About this episode
Eddie Reynolds, founder and CEO of Union Square Consulting, breaks down why blended CAC payback metrics hide the real story of your go-to-market engine. Most companies measure CAC payback as a single aggregate number, obscuring the fact that one channel might be printing money while another burns cash. Reynolds explains why the 12-month payback threshold matters as a rule of thumb for healthy unit economics: if your payback period exceeds 12 months, you risk losing money on every customer acquired, since most SaaS contracts lock in revenue for only 12 months or less.
The core insight is that measuring CAC payback by channel and lead type reveals which high-performing areas deserve capital reallocation rather than fixing what's already broken. Most organizations reflexively focus resources on fixing underperforming channels or "squeaky wheels," even when the real ROI opportunity lies in doubling down on what works exceptionally well. Reynolds uses concrete examples—Facebook's legendary investment in the like button, Salesforce's SDR handoff process improvement, and the podcast channel itself—to illustrate how small optimizations to high-performing areas can create outsized returns.
The episode walks through the mechanics of calculating CAC payback for different segments (SMB, mid-market, enterprise), how to set up attribution and measurement systems without waiting for perfect data, and the practical decision framework for when to cut, optimize, or double down on a channel. Reynolds emphasizes that revenue operations teams should proactively hunt for these optimization opportunities instead of playing defense on problems that grab the most attention.
What we cover in this episode
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0:00
The Broken-vs-Working Problem Why go-to-market attention focuses on what's broken rather than optimizing what already works exceptionally well.
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2:11
Why CAC Payback By Channel Matters Blended CAC payback hides channel-level profitability, making it impossible to deploy capital objectively or identify which channels to double down on.
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4:30
The CAC Payback Formula Total sales and marketing spend divided by net new MRR multiplied by gross margin, explained with concrete numbers and why 12 months is the benchmark.
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7:53
What To Do When CAC Payback Exceeds 12 Months How to assess whether an 18-month payback is acceptable given retention, net revenue retention, and go-to-market efficiency metrics.
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12:27
Breaking Down Lead Buckets How to segment your data by channel, lead source, segment (SMB/enterprise), or geography to calculate CAC payback for each group.
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15:13
Systems and Processes Needed Attribution, lead tracking, cost allocation, and revenue measurement infrastructure required, without waiting for perfect data.
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25:25
The Dumpster Fire vs. Slot Machine Dilemma Decision framework for whether to fix an underperforming channel or reallocate resources to a high-performing channel that's already proven profitable.
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39:44
When To Cut vs. Double Down How to determine if a channel is worth optimizing before cutting, using Warren Buffett's principle and checking for obvious quick wins like speed-to-lead.
The lines worth sharing
one of the biggest problems in go-to-market is the attention tends to focus on the thing that's broken and not working.
Eddie Reynolds · 0:00
If we're looking at CAC payback, we're looking at how much are we spending on all go-to-market and how much does total ARR grow.
Eddie Reynolds · 7:53
if our CAC Payback is more than 12 months, then we're losing money. Every single customer where it takes us 13 months to earn back our money, and we lose them in 12 months, we're losing money.
Eddie Reynolds · 7:53
Do you make more money putting out the dumpster fire or going over and pulling the slot machine where every time you pull the lever, you hit three bars?
Eddie Reynolds · 25:25
Common questions from this episode
Why is 12-month CAC payback important for SaaS companies?
The 12-month threshold aligns with typical contract lock-in periods. If payback exceeds 12 months but customers churn after 12 months, you lose money on acquisition. It's a rule of thumb for healthy unit economics, though strong net revenue retention can justify longer payback periods.
What's wrong with using blended CAC payback as a single metric?
Blended CAC payback hides channel-level profitability. One channel may have a 6-month payback while another is 24 months, but blending them obscures both. This prevents you from deploying capital to high-performers or cutting underperformers objectively.
How do I calculate CAC payback by channel if I don't have perfect attribution data?
Start with the data you have, including gut feel and gut-level hypotheses. Use last-touch attribution as a baseline. Measure sales and marketing costs per channel and attribute revenue back to the lead source. Imperfect but actionable data beats waiting for perfect data.
When should I double down on a high-performing channel versus fix a broken one?
First check if quick wins exist, like improving speed-to-lead or process adoption. If a channel is already working well at scale, a 1% improvement can generate massive returns. Use Warren Buffett's principle: you don't need perfect data to know something is underperforming if it clearly is.
What happens if I double down on a working channel but run out of capacity?
Doubling down requires sufficient SDR, AE, and customer success capacity to execute. Map leads through the funnel to forecast headcount needs. Without capacity, you'll create revenue leakage and unhealthy CAC payback despite strong channel performance.
How do I decide which segments or channels to analyze for CAC payback?
Start with your existing hypotheses and data. Analyze segments you suspect are high-performing or broken (SMB vs. enterprise, geography, product line). Use inbound feedback and operational gut feel to guide which buckets to prioritize analyzing first.
SEO meta description
Eddie Reynolds on measuring CAC payback by channel: why blended metrics hide what's working, how to calculate by segment, and when to double down vs. cut.
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Read the full transcript · 74 KB
EDDIE REYNOLDSone of the biggest problems in go-to-market is the attention tends to focus on the thing that's broken and not working. Whereas like, I'll give you a good example. Let's say that you have like this incredible lead gen engine and you're just printing money hand over fist. Oftentimes what that means is nobody's looking to see that like the follow-up is broken and that you could be converting even more leads and closing even more deals. So this is working, but like, what if we followed up 12 times instead of four times? What if our speed to lead was five minutes instead of a half an hour? But a lot of times people don't look at that because it's healthy and the attention goes to the squeaky wheel. The attention goes to the thing that's broken. Welcome to go-to-market science. There's an art and there's a science to go-to-market. And in this podcast, we talk about the science by interviewing CROs, private equity investors, and other sales and marketing experts, as well as talking about what we learn every day in the trenches, helping to build go-to-market engines.
RACHAEL BUECKERTMy name is Rachel Buchert. I'm the marketing manager here at Union Square Consulting. And with me is Eddie Reynolds, our founder and CEO. Hey, Eddie.
EDDIE REYNOLDSOh my God, Rachel, that intro is getting crisp. Is it? Nice. It's so funny because I think when I asked you to do this, you were a little nervous, which is ironic because you've literally been on TV shows before, right? Yeah. You're on a TV show.
RACHAEL BUECKERTYeah. It's a little factoid, I guess. Yeah.
EDDIE REYNOLDSA little factoid. Trivia. But you were like all nervous about it and now you're crushing it. Thanks. It's been amazing to see how quickly you've ramped up on this, but hey, you've been on TV. I haven't. So like, I'm at your mercy here.
RACHAEL BUECKERTIt's a lot different doing like a scripted thing and doing like a podcast where you're just kind of off the cuff. I can't imagine doing a scripted thing. Like I've tried to do videos where I write a script
EDDIE REYNOLDSand like I can barely get one sentence out without screwing it up. I don't understand it.
SPEAKER_13Oh, it's so much easier for me. You can practice it and everything.
EDDIE REYNOLDSBut anyway.
SPEAKER_13Yeah. That's not the topic that we're here to discuss today. Today, we are talking about how
RACHAEL BUECKERTto measure CAC payback by lead type and channel. So to start us off, Eddie, what inspired this topic for you?
