why Growblocks built the first RevOps platform that shows you your entire funnel, split by motions, segments and more - so you can find problems, the root-cause and identify solutions fast, all in the same platform.
Book a demo to learn more, or email me directly, and I’ll walk you through it.