Definitive guide to Revenue Architecture: Part 3 - Your model defines your motion
Definitive guide to Revenue Architecture: Part 3 - Your model defines your motion
What motions should you add when? Continue reading and find out.
👋 Hey, Toni from Growblocks here! Welcome to another Revenue Letter. Every week, I share cases, personal stories and frameworks for GTM leaders and RevOps.
This is the third part of a four-part series on revenue architecture. Through these posts, I’ll provide structured outlines, core frameworks, and models that will help you grow in today’s new SaaS environment.
Part 3: Your model defines your motion - This post
Don’t want to wait until the whole series is out? I’ve put together the entire first draft in one place. Get your copy here.
Over the last two posts, I’ve gone through the critical frameworks you need to know, and how you should break down metrics for a successful recurring business model. If you missed them, make sure you catch up on the links above.
Those last two chapters lead us to the big question I hear too often: How do we know we have GTM fit?
A question that is harder and harder to answer considering the state of SaaS today.
Are we losing go-to-market fit?
There’s a common problem in companies today, and it usually happens in 3 phases:
“This isn’t working, cut cut cut.”
“Phew, we got more cashflow “
“Oops, growth is down.”
Here’s the thing, looking at how several benchmarks are moving, it’s not pretty:
Growth is more expensive
Net-revenue-retention is down
YoY revenue growth is down
But hey, at least we’ve increased revenue per employee.
And the single most important metric to knowing if you’ve truly got go-to-market fit is increasing. And it shouldn’t. CAC:PB is up, and folks are scrambling to decrease it.
In an ideal world, GTM fit is a scalable source of new customers that you can acquire reliably and profitably.
In other words, CAC:PB <12 mo (yes the range differs with your ACV and in connection to that your Customer Lifetime).
But that’s not all. You also need your LTV (Lifetime Value) to exceed CAC.
In some way, you have to start with the customer and the product when considering how to sell. And whatever motion you choose, it has to fit with both.
The problem? Not only might your motions have lost go-to-market fit, but you might be matching the wrong motion with the wrong product to begin with.
You need to know a) how many customers you need to $100M and b) what motions fit your model and c) how many motions you really need.
How many customers do you really need?
“When a GTM motion aligns really well with the product, companies explode. ”
- Jacco van der Kooij
As Jacco pointed out, some companies lend themselves better to some motions. And there’s an underlying reason why, best portrayed by Christoph Janz’s visual below:
It’s given that a more complex product will have a narrower TAM but also can be sold at a higher price. Can PLG work? Sure. Will it be the top motion? Doubtful.
Obviously, the higher the ARPA (or LTV, ACV), the higher the CAC you can afford. And more importantly, if you’re going after mice, chances are you’ll experience higher churn vs enterprise.
As you’ll notice, revenue per customer defines how many customers you’ll need. And if you need a high volume, your approach will radically differ from say an enterprise only business.
That triggers the next question: Do you really know your ICP? Forget the motion for a second, and consider running a simple exercise:
Pull your ICP definition
Match it against your customer base
Split customers according to retention rate and expansion
Validate if your ICP is the best performing cohort
Knowing where you are on the chart and if you’re going after the right ICP is helpful, as it gives an idea of what motions to really bet on.
How many motions do you really need?
One. You really just need one to work, and it can carry you far.
Dave Boyce said it: “If I can get a single GTM to carry me to at least $10M in ARR (maybe more), and if I feel good about the stability of that GTM, (...) then maybe I can start working on a 2nd GTM.”
Don’t just take his and our word for it. Through our podcast, we learned that both Outreach and Paddle scaled past $50M ARR using outbound only, Synthesia a similar story - just using a mix of inbound/PLG.
And if you start looking around, you’ll find that companies such as HubSpot, Atlassian, Slack etc all started with one successful motion. We could keep going, but why not add more motions?
Maybe you can find one that’s better? It’s good to spread your risk, right? (this is so loaded right now, but you probably guess where we’re going with this)
Well, enter the power law of distribution.
When you add more motions to grow faster, businesses often see diminishing returns. Basically, the more you add, the less each one tends to add to your bottom line.
“The biggest cities dwarf all mere towns put together. And monopoly businesses capture more value than millions of undifferentiated competitors”
- Peter Thiel, Zero to one
So technically speaking, there’s a silver bullet. And technically, it means only investing in motions that have the potential to produce outsized gains (aka get you to $100M fast).
The thing is, you reach economies of scale on parts of your GTM which leads to improving metrics.
The team also doesn’t need to argue over which motion to put what resources into, HR doesn’t need to balance hiring for two different motions and so on.
In simple terms: You look to allocate your budget for next year, and someone asks the question: Why not just put everything into this thing here that is highly predictable and clearly works?
But.. There is a time when adding another motion makes sense.
When is it time to add another?
Before adding another motion, ask yourself this: What’s stopping your current motion from getting you past $100M? Are you really at the tail end of the s-curve?