EDDIE REYNOLDSYeah. Thanks for bringing that up. I was like, oh, we're going to lose our audience going down this rabbit hole here. What inspired me to talk about CAC payback by channel? I think it's a simple answer. CAC payback is one of the most critical metrics in go-to-market. It measures how long it takes us to get a payback on our sales and marketing expense from the sales that we have via the gross margin that we make on those sales. This is obviously a really powerful metric. I actually don't love the way CAC payback is measured. I shouldn't say I don't love the way it's measured. I don't love like the way it's presented. I love the concept behind it. But what I don't love is that it blends everything together. We've talked about the unblended funnel and past content. And we have this rubric for CAC payback to say, well, if we get our all of our money back in less than a year, then we've got this really healthy go-to-market engine, at least as it pertains to new business. It doesn't really help us in thinking about net revenue retention or the cost to serve
EDDIE REYNOLDSour customers. Although it does in the sense that there's a gross margin in there. But what if one channel is like performing really well and another is not like we can see conversion rates and close
EDDIE REYNOLDSrates and sales cycles and all these different things in our just straightforward go-to-market metrics. But, you know, if somebody says, oh, my close rate's only like 12%, I'm like, well, that's really below benchmarks. But if your CAC payback is like six months, who cares? I mean, if you can improve it, that's great. But if you have a really profitable go-to-market motion, then you have the ability to go raise more capital and pour more capital into it unless you're selling into a market that's restricted in size. And I just think it's an incredibly powerful way to look at go-to-market objectively to just ask, like, can we deploy more capital and resources to this thing because it's working really well or is it broken? And I can't really answer that question without understanding the actual financials behind this. Like, I don't care what the MQL conversion rate is or the sales cycle or the close rate is. If I don't understand the financial impact, I'm missing a critical element of that perspective.
RACHAEL BUECKERTMm-hmm. And you mentioned six months. I know in the newsletter that we wrote that talks about this
RACHAEL BUECKERTsubject, we're talking about like a 12-month mark being kind of like a key threshold. Can you explain that a little more? Why do we look at 12 months?
EDDIE REYNOLDSYeah, absolutely. And I was just throwing out six months as an example of something that's performing incredibly well. I think the thought process is, so let's really think about like what the formula is for CAC Payback. And let's break down like why investors especially tend to look at 12 months as sort of this like rule of thumb of being a benchmark for good versus bad. CAC Payback measures your total sales and marketing expenses for the year divided by your net new MRR multiplied by your gross margin. Or another way to say that is, is like, how much do we spend in a year on sales and marketing? And how much are we earning in monthly gross margin, right? So if let's say we enter 2026, and let's say that we're a hundred million dollar company and we budget $40 million to sales and marketing, that would be like an average investment in sales and marketing for a high growth B2B SaaS company. All right. So we're spending $40 million. And over the course of that year, we generate $50 million in new business. Our gross margin percentage is 80%. So the gross margin that we get on that 50 million, is $40 million. And that's on an annual basis. So I kind of screwed this up. On a monthly basis, it's one 12th of that, right? So whatever 40 million divided by 12 is, let's call it a three point something million dollars. Well, that means that our CAC Payback is 12 months, right? Like in a year, however much we've spent on sales and marketing, we're generating that much in essentially ARR. But if we measure this in terms of MRR, the only way that we actually get a payback is if we retain our customers for a full 12 months. So what if we have a company that has the ability to cancel contracts on a month to month basis? What if it's quarter over quarter? What if it's annual? Could be multi-year contracts. But most of the time for most revenue, especially for most software companies that aren't Salesforce, their revenue is maybe at best locked in for a year. If that customer churns after a year, and our CAC Payback is more than 12 months, then we're losing money. Every single customer where it takes us 13 months to earn back our money, and we lose them in 12 months, we're losing money. We're spending money just to lose a customer. And that doesn't include all the other costs of the business, right? Like we're just purely looking at this as the sales and marketing costs to land a new customer versus what we get back in direct gross margin from that
EDDIE REYNOLDScustomer. It doesn't include all the R&D that went into the product. It doesn't include all of the overhead of the business, et cetera, et cetera. So like we're losing money hand over fist like that.
EDDIE REYNOLDSI think a lot of times we talk about unit economics. This is a unit economic here. If we are spending more money to acquire a customer than we are earning off of them in just gross margin, let alone all the other stuff, then that is a really unhealthy business. Now on the flip side, this is just a rule of thumb. If we have a company where the net revenue retention is really strong and the average customer sticks around for 10 years, Salesforce is a good example of this. They have very low churn. The average customer is doubling their spend in the first 12 months, or at least they were when I worked there. I know Salesforce hasn't been performing as well as of late. Then you might be able to afford to spend a little bit more to acquire customers. But as a general rule of thumb, it's really nice if you can earn your money back within the first 12 months of that contract.
SPEAKER_36What should we do if CAC payback is over a year? I'm always hesitant to try to benchmark against other companies because any one company is unique and
EDDIE REYNOLDSdifferent. You have a unique product, you're selling to a unique market, you have unique dynamics, you're
EDDIE REYNOLDSimpacted by the economy in a unique way. And so if you have a CAC payback that's 18 months, it's not necessarily a bad thing. Like I said, if you have incredibly strong net revenue retention, if you have the ability to raise a lot of capital, like maybe it's only 18 months now, there's some other factor at play. But when we benchmark against ourselves, if we can take the CAC payback from 18 months to 12 months, that's going to have a massive impact on the business. I think it's just a rule of thumb to say, if this company has a CAC payback of less than 12 months, then maybe they have a really healthy go to
EDDIE REYNOLDSmarket, at least as it pertains to new business acquisition. Okay. So there's like other calculations you'd need to do, like what is your retention rate
RACHAEL BUECKERTto actually see if that is a healthy CAC payback for your specific business?
EDDIE REYNOLDSYeah. I mean, we've talked a bit about, I think it's David Spitz that came out with the go-to-market efficiency ratio, which is a similar concept, but it tries to take into account all of
EDDIE REYNOLDSthe revenue that you're earning and all of the go-to-market costs. So instead of looking at CAC payback, you're looking at how much are we spending on all go-to-market and how much does total error grow, which would be a combination of new business and net revenue retention. That'd be another way that I might look at this. So if you say, oh, our CAC payback is 18 months, but our go-to-market efficiency ratio is really healthy. I would say that's great. We also like took it a step further and said, well, if we're going to look at go-to-market efficiency across the entire go-to-market, why don't we look at go-to-market efficiency margin? Because again, if we're benchmarking and David has put out benchmark reports on this that I think are really interesting. If we're looking at that number, like we should be comparing apples to apples and look at the gross margin being earned by one company to another. So if your company has a higher go-to-market efficiency ratio than mine, but my gross margin is 80% and yours is 70%, then that could really tip the scales in the other direction. I want to be careful not to get too far down a rabbit hole, but these are just rules of thumb, you know, rule of 40, as well as another thing that we look at with companies are like, we have a whole like metrics framework where we kind of break this stuff down. And I don't think there's any one metric that is like the end all be all definition of a healthy business or a healthy go-to-market. But these are rules of thumb that we might look at and say, well, wow, you know, we were at 18 months CAC payback. We might want to think about how to improve this.
RACHAEL BUECKERTLet's get back to the meat of the topic. What's the biggest issue with CAC payback and calculating it?
