Blue Horizon’s reading list is a curated collection of articles for SaaS founders and management teams. We are entrepreneurs and operators who have lived through the process of founding and scaling software companies. Here are the articles and resources we found useful this month.
SaaS Contribution Margin: Discover Where Your Money Maker Lies
by OpenView Partners
Knowing your contribution margin is about capital discipline. Do you know where you’re spending your money? Are you mindfully investing it into the future of the business, or is the spending on autopilot? More than a simple formula, calculating contribution margin is an investigation. It reveals where the work is happening and why…A contribution margin is a snapshot in time, and a fully loaded contribution margin takes into account the following:
▪️ The variable cost of goods sold (COGS)
▪️ Customer onboarding
▪️ Sales engineering
▪️ And sales and marketing expenses.
The top metrics in CS are all revenue metrics. NRR, which tracks the percentage of recurring revenue retained from existing customers, is now the top metric for CS teams in almost every revenue band. Overall, the industry’s top five measurements of success are NRR, gross revenue retention (GRR), churn rate, logo retention rate and expansion revenue—while “softer” metrics like NPS appear only further down the list.
Since 2016, the average public software witnessed its sales efficiency winnowed from 52% to 47%, a decline of about 10%. Covid, marked in the orange rectangle, didn’t impact sales efficiency initially. Remarkably, halfway through lockdowns, software companies found their stride, improving their efficiency by three percentage points. After a two-quarter spike, however, the figure has returned to its previous negative slope.
To evolve your playbook and get the clearest insight, it might be wise to transition from focusing on averages to following cohorts. Average-based metrics are misleading for modern cloud companies with access to more diverse GTM strategies and customer bases. Instead, the best companies strictly define their segments, track them, and invest in the best ones.
One small reminder is that, at least for SaaStr, LinkedIn now drives materially more traffic than Twitter. It may be different for you, but it’s a reminder of the growing power of LinkedIn overall and especially in B2B. But when I pulled up our data from the past few months above, I had one big takeaway: we put too much energy into Twitter and LinkedIn, and not enough into Blogs and especially building our core list and email.
The Founder’s Guide to B2B Sales
by Dave Kellogg & Michael Lavner
Structure of the Guide
▪️ Selling: what founders need to know about sales
▪️ Building: how to build a sales organisation
▪️ Managing: how to manage a sales organisation
▪️ Renewing/expanding: teaming sales and customer success
▪️ Marketing: using marketing to build sales pipeline
▪️ Partnering: how to use partners to improve reach and win rate
▪️ Planning: planning and the role of key metrics and benchmarks
Blue Horizon acquires and invests in profitable software businesses with stable recurring revenue streams. The Blue Horizon platform combines long-term capital and industry expertise with an operating model that enables businesses and their leaders to focus on growth and profitability.