How to cascade revenue goals into achievable team metrics

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Most top-level company goals will include:

  • A line about revenue
  • A line about the number of customers
  • A line about product usage

It creates a simple North Star at the top, and teams are expected to cascade these targets into their own goals to show how they'll contribute. But, while it's relatively easy for a Sales team to align their objectives to the company revenue targets, it can be challenging for other functions to do the same.

A Product team could write that they want to bump MRR up by 25%, but they have a limited influence over that metric. On the other hand, they have much better control of their activation and retention rate. This might be something that they can focus on to help increase revenue – and we'll see how other teams can do the same.

What are revenue goals?

Revenue goals are specific financial targets a business aims to achieve within a particular time frame. You'll generally find revenue goals at the top of the company and in Sales teams, but many groups (and individuals) can have revenue targets assigned to them.

Setting revenue goals is a critical aspect of business planning, helping to guide strategies and tactics, motivate teams, and track progress. You'll need a deep understanding of your market and customer behaviours to set realistic and achievable goals. The more you know the levers impacting your customer journey, the easier it will be to drive growth.

Why cascading revenue goals is hard

If you tell your Head of Sales that MRR needs to grow by $100K, they will be able to quickly translate that into the number of SDRs, demos, and pipeline size they need to achieve that number.

But, if you go to your Design team and say the same, they might have a harder time knowing where to start.

All teams have an impact on the bottom line, but some groups have activities that highly correlate to revenue growth, while others have an indirect influence on it. This is why it's often hard during planning season to cascade down top-level sales targets into OKRs for the core functions of the org.

But that can be made easier if you break down your revenue formula into actionable metrics.

How to break down revenue into an actionable formula

We'll take here the example of a SaaS company that wants to increase MRR from $450k to $500k.

Step 1. Write down your revenue formula

The first thing to do is to identify the formula that drives MRR. We need to break it down into smaller parts that are easier to influence and control.

At a high level, you can write your revenue formula as follows:

MRR(m) = MRR(m-1) + New MRR

That is, MRR of the current month is the result of the MRR of the previous month plus the new revenue acquired.

But that's not quite right!

Churn is an inherent part of the lifecycle of companies. So our formula becomes:

MRR(m) = MRR(m-1) x Churn % + New MRR

Ok. Now it's starting to look like something that we can work on. But we can go one step further and break New MRR into smaller components.

New MRR = # of Leads x Trial Conversion % x ARPA

(where ARPA = Average Revenue Per Account)

And we can also break down the number of Leads by defining:

Leads = # of Visits x Signup %

So, now we have a complete formula:

MRR(m) = MRR(m-1) x Churn % + Visits x Signup % x Trial Conversion % x ARPA

We now have 5 variables that we can work with to impact our revenue goal.

  • Churn %: We can reduce the percentage of customers who cancel every month.
  • Visits: We can increase reach and attract a bigger audience
  • Signup %: We can optimise the website and marketing assets to increase the number of signups
  • Trial Conversion %: We can improve onboarding and features to convert more leads to paying customers
  • ARPA: We can add more valuable features or facilitate upgrades to sell more expensive subscriptions. 

Of course, not all levers will have the same weight. But that's something that you can figure out quickly with your team by modelling the impact of the different variables.

Step 2. Map levers to teams

The second step consists of mapping the revenue levers to the different teams in the org.

Marketing can work on increasing the number of visits, Product might focus on reducing churn, and Growth can run experiments to optimise conversions on your website. Rather than tackling a generic sales target, each group is now working on something they specialise in, with a clear understanding of how it will contribute to revenue.

Once again, I highly encourage you to build a simple model in a spreadsheet to play with the numbers. You will often be surprised by the impact a couple of percentage points can have on a 12-month run.

This is also a good time to audit your analytics capabilities. If you don't have a simple way to track key metrics such as churn or retention, then now is the time to prioritise your data pipeline.

Step 3. Align team OKRs with revenue goals

Visualising KRs alignment in the Cascading Map

When your teams have decided which success metrics to focus on, they can quickly turn these KPIs into OKRs and align with the top-level revenue goal. All you need to do is to use the following format:

Improve <metric> from <current value> to <new value>

This can be "Reduce customer churn rate from 10% to 5%" or "Increase weekly MQLs from 510/week to 715/week".

Once aligned, Tability's Cascading Map can help you visualise dependencies and get live updates on progress:

  • Leadership can track MRR progress at the top
  • Each team can focus on their strength and report on their respective levers

This approach is a simple way to create more engagement with the top-level company goals. Our Design team may not be sure about their direct contribution to MRR, but they will surely care about reducing churn or improving the AHA moment to get more trials.

Whats next?

Every business will have a different set of levers that they can use:

  • Network effects are essentials for companies like Zoom or Calendly
  • Average Order Value will be important for any e-commerce company
  • Unique listeners will matter a lot for a podcast business

You can find a list of 800+ KPIs and success metrics organised by function to inspire you, but it is important that you spend some time with your team to figure out which KPIs will have the strongest influence on your bottom line.

The more you understand your revenue formula, the easier it will be to create effective OKR plans that can provide value.

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Sten Pittet

Co-founder and CEO, Tability

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