EDDIE REYNOLDSWell, as we were mentioning earlier, it's about blending it all together, right? So you're going to have a unique cost to acquire a customer through each individual channel, each lead source,
EDDIE REYNOLDSeach segment of your business, SMB, mid-market, enterprise, international, et cetera. And if you
EDDIE REYNOLDShave different costs going into those things, and you have different outputs in terms of revenue and gross margin coming out of those efforts, and you just blend it all together into one CAC payback number, and then you say, oh my God, we're at 18 months. This is really bad. That's only so helpful. You then go and look and say, okay, well, what's happening with all the leads from this podcast? What's the conversion rate on leads? It's the lowest conversion rate on this podcast ever across all of our go-to-market channels. Is that good or bad? I don't know. It depends on what revenue it produces. So if you say, well, the conversion rate is really, really low, but we don't actually spend that much money on this podcast to begin with. It doesn't take that much effort of ours. And then we have a very large average deal size coming out on the other end. And then we look at the CAC payback for the podcast itself. And then we think, oh, wow, this is actually a really healthy channel. Even if maybe the conversion rate, for example, isn't as high. I think it gives you the ability to look objectively at this and say, okay, why do I care what the conversion rate is for a particular lead source or lead channel if it's generating me more money? If it's profitable to do that, if my CAC payback is six months, eight months, despite that low conversion rate, because of other factors, because we're not spending that much to get the
EDDIE REYNOLDSlead in the first place, or because the average deal size is so high, or because the close rate is really high. And looking at CAC payback, kind of, at least in terms of new business, puts it all together. What's our first step in breaking down these lead buckets to better calculate our CAC
RACHAEL BUECKERTpayback and figure this out? I think first, before we break this down into any kind of a bucket,
EDDIE REYNOLDSand I'll use bucket in a very general sense, a bucket could be a channel, could be a specific lead source. It could be a segment like SMB mid-market enterprise. It could be a geography. It could be a particular product. There's an infinite number of ways to slice and dice our data into different buckets, as we've talked about on previous podcasts. Before we can even think about doing that, we have to be able to measure it. So, if you say, I want to look at all of like, I want to break down tech versus professional services and see what our CAC payback is like. Well, okay. Question number one, do we have an ability to measure sales and marketing costs in a different way for that industry versus the other industry? If we don't, like we just have all of our sales and marketing costs blended together. Well, okay, that's going to be difficult. Do we have the ability to like objectively measure the output in terms of revenue? Well, if we have data in our CRM to show all the deals that we've worked on and what industry they're in, then we could look at, especially our existing customers, we could look at like, what is the average customer worth? What's the average sale price, et cetera. We could objectively look at that even if we have sort of like blended metrics on the sales and marketing side. But the more that we can measure uniquely and differently, these buckets, the more that we can garner real insights, right? And so this goes back into things like attribution. As imperfect a science as it is, if we want to measure our CAC payback on a particular channel, then we need to know like, where did all these leads come from? Did it come from this channel or that channel? How much revenue are we producing? How much gross margin are we producing? How much money did we spend on marketing into each channel? And then it might be a little bit more difficult to, you know, measure the sales efforts. Maybe we take our entire SDR team that follows up with inbound leads and divide by the total number of leads, but that would give us a fairly objective view of the CAC payback for each channel, assuming that we have some lead attribution that we kind of sort of trust. Now we could look at that and we could say, oh, wow. Like, so this podcast has like an incredible CAC payback. What would happen if we doubled down on this and we produced more podcasts? Whereas this other channel, let's say like Google ads, when we look at that on its own, we're finding like we're spending a lot of money to acquire these customers. And maybe it's an unsustainable
EDDIE REYNOLDSamount of money.
RACHAEL BUECKERTAnd I'm guessing like, what kind of systems do we need to have in place and processes to make sure that we're actually collecting all of this information that we need to do this from the start? Because I imagine like a lot of people listening to this might be wondering like, oh man, I don't know if I even have that data to really look into this. We just had a call with the CEO of one of our larger customers, $500 million company, not the
EDDIE REYNOLDSlargest customer, but on the larger side. And he was sharing the same exact issue. Like he wants visibility
EDDIE REYNOLDSacross the entire organization, which in this case is a collection of multiple companies that have been acquired that'll have different definitions, different processes, et cetera. It's a huge lift. But what I would say is you have to pinpoint the thing that you want to try to solve for first. So every single organization I've ever worked with, including Salesforce, which I see as Salesforce as being one of like the most cutting edge, bleeding edge companies I've worked with in terms of their revenue operations and their data, they had lots of things that were imperfect. You've got to go in and sort of fix things one at a time as it pertains to the priority that's going to drive revenue for the organization the most. So for example, if you say, okay, we're spending $20 million a year on all these different marketing channels, and we can't make heads or tail of what's working and what's not. And we think that if we spend more money on marketing, we could generate a lot more revenue. But we think that if we spent more money on marketing in the right areas, we could generate way more money than that. Okay. That seems like a decent hypothesis. Well, what does our attribution look
EDDIE REYNOLDSlike? Oh, it's really a mess. We've got to go in and fix that. And I think a lot of organizations just end up defaulting to last touch. Okay. So we do some updates to the technology. We land on last
EDDIE REYNOLDStouch. And now as imperfect as it is, we've got our attribution. And now we say, okay, let's try to find a way to measure the CAC payback on each of the marketing channels that we have. Now we discover the scenario that we shared earlier, which is that we've got certain channels that are incredibly profitable and others that are incredibly unprofitable or unsustainable. And we say, okay, let's look at that. Is there something we can do to optimize this channel such that it might be very unprofitable and unsustainable right now, but if we fix these things, it won't be. Or do we just cut back investment on that channel? Do we double down investment in another area? We have finite number of people. We have a finite amount of money. What decisions do we make with the money and resources that we have? That's a lot of work to go in and say, okay, we've got to clean up all this data. We've got
EDDIE REYNOLDSto run this analysis. We have to slice and dice it by channel, et cetera, et cetera. You're doing that because the hypothesis is that I'm going to get a huge return off of that effort by identifying an efficiency that I can double down on or an inefficiency that I can cut back on. And you've got to start with
EDDIE REYNOLDSthat hypothesis. What you don't do is say, we need to get every single thing in our marketing
EDDIE REYNOLDSautomation tool and our Salesforce and all the other tools perfect so we can have the perfect data so that we can then start to ask those questions because you'll never, ever get there.
RACHAEL BUECKERTYeah, that's fair. So when we're trying to choose like which categories we want to maybe divide these buckets into, what are the most important factors to consider to ensure that the analysis is meaningful?
EDDIE REYNOLDSWell, I think you start with the data that you have, right? Sometimes people call this gut feel, and I think of gut feel as being literally just analyzing the data that's kind of rolling around in your own head, but there is data there, right? So like a lot of times you make a gut level decision because you've seen something with your own eyes multiple times. That's a data point, right? So you think about like what data do we have in the organization, whether it's sort of gut feel or whether it's hard data we can pull out of our CRM to indicate that there might be an opportunity or a
EDDIE REYNOLDSproblem somewhere. It's incredibly rare. I can't really ever think of an instance where I talk to a revenue leader that doesn't already have some kind of hypothesis, whether it came from like actual data in Salesforce or their gut feel and like this thing feels like it's working well or it's not working well. Why do we continue to invest in this podcast? We don't have a mountain of data. We can
EDDIE REYNOLDSsee some like, you know, downloads and other things like that. But part of the reason is because like we keep having people reach out to us and tell us, hey, I'm reaching out to you because I listened to your podcast and I found it valuable. Well, I go, wow. And not just any people, but people that become customers and key partners and private equity and venture capital firms that want to partner with us that are like, hey, I'm listening to your podcast. That might not be the most robust data set in the world, but that's incredibly valuable data. And so the hypothesis there is, wow, if we were to invest
EDDIE REYNOLDSmore time, energy and money into the podcast, we might generate more revenue off of it. Now we can validate
EDDIE REYNOLDSthat by looking at, well, what are we spending on the podcast, which is virtually nothing except your time and mine. And what do we have coming out of the podcast, which is quite a substantial amount of revenue at this point. For us, like I don't even really need to do any like difficult math to see that like our CAC payback, so to speak, is extremely strong in that regard. But as like a business scale, like we're a small business, so it's a really bad example for a company doing two, three, $400 million of revenue, you have a lot of investment going into these areas. And hopefully, you have a lot of revenue coming out of them. And it's hard to make heads or tails without doing this analysis. So if we're
EDDIE REYNOLDSthinking like, we want to restructure where we're spending time and money and resources, this is one way to
EDDIE REYNOLDSlook at this and say, how sustainable is each bucket from a CAC payback perspective? If we think, oh, wow, our SMB team seems to like really be struggling in comparison to mid-market and enterprise. And maybe it's not a particular lead channel. Maybe like we have a problem with product market fit in SMB, or a probably more accurate example would be an enterprise instead of SMB. And we could look at what does it cost us to acquire an enterprise customer? And what are we getting in return for that? Obviously, an enterprise customer is going to be massively more valuable than an SMB customer. It's also massively more expensive to acquire that customer. So it's going to be hard for us to look at close rates and sales
EDDIE REYNOLDScycles and conversion rates objectively from SMB to enterprise. But what we can look at objectively is how much do we have to spend to earn a dollar of revenue or a dollar of gross margin from these particular customers? And if we're looking at enterprise and we're finding, oh, wow, our CAC payback is two years, we have to ask ourselves, why are we continuing to invest in this? Is this because we
EDDIE REYNOLDSexpect that something will happen where our go-to-market to enterprise customers will be more efficient such that we eventually get to a healthy CAC payback? Or is it that something much more fundamental is broken and we should actually pull back on that motion or rethink the investment that
EDDIE REYNOLDSwe're making? Again, we have a finite amount of capital. We have a finite number of resources. We have a finite amount of time and attention span. We need to be careful about where we're putting
EDDIE REYNOLDSthose resources. And by looking at the actual CAC payback, we can have a more objective view on where those resources are best spent or best invested.
