How much revenue should I expect from my operations team? What metrics should I track?
As a company grows, its operations team has to become more efficient at managing its finances. This means measuring and tracking key performance indicators (KPIs) such as revenue, expenses, profit margins, etc.
As a leader, you need to ensure that your organization can effectively manage its financial resources. To achieve this goal, you need to develop a clear understanding of your KPIs. Once you have this information, you can then determine whether or not your current processes are effective enough to meet your goals.
In the article, we’ll discuss how to measure RevOps. We will also look at some of the most important KPIs for any business. Finally, we’ll show you how to calculate these KPIs.
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What Is RevOps? Revenue operations (RevOps) is a method to better align organizations based on strategy, process, workflow, data, analysis and technology. |
Top revenue operations metrics to track
1. Revenue
A revenue operation should track the amount of money the company is making. If you don't track your income, how do you even tell whether you're building a consistent revenue stream?
The first thing you need to know about tracking revenue is that it can be done in many ways. You might want to track the following:
- Total revenue (the total amount of money the company has made)
- Gross profit (total revenue minus cost of goods sold and other expenses)
- Net profit (gross profit minus operating costs)
- Profit margin (net profit divided by sales)
So far It's pretty straightforward. It's important to note that there are multiple ways to measure revenues for each type of business. For example:
- Typically, SaaS companies track their monthly or annual recurring revenue (ARR).
- It's more common for telecom companies to focus on average revenue per user than ARPU.
- For eCommerce companies, average revenue per user (ARPU) provides the best indication of revenue growth.
At this point, your focus is to define the revenue metrics that mean the most to your company.
If you have a big customer pool and high acquisition costs, then your best bet for growing your business might be increasing average items per transaction and ARPU. Maybe you haven't even scratched the surface of your potential customer base, so it might be better to focus on acquiring new customers instead.
2. Revenue Retention
Growth isn't just about the number of people who purchase your product; it's also about retaining them once they're using it.
After all, there is no point in acquiring lots of new customers if they stop paying after just one or two months.
There are two important revenue retention metrics for your RevOps teams to track:
Gross revenue retention
What it measures
The percentage of recurring revenues you retain each month after taking into consideration things like cancellations and downgradings. It doesn't count for expansion sales (such as upselling)
How to calculate
Take your total revenue (including upsells) and subtract any churn from downgrades, cancellations, and expirations. Divide by your starting amount and then times 100 to get a percentage figure.
Net revenue retention
What it measures
The percentage of recurring revenues retained by an organization over a given time frame, usually measured monthly or annually. Takes everything into account, including cancellations, downgrades, upgrades, and cross-sells.
How to calculate
Subtract lost revenue from total revenue, divide by your starting amount and multiply by 100 to get a percentage figure.
Understanding revenue retention allows you to measure everything about your sales and marketing processes, including:
- Are you targeting the right customers?
- Are you pitching your product in the right way?
- Are you onboarding new customers effectively?
- Are you adequately supporting customers when they encounter problems?
- Are you explaining new products and features in a way that resonates with your customers?
- Are you doing enough to identify potential upsells and cross-sells?
3. Customer Acquisition Cost
Customer Acquisition Cost, or CAC, measures how much an organization spends to acquire new customers.
Over the past few years, the cost of acquiring new business has increased by nearly 50% for B2B companies.
B2B companies often struggle to acquire new customers because of the challenge of knowing how much to spend on their advertising campaigns to attract the right audiences.
Companies fail to acquire potential new clients because they don't know their target market. By identifying the Customer Acquisition Costs (CAC) and then using them to calculate the average lifetime value (LTV) of each customer, revenue operations account for this by pinpointing the Customer Acquisition Costs (or CAC).
Once this number is achieved, the RevOps approach works to develop a strong marketing strategy with the help of the sales team.
This approach aims to align a business' channels, models, products, and markets to increase revenue and create added value throughout the customer journey.
Improving customer acquisition costs by 1% will lead to an increase in bottom-line revenues of 3.32%, while at the same time keeping the customer churn rate low.