For most of us, we still need to show rapid growth, and there are two ways within the context of motions:
Scale horizontally: Ie. add new motions to reach more buyers or a new ICP
Scale vertically: Spend more, enter a new market, expand usecase or increase price
PS: Don’t confuse this with a business model (eg. Yelp is restaurant reviews and therefore vertical).
So back to the question - when is it time to consider a new one? Well, as Manny Medina from Outreach said “when things are going well, that’s the time to worry”.
The thing is, any motion will follow the same path in the shape of an s-curve. The only factor of change is the % growth and the time at which the growth is achieved.
There’s a boot-up phase. There’s a phase of exponential growth as more resources are being added. There’s stable growth (aka the QoQ MRR the motion can add is maintaining its level) - and last there’s a plateau.
What you need to avoid as a business is “deceleration”. So once things are in balance and you’re at that feel-good moment (meaning you take in a healthy balance of net new ARR from existing vs new business), it’s time to start building.
And it’ll probably take a year to achieve GTM-fit with a new motion.
OK, but what are the motions and how do I pick one?
Before we get into what motions fit your model and evaluating current motions. Let’s quickly recap the most common motions out there.
According to GTM Partners, there are 6 distinct motions:
But the reality is, just within outbound you probably have 5 branches if not more; field sales, inside sales, low touch just to name a few. We could also debate whether events isn’t really just a part of inbound - but for now treat this as a source of inspiration.
A much more useful way to look at this, having GTM fit in mind is, you can’t do any motion for any ACV.
You simply can’t jet enterprise level reps to in-person meetings and close deals at $2K. Well you can, but you’ll run out of money. You need to match your motions with the ACVs that you have.
To determine what motions fit your business, consider these three factors:
The complexity of your product
The ACV and LTV
The efficiency of your GTM
First, if the product is difficult to understand (meaning people need to see it) and to implement - PLG will be very difficult (I just need to complete these 57 steps to get going? Signing up now!).
Second, you need to start figuring out how much you can spend to acquire a customer.
If you’re selling at a $10K ACV, churn is 15% and your gross margin is 85%, it means that you’ve got an LTV of $57K.
Usually you want to have a CAC to LTV ratio of 1:4, meaning you can spend 25% of your LTV on acquiring new customers. That translates into $14K.
It puts a natural ceiling to your CAC. And that’ll determine what motion you can run efficiently. With this number, you’re able to start running scenarios to test different cases.
An easy shorthand is the following list below:
Third, if you’re considering to add either of these motions, you need to factor in the efficiency of your bowtie (fx. Cycle length etc).
For example, if you somehow manage to book 20 meetings per month per SDR which convert 20% of the time. It might be ok to do outbound on a 5k ACV. Your motion is SO efficient, that it can carry a lower ACV.
Last part in picking a motion is considering the strategic implications. Not only will CAC and ACV be different, but you’ll need to balance resource allocation.
And see what happens when you add new motions:
Add PLG to Outbound: You’re selling at $5K MRR but PLG needs to be below $1K
Add Outbound to PLG: Kinda the inverse, but now you need to build functionality to justify a higher ACV
Add Outbound to Inbound: Will sales reps prefer inbound or outbound meetings?
Add Outbound to Partner: Are incentives fair? What are the rules of engagement?
Remember, your product and price heavily narrow which motion is right for you and your customer. And at some point, you have evaluate your different motions, so let’s cover that.
Evaluating your motion(s)
Most likely you’re already running 1 or 2 motions, but with everything that’s happened lately in SaaS, how do you truly know that they still fit?
If you’ve got a low ACV, it’s given you need a low CAC to achieve a sustainable payback period. On the opposite end, a high ACV can sustain a high CAC.
This is best portrayed using the age-old “SaaS graveyard”.
You definitely don’t want to be in the lower right. But here’s the thing.
We know that the cost of growth has increased rapidly in the last 24 months. As a result, most vendors have moved to the right on this chart.
Some will have gotten increasingly close to the graveyard, while others have been forced towards enterprise. And those in the graveyard? Well, they’re either dead or have been acquired.
Either way, there are three ways to move out of the graveyard:
Increase velocity (can you go for PLG and reduce time to value drastically?)
Increase price and lower CAC (can your product sustain a higher cost? Can you find a more efficient motion?)
Increase value then price (can you create a stronger impact for customers to move up market?)
An analysis I always like to run here is to split out each motion by market/segment or other relevant criteria to end up with a CAC:PB per motion. This makes it easier to spot where to divest/invest. I covered this in part 1.
These days it’s a good idea to consider the CAC:LTV ratio as well in the analysis, as churn/expansion can differ depending on the motion, market, segment and so on.
Putting it into practice
So if you’ve been following along with the series so far, you should have a deep understanding of how recurring revenue works, how to use metrics and assess your motions (or are on the way to).
So what do you do now? Put it to work.
In the next post, I’ll show you how to put all this knowledge into practice in your revenue engine.
PS: Enjoyed the series so far? Hit like & comment 👇