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FOUNDER’S GUIDE TO B2B SALES You plan a sales model to converge towards targets for key metrics over time. In this section, we’ll discuss those metrics and then show how a driver-based model can be an invaluable tool for planning the evolution of your sales model. KEY METRICS, COMPANY LEVEL ARR growth rate: how fast are you growing ARR? Public companies often do not release ARR and ergo calculate growth on revenue or implied ARR (last quarter subscription revenue * 4) Customer acquisition cost (CAC) ratio: how much do you spend to acquire $1 of new ARR? • Net New ARR (inclusive of churn) is a higher bar than New ARR • New ARR is better measure of sales performance • Net New ARR is a better measure of company performance • Public companies often calculate based on revenue or implied ARR and this is almost always calculated on a net basis (as they often release neither ARR nor churn numbers) CAC payback period = how many months of gross margin are needed to pay back the cost of customer acquisition? • CAC Payback Period = CAC Ratio / Subscription Gross Margin x 12 • How long is your customer acquisition “money on the table” before you are paid back? Net revenue retention (NRR): how fast does ARR expand within existing customers? • ARR of year-ago cohort today / ARR of year-ago cohort a year ago • Also known as net dollar retention (NDR) Rule of 40 score = how do you balance growth and profit? • Rule of 40 score = ARR growth rate + free cash flow (FCF) margin • Public companies will define growth using revenue; others use EBITDA or operating margin instead of FCF • This metrics is less meaningful (and less examined) for early-stage companies KEY COMPANY METRICS, SALES LEVEL Sales productivity: ARR/ramped-seller • Most companies model productivity (expected result) and then uplift to quota (seller targets) • Quota is typically set about 20% higher than expected productivity • To simplify calculations and ease interpretation, this usually excludes ramping sellers • Varies by seller type (e.g. enterprise vs. corporate sales) Quota attainment: Percent of ramped sellers at 80%+ of quota • Warning: this is a function of cadence • Example: if you have annual compensation plans, then 80% at 80% is a high but achievable bar on annual basis, but virtually impossible on a quarterly basis • Some people base this metric on 80% attainment (which typically equals expected productivity) whereas others base it on 100% SPRING 2023 .51

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