4. Renewals, Upgrades, and Cross-Sells
Renewals, upgrades, and cross-sells are key components of the customer lifecycle. They can be used to improve customer satisfaction, reduce customer attrition, and boost overall profit margins.
However, many businesses overlook these opportunities because they focus only on the initial sale.
By focusing on renewals, upgrades, and crossells, you can significantly improve your customer's experience, which will ultimately result in more repeat purchases.
Most Apple users have renewed their subscriptions to Apple Music, upgraded their iPhones to the newest models, and bought new pairs of Apple earbuds with their upgrades.
These are examples of renewals, upgrades, and cross-sells.
You may not be aware that increasing customer retention by just 5% can result in an average profit boost of up to 90%.
Fortunately, because alignment between sales, marketing, and customer success is achieved, cross-channel communication ensures accurate reports on customers' activities, honest sales predictions, a better understanding of customers' acquisition, and improved service delivery.
Teams using a RevOps strategy can create lifetime value (LTV) by understanding their customers at every stage in the customer lifecycle.
The RevOps platform is designed to help companies identify functional ways to improve their service quality by using data that is available across the entire organization.
When people are happy with their products or services, they're more likely to continue using them, upgrade, or purchase more depending on the company’s product or services.
Anybody can throw bait at their clients and prospects, but it requires a real, effective strategy to convert them into lifelong customers.
5. Sales Pipeline Velocity
Wouldn't it be wonderful if every prospect who lands on your site buys from you right away? Unfortunately, that's not the case.
On average, the typical B2B sales cycle takes 84 days, but in certain industries, it may take up to 16 months. In a Gartner survey of more than 1120 technology managers level or higher, buyers revealed that buying groups spend more than 7-10 months making an IT purchase.
It doesn't take a genius to realize that the faster one converts potential customers into leads and leads into customers, the more likely they'll be to reach their business growth goals.
Sales pipeline velocity refers to the speed at which a company's sales teams close deals.
It's important to keep in mind that closing deals takes time, so if you want to achieve high sales pipeline velocities, you need to invest in sales training and coaching.
A good sales process helps salespeople become more efficient and productive.
6. Customer Churn Rate
As we've already discussed and highlighted the churn rate earlier when I covered Customer Acquisition Cost and revenue retention. Churn is important because it affects how much money you make per customer.
The churn rate is defined as the percentage of customers who cancel their subscription within a given period of time (e.g. 12 months) after signing up for the first time.
You may be doing a good job convincing potential buyers to purchase your products, but if they aren't sticking around long enough for you to get paid, then you're not doing enough.
It's a big problem because if you're paying too much for acquisition costs, then you won't be able to afford to pay for retention efforts. If you're spending $1,000 on signups, but none of them stay long enough to see any returns on their investments, you've got a challenge in your hands.
Churn rates vary from industry to industry. According to Zoho Recurly, an acceptable annual churn rate for SaaS companies is found to be in the range of 5 – 10%.
If you see a high level of churn among your customers, that indicates that your user experience for new signups or for current customers isn't good enough. Perhaps your team isn't effectively onboarding new customers or promoting important product features to existing customers who aren't satisfied.
Regardless of the situation, it's up to the RevOps team to figure out the problem and come up with solutions before it becomes an actual hindrance to your growth plan.
7. Conversion Rate
Conversion rates are the percentages of people who go through the sales funnel and become paying customers.
On the surface, that doesn't tell you much. Does it suggest that your sales team isn't doing its job? Is your presentation not good enough? Are your prices too high? Or perhaps all (or none) of these?
Revenue operations bring real value to your conversion rate tracking.
Understanding the bigger context across your entire organization helps you see where you're not converting enough leads into customers.
It not only helps salespeople be more effective, but it also allows marketers to talk to salespeople openly. Do you focus too much on generating lots of marketing-qualified leads at the expense of lead qualification? RevOps can find answers for you and help you solve your problem.