RACHAEL BUECKERTSo when you've defined which buckets we want to look at, lead type, SMB or enterprise, that kind of thing, is there a specific way we need to measure CAC for each? Because I'm guessing some are going to be easier to find the CAC for than others, right?
EDDIE REYNOLDSYeah, absolutely. I don't want to get too far down the rabbit hole on like how finance calculates things, right? Ultimately, it comes down to like, do you have the data? And I also don't think you necessarily need perfect data. You can really split hairs on things. Like let's use this podcast that we're on as an example. How much does it cost us to produce a podcast? I would have to take the total amount of money that I pay you, plus all of your overhead, plus that microphone that I gave to you and everything. And then I'd have to divide that by the amount of time you spend on the podcast versus all other activities. That is going to be an imperfect science. But if I just say, oh, you spend 20% of your time and I take the total cost, it's going to be close enough to the pin. I'd have to do the same thing with my own time. And then I'd have to find a way to value my time, which would be very subjective, right? And then we can look at like the hard costs that we spend on our, uh, the agency we hire to edit our podcasts. But the question though, is like, how valuable is that? Right. We also have to look at the revenue that's coming out of that. So this comes into an attribution issue. We can look at all the customers that we've, we've landed over whatever period of time we want to measure. We could look at the gross margin that we've earned off of those customers. And then we could do the math. I think that in the case of our podcast, as an example, like we have very low costs and very high revenue being produced from this, this podcast. So it's pretty obvious that we should double down. And that's really all I need to know. We've never actually calculated CAC payback for this, this channel because it's just like abundantly obvious. Now, if I were to go and say, Hey, like, let me just go pour. And by the way, as we're talking about this, I'm like, why don't I do this? Why don't I pour another like a hundred or $200,000 into this podcast? What if we did that? It actually begs a really interesting question. I'm sitting here telling you in our audience that we have such an incredibly healthy CAC payback
EDDIE REYNOLDSon this podcast. And yet our major bottleneck is that you and I only have so much time. So we went and hired a podcast agency to help edit podcasts, but that costs us like very little money. We're spending 1500 bucks a month on that. And then I'm like, well, okay, it does beg the question, what would we do if we could spend a hundred or 200 grand a year on podcasting? I'm literally thinking about that right now as we discuss it, because that CAC payback is so healthy. It really begs the question, like, why am I not investing more in this?
SPEAKER_49Yeah. Either in marketing the podcast or more production value from it or
RACHAEL BUECKERTadvertising it in different podcasts. Yeah. There's a lot of different avenues.
EDDIE REYNOLDSI mean, and even just like in an overly simplistic example, like one thing that we've done to grow the podcast is just producing more podcasts. Like our, our, our listenership, whatever the right word has gone up dramatically since we started producing like really consistently every week. Right.
RACHAEL BUECKERTYep. It's not rocket science. Right. Yeah. So it goes back to the whole eating your own dog food thing. Yeah. Which we try to do. Well, and I think like as much as it's sometimes embarrassing to like
EDDIE REYNOLDSopen the kimono and say, Hey guys, like we, we see all these things that you should be doing as a revenue organization. And Oh, by the way, like we're not perfect and we don't do these things perfectly. No organization is right. But these are valuable questions to be asking. And I think that, you know, when things are going really well, the problem is, is people tend to want to ask hard questions about things only when they're not working well. Like we were just on this call and this particular customer, uh, that we were talking to has grown through multiple acquisitions. Right. And as the CEO is explaining it to us, they've got two thirds of their business that is like probably pretty healthy from a rev ops perspective. And another third of their business that at least according to his view is far less healthy. And we've been like working specific on the less healthy part. Fine. I mean, that makes sense. And the question was, is like, should we expand our, our scope to, to try to work across the entire organization, which obviously we would love to do. And then we were having like a little internal discussion after the fact. And one of the consultants on the team was like, well, you know, like the reason I've been so focused on this business is because it's where things are most broken. But I asked the question, I'm like, do you make more money putting out the dumpster fire or going over and pulling the slob machine where every time you pull the lever, you hit three bars? I don't think, and I'm trying to be cute here. Like,
EDDIE REYNOLDSI don't think there's always like a clear answer to that, but like, there's a lot of money to be
EDDIE REYNOLDSmade fixing problems. There's also a lot of money to be made just doubling down on things that are working really well. I'll think of like a really weird example here. I don't know why this strikes me,
EDDIE REYNOLDSbut like, I remember hearing this discussion about how much money and time Facebook spent on trying to perfect the like button. Now think about any other business that if somebody came to
EDDIE REYNOLDSyou and said, let's say that you're running marketing, Rachel, and someone works for you and they say, Hey, Rachel, I just spent a hundred million dollars trying to get the perfect like button. Like you'd have a heart attack, right? Yeah. But then you think about Facebook and you think about that button being clicked like 2 billion times. And you think about what is the ROI on that? And by the way, like I saw this like 15 years ago, like this is a long time ago that I saw this and you think, okay. And I don't know that they spent a hundred million dollars, but they spent a lot of time and money on it. And you think like, okay, yeah, this button gets clicked 3 billion times. This is going to have a massive impact for Facebook. So you're going to treat that differently than any other company would treat a button on their website because the ROI is so high from just like that
EDDIE REYNOLDSincremental, like 1%, like 0.01% improvement. I mean, what is 0.01% of 3 billion?
EDDIE REYNOLDSRight. It's a large number. Yeah. They had to choose to focus on that specifically because they
RACHAEL BUECKERThad the data to back it up, that this was a worthwhile endeavor, that people being able to like things is like a very important psychological trigger in their minds that keeps them engaged on the site and, you know, makes them want to keep using the site and stuff like that. So it wasn't just like a flippant decision on their part. It reminds me of in, what was it? 2009 or something, the Pepsi logo, they changed their Pepsi logo and it's just a very slight different curve of the white band in the middle. I went down this rabbit hole recently about like the millions of dollars they spent on changing this logo and the design brief that they got from the branding company having like talking about like the electromagnetic forces of the sun and the earth and the curvature of all these different things needing to connect to the curve of the white band and the logo to, you know, it's quite the rabbit hole, but like something like that, I mean, I don't know who made the decision to like choose to that the logo was that important to spend that much money on it, but I
RACHAEL BUECKERTdoubt it was backed by very much data or maybe it was, I have no idea. I'm not part of that marketing team. So who knows? I think that there's a subjective component to this and bringing it back to our
EDDIE REYNOLDSconversation. There's always going to be a subjective component to this. Like, do I have perfect data to make the decision that if we produce two podcasts a week instead of one that we're going to double or
EDDIE REYNOLDSincrease revenue by 50% or whatever? I don't know that. I have no crystal ball to answer that question. But when you look at these examples of Pepsi's logo or Facebook's like button, what you have that's
EDDIE REYNOLDSobjective is you have a foundation of something that is a working really well and be working really well at a large scale, right? So this is not the same as a, as a tiny startup saying like, we think we want to go enterprise and we're going to hire one enterprise account executive. We're talking about a company with, let's say $500 million of revenue. And you say, okay, our main motion, let's just say like the S and B business is $300 million as an example. And you say, okay, well, if I can improve, if I can improve something in that, in that by 1%, that's $3 million right there. Is that worth
EDDIE REYNOLDSspending a hundred thousand dollars of like man hours to like try to fix? Yeah, probably that's a 30X return. Like, I think that's a pretty healthy thing. Now there might be something else that is
EDDIE REYNOLDSlike a $5 million boost that you could have spent that limited time and resources on. But the point is, is like from a purely objective perspective, we can look at this and say like, oh, wow, this thing is working really well. Why don't we double down on it? But I think like one of the biggest problems in go-to-market is the attention tends to focus on the thing that's broken and not working. Whereas
EDDIE REYNOLDSlike, I'll give you a good example. Let's say that you have like this incredible lead gen engine and you're just printing money hand over fist. Oftentimes what that means is nobody's looking to see that like the follow-up is broken and that you could be converting even more leads and closing even more deals. Like reps aren't always following up in time. The speed to lead isn't great. Like they don't always follow up 12 times. They give up after like three or four attempts. And you look at that and you go, okay, so this is working. But like, what if we followed up 12 times instead of four times? What if our speed to lead was five minutes instead of a half an hour? But a lot of times people don't look at that because it's healthy and the attention goes to the squeaky wheel. The attention goes to the thing that's broken.
