ScaleWise VP of Partnerships Emily Assender explains why CAC, LTV and NRR are the holy trinity of partnership metrics.
Think of the most successful business partnerships. GoPro and Red Bull doubling down on their vibe of fearless adventure. Spotify and Uber’s ‘soundtrack to ride’ boosting both companies’ user base. Apple and Mastercard revolutionising purchases with ApplePay. From greater credibility to a larger Total Addressable Market (TAM), great partnerships deliver mutual benefits, but to enhance the tangible value of partnerships, you have to focus on the metrics. For me, these are the core three metrics that partnerships can improve.
Customer Acquisition Cost (CAC)
As the name suggests, CAC measures how much you spend to win a new customer (i.e. the sales and marketing cost vs the number of customers gained over a specific time period). The lower the CAC, the longer your investment will last and the greater return for you and your investors (and depending on what stage you’re at, this is a big deal for them). Partnerships can improve CAC in two ways: act in a very short space of time,” says Margo Hayward, a recent convert to a portfolio career after 21 years in tech sales. “You need to get up to speed really quickly, so both parties need to have a number of discussions to make sure you’re the right fit.” For Nora Khalili, who went out on her own fractional journey in January 2020, that involved some soul searching. “Is this the right skill-match? Do you get along? You need to check if there is a comms style match and culture match with the founder. That they are in the mindset to accept your advice. There’s nothing worse than coming in where a person thinks they want help, but actually wants to be told what they’re already thinking”.
● By boosting your conversion rates
Partnerships are not only a source of leads, but a source of pre-qualified leads. If you thoroughly onboard your partners from the outset – i.e. introduce them to your company, train them on your product, align teams on goals etc – you will benefit from leads that already fit your Ideal Customer Profile (ICP), saving you time and increasing your lead to opportunity conversion rate. Measure these byPartner Sourced Leads and Partner Sourced Opportunities.
● Improve sales rep productivity
Just as you’re more likely to trust a friend’s restaurant recommendation, a consumer is more likely to try your product if recommended by a company they trust. This means that reps can close more opportunities,faster,when referred by a partner. Measure Partner Sourced as well as Partner Influenced Leads/Opportunities and the Sales Cycle (# days to close).
Lifetime Value (LTV)
It’s not just about new customers, but how much that customer is worth to your business over their lifetime. This is never truer than in the subscription model of many SaaS companies as it should be cheaper to keep existing customers than acquiring new ones. Therefore, investors want to see a high LTV to CAC ratio (3:1 is deemed good, 5:1 excellent). Thankfully, partnerships can help with that too:
● Land and expand
If a partner is perfectly in tune with your business, they can upsell and promote new products for you, boosting your stickiness (i.e. attracting loyal long-run customers) and reducing the efforts of your Customer Success team. Measure this by Partner Influenced Opportunity on upsells (you’ll need to make sure your CRM is capable of tracking this data, and that your CSMs understand how to report on this).
● Use account mapping to target specific groups of ICP
Partners have customers. Partners have customers you want. Partners have customers that want you (although they might not know it). Account mapping allows you to qualify the commercial opportunity within their client portfolio by focusing on key accounts that fit your ICP (I’d say go for the 10 most suitable accounts at the start). Measure this by Average Contract Value of Partners Sourced + Closed Won.
Net Retention Rate (NRR)
Do they stay and do they grow? Yes, I’m riffing off the Clash tune, but more importantly I’m talking about your NRR, which looks at how many customers stay and how many grow; a great indicator of long term SaaS performance and a favoured metric of potential Series B investors. Partnerships can help:
● Identify similar ICP prospects
Take the Spotify-Uber example. Both were tech disruptors with young, digitally-savvy user bases. Each partner had relationships with prospects the other wanted, so they set up a partnership to target similar ICPs to the ones they were already growing and retaining (those most likely to positively impact their NRR). Measure this by # Partner Sourced Opportunities.
● Upskill partners to grow and retain clients
Roll up! Roll Up! Partners are promoters for your business. They offer advice to their clients on who to use (or who not to use!), so make it really easy for them to recommend you as a provider above your competitors. That means knowing when partners can recommend you and constantly remaining front of mind. Measure this by comparing the churn rate of Partner-Sourced and Partner Influenced Opportunities vs Inbound or Outbound Opportunities
Hello Series B (and beyond)
As I mentioned in my ScaleWise 3×3 (tips for scaling companies), successful partnerships align different businesses with mutual objectives, but partnerships’ results also align company data with what investors want to see. Tracking and influencing core metrics enable companies to sell a convincing scaling story to Series B investors (and beyond) and partnerships can make those metrics sing. Do get in touch to find out more.