RACHAEL BUECKERTYeah. So to bring us just a little bit closer back to the sections that we have in the newsletter and going through this CAC payback stuff, measuring MRR and gross margin. I'm not sure if we went over
RACHAEL BUECKERTthat yet. How did it measure our MRR and gross margin by segment? The difference is there?
EDDIE REYNOLDSI think what we're trying to say in the newsletter and laying that out, which we obviously do much more concisely than we are on the podcast. Like we're going out a bunch of rabbit holes and I appreciate you bringing me back. But at the same time, it's like, it's a longer podcast that the medium is there for that. I think we're just trying to lay out like, Hey, like, this is how you might want to think about measuring MRR and gross margin. Obviously like that's something for accounting to do. And I don't want to like get into accounting too much. What's important is that you just have an objective way to measure that. So for example, if we're thinking about like our marketing channel, we have to have some kind of attribution to say like of the MRR that we closed over this period of time, what if it came from the podcast and what if it came from Google ads? That depends on in this case, having a, an attribution engine that we trust at least enough to run this exercise. If we don't have that, if we don't have that data that we can't measure the MRR and gross margin. So then we're just looking at like, well, how much do we spend on the podcast and how much do we spend on Google ads? And like, all right, well, we generated a bunch of leads and we don't know which or which
SPEAKER_29it's going to be pretty hard to like measure CAC payback. And I think that's the only point that I'm trying to make in the newsletter there. Yeah. Okay. And so once we've analyzed
RACHAEL BUECKERTCAC payback by lead type and by all the different segments of buckets that we've decided on,
RACHAEL BUECKERTwhat's the first thing you'd recommend looking at after that?
EDDIE REYNOLDSOkay. Good question. So what you're saying, let me make sure I understand your question.
EDDIE REYNOLDSWhat you're saying is we've analyzed CAC payback across, let's say our, our marketing channels. And we have certain marketing channels that have a really healthy CAC payback and certain marketing channels that have an unhealthy CAC payback. And you're asking me now what?
SPEAKER_89Yeah. So the question is, do we double down on the things that are working? Do we cut back on the
EDDIE REYNOLDSthings that are not working? Or do we optimize something? Let's use an example of these lead channels because it's a really concrete and simple example. The first place I always go with marketing leads is to ask, are we following up on these leads adequately? So let's just use like a standard inbound lead follow-up cadence. We've talked about all bound and all kinds of other things in our content, but let's just keep it simple for right now. And let's say that like our SDRs are tasked with logging 15 activities, a combination of calls and emails over the course of 30 days to follow up on that inbound lead. Once they hit their 15, no response, they market dead, no response, whatever. And the lead is not converted. Fine. Are the SDRs actually doing that? If they're not, then you tell me that like our conversion rate is really terrible and our CAC payback is terrible and all these other things. And I'm like, okay, cool. That doesn't tell me anything because I don't know if that is a function of the quality of the leads or the lack of follow-up or the fact that we're spending too much money or the fact that like, this is the wrong customer and we can't make that much money off of
EDDIE REYNOLDSthem or what? I can't objectively measure that. And we've seen this with customers we worked with, where they came to us with similar problems. And we said, okay, let's get the process down first.
EDDIE REYNOLDSSo, and this would obviously apply across all marketing. What is that follow-up process and how do we drive the team to adopt that process? Once we have that in place, we can objectively look at everything across marketing from what should an MQL be to what our conversion rates are to the CAC payback. So now let's say that like, that's either we've done that or that's not the case. Now I look at, I look at that and I say, okay, like, so for a particular channel, we're spending all of this money to acquire these customers and we're not getting enough in return. Well, where is that money
EDDIE REYNOLDSgoing? Is the money going into marketing to generate the lead or is the money going into sales to chase down the lead? If the bulk of the money is going into sales to chase down the lead, because they have to call and email them 15 times and there's like a million of these leads, the simple answer might be,
EDDIE REYNOLDSwell, maybe we just need to raise the bar on our definition of an MQL or a marketing qualified account if we're doing all bound or whatever it is. And we say, okay, cool. Like, well, now we are drastically cutting the cost for us to follow up with these leads. And we still have the same number
EDDIE REYNOLDSof leads that are converting into pipeline and the same amount of MRR and gross margin, but now our cost
EDDIE REYNOLDSis less, so our CAC payback is healthier. Wow. Okay, cool. We've done two things. In a way, we've freed up capital, but like, unless we're firing all these SDRs, we really haven't, but now our SDRs have time to spend on something else. Maybe that something else is a different type of lead that is
EDDIE REYNOLDSmore valuable. Maybe that something else is outbound. Maybe we have a really healthy CAC payback on
EDDIE REYNOLDSoutbound and we could take some of those SDRs and say, and this is literally like quite like literally an example of something we've done with our customers to say, hey, you know how like all these marketing leads or these specific marketing leads are not converting? What if these SDRs ran the exact same process on cold outbound prospects? And suddenly they're booking a bunch of meetings and hundreds of thousands of dollars of pipeline because the process is working, but the leads aren't. So I've always, like I've said this many times on our podcast before, I think that an inbound lead should be at least as valuable as an outbound lead. Otherwise, why are we spending money having salespeople follow up on it? It doesn't make any sense. Like if I can just take that SDR and say, go make cold outbound calls and we make more money, why would I not do that? Up until the point that you say, oh wow, like yeah, you could do that. But look at all these other inbound leads and these are converting into more revenue per dollar spend, per call or email, per SDR headcount, etc.
SPEAKER_49So that's different from like choosing to double down or choosing to cut investments. That's like
RACHAEL BUECKERTchoosing to shift and adapt to something else, kind of.
EDDIE REYNOLDSYes and no. So the example I just gave, like I'm saying, you're cutting back on certain inbound leads and then you're doubling down on outbound because in this example that I shared, outbound is really healthy from a CAC payback perspective and from other perspectives, right? So if you've got like the perfect data and the perfect process and you're like, there's nothing that can be improved here or nothing that can be improved as easily as we could just shift resources, then you might look at this and just say, okay, well, this is really simple. Like let's cut back here and double down over here. Like let's just take these inbound SDRs and make them outbound SDRs. And we start booking more meetings and generating more pipeline and closing more deals, like super simple. But that assumes that there's not something like massively broken that could more easily be fixed to improve that. Like let's talk about speed to lead for an example, right? So we've got this equation where you're like, oh, wow, like we're generating all this stuff via outbound and inbound is like lagging and our CAC payback is terrible and our conversion rates are terrible. And I'm like, yeah, but you're not responding to leads for four days. I mean, we could fix that today. We could literally like, however long it takes to go fix the tech, we can then go into the SDRs and go, hey guys, like you have five minutes to follow up on these leads. Boom. Like done. Same day. Like we fixed that. Yeah. When I worked at Salesforce, here's another example. The inbound leads, the few and far between that I ever got would get sent to me and the SDR would say, hey, Eddie, like all via email, I want to introduce you to so-and-so. They want to talk to you, like book a time with them. Like, okay, cool. All right. So I respond. I'm like, hey, like, do you have time later today, tomorrow, whatever. And then some of those people would never respond. And then Salesforce, like in this $5 billion in revenue at this point in time, had the genius idea to say like, why don't we just have the SDRs book on the AE calendar? And all of a sudden we have like a hundred percent conversion rate. And it's just like the simplest, dumbest thing ever. And it just had like such a monumental effect. You think about like what an impact that has across $5 billion of revenue across whatever it was, $15 billion of pipeline and $30, $40 billion worth of like marketing leads to just have that one tiny little change to say, hey, like, let's just go book the event right on the AE's calendar. Now we have like a virtual 100% conversion rate from the SDR handoff to like the AE meeting. Not that people didn't know show, but like it made a drastic impact on our conversion rates.
EDDIE REYNOLDSMm-hmm. And how do we know when it's time to cut something? How do we identify where to cut?
EDDIE REYNOLDSI think that that's somewhat of a subjective answer. Like on the one hand, I would say, well, when you've tried everything, so you've done all the things that I mentioned, you've streamlined the process, you've gotten the team to adopt the process, you've got this super fast speed to lead, you've raised the bar on the MQLs, you've done everything. Let's use like, as an example, let's say like, we're picking channels and the podcast is this channel. And just like, no matter what we do, like, we can't make money on the podcast. Well, then you just like cut the podcast, right? I think the reality though, is that's sort of like a luxurious place to be that many
EDDIE REYNOLDSorganizations cannot afford to be. We oftentimes don't have the luxury to go that far down the path.
EDDIE REYNOLDSWe've got to make a judgment call before that because like, we don't have the time and money to say, okay, we're going to go in and we're going to like perfect the process. And then we're going to perfect, like get the adoption of the process and we're going to get the perfect data. And then we're going to wait around for that data to come through. And then we're going to like tweak the lead score 800 times until it goes to the perfect place. And then finally, we're going to say, okay, none of that worked. Like, let's cut it. Right. Warren Buffett always says like, you don't need to know if a guy weighs 300 or 350 pounds to know that he's overweight. Okay. And I really love that expression, right? Let's say that we have that example where like, we're looking at all these things we could do with a podcast and it just looks incredibly unhealthy. And yet we look at something else that we're doing and we're just like, oh my God, like this is working really well. Well, you might just make the quick decision to say like, well, let's kill the podcast and let's focus all our energies on this thing that's working really well. And I don't think there's anything wrong with that. I think another aspect of this is, is like most organizations, ourselves included, are doing too many things at once. And, you know, like Steve Jobs is famous for coming back to Apple and cutting everything down to 10 products and then being, making it the most valuable company on earth. I think to some extent, less is more. So I don't think you always have the luxury of like getting everything perfect before you make a decision to cut something. Sometimes it's just like, hey, we got to cut something. But I would say like in the example of like speed to lead, it would be really foolish to cut something when the problem is that like we have, we're taking four days to respond to a lead and you're like, that's a problem we could fix tomorrow. Yeah. Yeah. So before cutting it, find out what's actually causing it to perform poorly. Yeah. I mean, I think you got to take like a couple steps to like, look at this objectively. And then you decide like, where are we making cuts? Right. I'm a big fan of just like less is more. And you say, okay, like we've got all these different marketing channels and all these different, different ways that we're going to market. Well, if we eliminate the ones that aren't working,
EDDIE REYNOLDSthen everyone on the team has more mindshare to focus on the fewer things that we're supposed to excel at. This is why I struggle with our newsletter and podcasts. And I'm like, why are we doing both?
EDDIE REYNOLDSBut now that we've kind of combined them, it makes it a little bit easier. Like we come to this podcast having already thought through what we want to talk about. And so it feels like one activity now, and it feels like less of a diversion of attention. Mm-hmm. And then the newsletter is either like a recap of what we've talked about on the podcast,
RACHAEL BUECKERTor the newsletter is where the topic like begins, and then we can talk about it more fully on the podcast like we're doing right now. Yeah. And then it's one topic. And then if somebody likes
EDDIE REYNOLDSreading, they can read. If somebody likes listening, they can listen. If they like doing both, they can
EDDIE REYNOLDSdo both. But like, we are not like trying to do two disparate things at once. Yeah. So when it comes
SPEAKER_49to doubling down on something that works and increasing resources into that thing, how do we know how far
RACHAEL BUECKERTto do it without running into diminishing returns? Oh, what a great question. And I don't know that I have
EDDIE REYNOLDSthe perfect answer for this. Like, so first of all, you have like the concept of like your TAM, SAM, SOM, like your total addressable market and serviceable addressable market and serviceable obtainable market, et cetera. Like you have to like, look at like, well, how far can we go with this? Right. That's one aspect of things. Uh, the other aspect of things is like, how many resources do we have? And this goes into a lot of really complicated planning that like our team does for customers, for example, from understanding, you know, uh, how big the market is, um, territory planning, capacity planning, account planning, et cetera, commission planning, and looking at how far is our runway, right? I think most organizations are in the situation that they have a pretty long runway, especially if we're talking about a hundred or $200 million company, but like I'll take Salesforce as an example. I mean, it was very clear to me when I worked at Salesforce, so they weren't doubling down on sales cloud. As an example, like if you go into like the, the forums for Salesforce, like people will complain about like really basic features about sales cloud that they don't have. Right. And it's a really interesting thing to think about it. Like why would something so simple, like I hate reporting in Salesforce, for example, I think it's just like an abomination. It is incredible. Like how difficult it is for somebody that doesn't have experience with Salesforce to just build a report. Like it's
SPEAKER_110insane to me, but Salesforce doesn't fix that. And you're like, why? Like, why would you not fix like
EDDIE REYNOLDSone of the most important core features of your core product? And the answer is because there's not, and like they had a 35% market share when I was there. I don't know what the market share is right now, but it's massive. They're the 800 pound gorilla of sales CRM. Nobody can really compete with them. HubSpot is kind of competing, but only with startups. Enterprises are not going to HubSpot, at least not like in mass. And it's just not the thing to fix. So Salesforce is like, well, okay, we have this massive market share in sales. The next piece is to go into customer service. After that, the next piece is to go into marketing. Then let's go into like analytics. Then let's go into like connecting all this stuff via MuleSoft. And then they just keep going and going and going.
EDDIE REYNOLDSAnd they're like, how do we get more stuff that we can sell to these companies that are already like tied in with us with sales cloud? I think the same can be said of their go-to-market. They've obviously expanded into like many other geographies and they have all these different
EDDIE REYNOLDSproducts. But Salesforce, when I was there, it was looking at this and they're saying like, we need to grow 25%. How do we do that? We're not going to do that by selling more sales cloud.
EDDIE REYNOLDSWe're going to do that by acquiring companies that already have customers and selling those products into our existing customers, as well as getting more people to come in via like the massive marketing spend that we have. And if we sit here and just focus on selling sales cloud licenses and focus on product development in sales cloud, we've already got this 35% market share. And like, we just don't have that much further that we can go. You're not going to get to 90% market share in a CRM, I don't think. So I would imagine that that's how they do that analysis. But I think for most organizations, like you don't necessarily have a 35% market share, at least the organizations that we work with. So you probably have some good runway and you want to look at what's working best.
RACHAEL BUECKERTAnd is there anything that we should be cautious of or specifically aware of when we're deciding to reallocate these resources?
EDDIE REYNOLDSThere's lots of things, right? So you think about like the revenue factory or the go-to-market factory
EDDIE REYNOLDSand how things flow through. Like we have inbound leads that come in. We have, well, I shouldn't say inbound leads that come in. We have a marketing channel that we push out in the world that then
EDDIE REYNOLDSgenerates those inbound leads. We've got our outbound channel. We may have partners and we may have
EDDIE REYNOLDSPLG, et cetera. We've got all this stuff flowing in. And then as it flows in, it hits all these different inflection points, right? We have to think about the capacity of our SDRs. So we get the perfect process in the world to maximize or minimize our speed to lead. But if we don't have enough SDRs to execute that process, then we're not going to get there. If we don't have enough AEs to close the deals that we're bringing in, we're not going to get there. So this creates this entire equation where you have to like think, okay, so we're, you know, the root of your question was, we're doubling down on something. So we're going to, we keep talking about this podcast. We're going to double down on this podcast. Okay. Well, how many leads do we expect that might generate for us? How many leads do we have to have SDRs follow up on? What is the capacity of each SDR? How many
EDDIE REYNOLDSleads can they follow up on? How many SDRs do we need to accommodate those leads? How much pipeline do we expect that to generate? How many AEs do we need to run those deal cycles, et cetera, et cetera, et cetera. We close all those new customers. Do we have all the people and customer success to retain and grow those customers and provide them a great experience? Right? I mean, this is
EDDIE REYNOLDSa classic example. I think the worst example of this is like when organizations default to, we just need to fill the top of the funnel. Let's spend more money on outbound. Let's spend more money on ads. Let's like do whatever we can to bring leads into the top of the funnel. And we haven't thought about how those things flow through the funnel. And then we end up not following up quickly. You know, we don't run tight sales cycles. We're not forecasting accurately. We don't have the right resources in CS. And so like we have all of this revenue leakage, which by the way, will manifest itself an unhealthy CAC payback because we are spending a lot of money and we are generating less revenue and gross margin on the other end because of all these leaks.
SPEAKER_83Yeah. And we have a framework on that as well. The pipeline management framework, if anyone's
RACHAEL BUECKERTinterested in learning more about how to properly manage all that volume, if you're cranking that up and if you're not seeing enough revenue from your pipeline and that will be in the show notes as well.
EDDIE REYNOLDSI appreciate the plug. I mean, this really touches on all of our frameworks, right? Like I mentioned inbound, outbound. I mentioned CS, the overall revenue efficiency or grow to market efficiency pyramid. Essentially what I'm saying is if you double down on a channel, the first question you ask is like, do we have the capacity to go execute on this? If we're talking about a marketing channel, you know, are there enough people out there that we can market to? And if we get those leads, can we follow up on them properly, sell them, serve them as customers, et cetera. If we're doubling down on outbound, do we have the resources for that, et cetera. But I think for most organizations, like other than, you know, making sure you have the right headcount, they oftentimes do have the runway to go and double down on those things that are working. But it is obviously an important question to ask.
SPEAKER_49Yeah. And in the newsletter, you mentioned that all of this analysis kind of overlaps with
RACHAEL BUECKERTaccounting and FP&A. So why do you feel that it's important for us to cover it here with our audience of mainly CROs and revenue leaders?
EDDIE REYNOLDSWell, I think like if you're a CRO, you're ultimately a steward of capital, right? So let's use that example. A company's got a hundred million in revenue and you're spending $40 million a year
EDDIE REYNOLDSon sales and marketing. There's two aspects to that. One, you're controlling $40 million of budget.
EDDIE REYNOLDSAssuming the CRO like covers all sales and marketing, it's a substantial percentage of the business. It's a substantial amount of money that you are. You're the steward of a lot of capital, right? And you have a responsibility to invest that capital wisely. And then secondly, like capital drives all of the revenue of the organization. In this case, possibly save for our net revenue retention. I believe CRO should oversee that too. But the examples we've been sharing have been really centered on new business here because that's what CAC payback measures. You have a massive
EDDIE REYNOLDSresponsibility. In addition to that, like when you go to the CFO and the CEO and ask for more money for certain things, like you have to be able to justify that. And I think as interesting and valuable as it is to say that we're generating this many leads and we have this conversion rate, this close rate, this ASP, this sales cycle, reps are at this quota attainment. None of that tells me whether or not I
EDDIE REYNOLDSam making money on my investments in sales and marketing or not. It's really that simple. As the CEO of this company, as somebody who invests money out of my own pocket for everything that we do, while I don't measure things as perfectly as I would if I was running a $500 million company,
EDDIE REYNOLDSI look at this and I ask like, where can I put more money into the business to grow it faster and also generate more profits? And where are we burning money? I think especially for a business larger than ours, like there's a lot of what I do personally with my time that is just like, I have to hustle to go do that, like whatever thing, because we're a small company. But when I take a step back and try to act like a real CEO, it all comes down to like, what resources do I have? And where am I like applying? Like, where am I pouring capital? And where am I telling people to focus their energies that I'm paying them for? Like that's all it comes down to. I feel guilty that I ask so much of you, Rachel. And I don't oftentimes ask myself, like, if I gave you less things to do, could you do a better job of each of those like fewer things? Like I think about that
EDDIE REYNOLDSevery single day. Yeah. But I mean, there's a lot of us to cover a lot of ground covered and a lot
RACHAEL BUECKERTto do. So I don't know if that would even help much to do less. I mean, it is a startup,
EDDIE REYNOLDSright? So like, you've got that, but we could be doing more. Yeah. And I don't want to be doing
EDDIE REYNOLDSmore. Like I already feel guilty about the fact that we've got, you know, as many marketing channels as we do. I think you, you have gotten better at doing this because you've done so many of these.
SPEAKER_119The first one wasn't great. Now I think you're crushing it. The first one I did wasn't great.
EDDIE REYNOLDSThis isn't a criticism of you, but if I ask you to do a podcast, like once every six months and then 15 other things, like you wouldn't be good at any of them, but like every single week you spend time on the newsletter and the podcast. And, and I think that shows in the quality of what you're able to help produce. Yeah. And hopefully just get better from here.
EDDIE REYNOLDSYeah. Like I said, it's not a criticism. Like the first time I got on camera, I'm like, Oh my God, what do I say? Oh yeah. Sometimes I have my own little word blips and brain farts
RACHAEL BUECKERTtoo. So not perfect yet. Not by far. Actually, Rachel, if it's interesting, the first podcast
EDDIE REYNOLDSI ever did was way back in like 2008 when I was working at this investment bank in India of all places. And I went and I interviewed this guy and I just had my laptop filming and I was so nervous. And I started the podcast and I'm like, welcome to like the podcast or whatever. And I'm like, I'm here with, and I turned to the guy and I'm like, I'm sorry, I forgot your name. And I was showing this to my friend and he was just crying, laughing and making fun of me. Like you're sitting there with this like senior executive and you're like, ah, I forgot your name. That's brutal. It was pretty bad. Thank God. I don't forget
SPEAKER_13your name. That would be, that would be pretty funny. You were light years ahead of me on
EDDIE REYNOLDSyour first one, but you've come really far and done really well with it. So, and I think that's the power of focus in any, in anything in life, but especially go to market. Like the more that we can take our resources, just focus on one thing, the more that we can master it. And that's going to impact things like our CAC payback. And this is where I'm really challenged with this concept with like a lot of the companies we talk to, where you're
EDDIE REYNOLDSlike, everyone in your team is trying to like master a hundred different things. And so of course the metrics aren't ideal, but if you can cut back on things that aren't working as well and just say, Hey guys, like we're going to focus on fewer things and do it better.
EDDIE REYNOLDSThat is going to have a massive impact in things, even including like the financial data.
RACHAEL BUECKERTMm-hmm. And I don't want to like plug the stuff that we do too much here, but I feel like this leads into the question of like, what kind of role can go to market ops play in supporting our teams and doing this kind of analysis and in doing all these things?
SPEAKER_108You know, I always want to think about like what the analogy is, whether we talk about like the revenue factory or we talk about like plumbing or we talk about like, um, you know,
EDDIE REYNOLDSthere's like the race car analogy. Like I had like, um, Pablo Dominguez from insight on our podcast. And they wrote a whole book, like where they talked a lot about, uh, F1. I think like, well, I'll use F1 as an example. You've got like the driver in the seat of the car and they've got like 8 million buttons on the car. And these people are incredibly smart people. Nobody's like driving a, an F1 race car. And they're just like, I don't know the first thing about cars, but they're also not a mechanic. And I kind of think about this. Like, I think while I'm no expert on F1, I would imagine that if I was an F1 driver and I was hired by a new team and I walked up and I just like got in the car and I'm like, I don't know anything about cars that that would be, I would imagine that that's like a fireball offense, so to speak. And granted, like at that level, like everybody already knows whether or not you can race or not, but I would have to imagine they have to know a thing or two about the car so that you can provide feedback to the team.
EDDIE REYNOLDSAnd at the same time, you're not a mechanic. It's not your job to go open the hood and inspect what's working well or not working well with the engine. But as you're driving the car out in the track, you can feel it. And you're not just like, Hey, the thing seemed kind of shaky. You're like, I know specifically what's happening with this car so I can provide feedback to the team. Right? In fact, like I actually saw like in a Brad Pitt's new movie, like one of the trailers, like was this exact scenario. I think of CROs like that, right? Or any revenue leader, your job is to go out and execute. Your job is to go build the team, to set the vision, to say like, okay, we need to get from a hundred million to $200 million in revenue in the next
EDDIE REYNOLDSX number of years. This is how we're going to do that. And you have your sort of like engineers, your mechanics over there that are saying, well, Hey, like, let me peek under the hood. This is how we're generating inbound leads. This is how we're generating outbound leads. This is what
EDDIE REYNOLDSour partner channel is doing. This is what PLG is doing. This is what we're doing in net revenue retention. These are the dials that we can turn. By the way, here's all the inefficiencies, right? Like with F1, this is a point they try to make in the book is there's a limit to how much they
EDDIE REYNOLDScan like refine and optimize the engine literally, right? Because they don't want to have one team with an unfair advantage over another, even though I think these teams are like literally a thousand people, I think. So you think about the amount of investment that goes into like perfecting that
EDDIE REYNOLDScar to go as fast as possible around that track. And you think about go to market in the same way. This is a time consuming exercise. So I think of the CRO, the CMO, all these revenue leaders are saying like, I'm trying to drive the cart on the track and I have a vision for where we're going.
EDDIE REYNOLDSI have a vision for the team that I need to build and what they need to do. But I need to couple that
EDDIE REYNOLDSwith RevOps to like look under the hood and spend the time that those revenue leaders don't have to understand like how things flow through the revenue factory or flow through the revenue engine, where the inefficiencies are, where the greatest inefficiencies are, and then to identify those and say, hey, right here, if we focus time, energy and effort and we turn that dial, we can generate way more revenue than anything else that we might do. That's the best example of RevOps. I mean, and you couple
EDDIE REYNOLDSthis with annual planning and you say, okay, we're at $300 million in revenue and we need to get to $330 million in revenue by the end of 2026. What is our plan to do that? How much do we need from new
EDDIE REYNOLDSbusiness? How much do we need from NRR? How much do we need from renewals? How much do we need from expansion? How much do we need to like, what is our close rate on new business? How much pipeline do we need to generate? What's our sales cycle in each segment? Because obviously enterprise is very different from SMB. So how much time do we have to generate that pipeline? How much pipeline do we have today? How are we generating that pipeline? What channel is that coming through? Bottoms up, how many cold calls are we making? How many leads are we generating, et cetera, et cetera. We put that plan together and then we say, okay, in every annual plan, there's going to be an assumption
EDDIE REYNOLDSthat we're going to improve close rate by a little bit, improve ASP by a little bit, improve NRR by a little bit. How do we go out and execute on that? That to me is like the pen ultimate go-to-market ops or RevOps, whatever term we're using. And the opposite end of this is you have a team that waits for revenue leaders to come to them with a problem that they intuit with their gut instinct because they don't have the time to look through the data. And in this example, the data is probably pretty dirty. And they say, I think this thing is broken. Go fix it. And they just run around trying to grease the squeakiest wheel all day, every day for a year. These are two polar opposite examples of go-to-market operations. And what you want is, to use another Brad Pitt movie analogy, you want like the Moneyball
EDDIE REYNOLDSscenario where if anybody hasn't seen Moneyball, like Brad Pitt's the GM of the Oakland A's and he's got the vision for how to like build the team. And Jonah Hill is like the quant analyst. And he's like, this is what the data is telling me. If we go look for these players with these attributes, we will be able to build a winning team. And I think that those two things, like they have to play on each other. And CAC payback is just one aspect of this, but it's one aspect that depends
EDDIE REYNOLDSon a lot of like foundational work on having the process in place, on driving adoption of that process, having the right metrics, the right reporting, analyzing those metrics, pulling it
EDDIE REYNOLDSall together. And then saying like, this is the insight. This is telling us, this is where we should optimize things. This is where we should double down. This is where we should cut back. And then the CRO in this example is ultimately making the decision as to what to do there, but arming that CRO with the insights and the foundation to make that decision.
RACHAEL BUECKERTI love the Moneyball analogy perfectly. The funny thing is I haven't even seen Moneyball, but the amount that I know about Moneyball specifically from you talking about it, I feel like I don't even have to watch the movie because I like know everything about it now. But yeah, it seems like the perfect analogy to me for everything that we do.
EDDIE REYNOLDSIt's funny. Like, I don't even like baseball. I've read the book. I've watched the movie. I don't even find anything about it to be particularly insightful for go-to-market. It's just like, because it's like a big blockbuster movie with really good actors, it just paints such a great visual. But like, if you really like, at least the movie, if you dumb it down, the book's a lot more complicated. And I haven't read Sabermetrics, which is the book that like he actually read that then like incited all this. And that one's, I think probably way more technical, but it's just a great visual of saying like, we're going to be a data-driven organization and we're going to take an impossible challenge where
EDDIE REYNOLDSwe have no money and we have to compete with teams like the Yankees that have way more money than we have to buy better players. And we have to find a unique way of identifying players that will give us an unfair advantage because we can't compete on money because we don't have it. And I think that's
EDDIE REYNOLDSjust a brilliant way to think like, well, and go to market. Like, what do I do and go to market if I don't have money and I need to grow revenue? Or if I have a lot of money and I still need to grow revenue more than, than what my revenue is producing. I mean, that's literally what we're talking about here is cash payback. How do I take the money I have and spend it on sales and marketing and generate more gross margin faster by optimizing my go-to-market engine?
RACHAEL BUECKERTWell, to leave our listeners off on an actual note, what is the first thing you would tell somebody to do after they finish listening to this podcast, if they want to tackle this right away?
EDDIE REYNOLDSI think the first thing is to form a hypothesis, right? Whether you go in and start running reports or whether you have a gut feel, come up with some hypothesis on something that like either might be working so well. Like let's use this podcast as an example. And I'm like, my gut tells me that like we have a really, really healthy CAC payback. Could go look at that or something that's not working well. Oh my God, my gut tells me that we're just burning money on like Google ads right now. And then look to see like how hard would it be to measure the CAC payback for that particular thing and benchmark it against the other options. I think that that could be incredibly, incredibly insightful. So that's the first thing I would do is form a hypothesis and then try to figure out like
SPEAKER_61how long would it take me to actually test this hypothesis?
SPEAKER_49Awesome. Thank you so much, Eddie. Those were all the questions that I had for you today.
RACHAEL BUECKERTYeah. If anyone's interested in reading more about our frameworks and a lot of the stuff that we talked about in this podcast, the link will be in the show notes, that frameworks page. And yeah, give us a shout if you're interested in having any support or help or strategic insight into calculating any of these things, or we talked about so much in this last hour, it would take a
RACHAEL BUECKERTwhile for me to list it all off. But I don't know, Eddie, how do you want to sign us off?
EDDIE REYNOLDSI think if anybody wants, check out the newsletter, you can read more about this. If you want to go down the rabbit hole, you can look at our go-to-market metrics framework, understand a little bit more about not just CAC payback, but the other metrics that we've listed that measure similar things like the go-to-market efficiency ratio and the go-to-market efficiency margin. And then you can also look at the go-to-market efficiency pyramid to understand the things we're talking about that like contribute to these efficiencies or inefficiencies that might cause something that have a healthy or unhealthy CAC payback.
SPEAKER_49Awesome. Well, thank you very much, Eddie.
EDDIE REYNOLDSThanks for doing this and putting it together. I hope everybody enjoyed this. Thanks for listening.
EDDIE REYNOLDSWe should thank our audience. Thank you guys for listening.
SPEAKER_133Yeah. Thank you guys.
EDDIE REYNOLDSAll right. We'll sign off here, huh?
SPEAKER_133Yeah. Cool.
EDDIE REYNOLDSThanks for listening to the show. If this resonated and or you'd like help with anything we talked about in the show, please reach out to us. You can find us at unionsquareconsulting.com and the info will be in our show notes.
