5 Things Every RevOps Pro Should Know About Finance, by Matt Volm, CEO of The RevOps Co-op

Well, hello, everyone. My name is David Apple, the head of the SaaS and software vertical here at Sage NTech, and the host of this, the Modern SaaS Finance Podcast. We created this for you, CFOs, controllers, heads of FP&A, rev ops, members of the finance community, and fast-growth SaaS companies. We discussed description, usage, billing models, rev recs, SaaS metrics, the key functions that you need on driving the cash flow in the trajectory of your firm on its path to IPO and beyond.

This is a special session from the Modern SaaS Finance Summit, which was an all-day virtual summit we hosted that we're sharing here playing back on the Modern SaaS Finance Podcast. You can attend any of the over 30 sessions by logging into hope to see you there. But let's get started in our discussion. great session on our revops track uh matt volm is a co-founder and ceo of revops co-op if you're not part of this and you're in revops allow me to suggest to join he's built an incredible community both online and in person where everybody's helping each other And it's kind of new, growing, forming role of RevOps.

He's joined by a great member, longtime member of RevOps Co-op, Jeff Ignacio, who's the head of go-to-market ops and growth at Regrow. Great company, great experience. And we talked about what to talk about. It's five things every RevOps pro should know about finance.

And then, of course, RevOps tips for finance, too. So let's give and take. With us, Matt, please take it from there and let's jump into it. Yeah, thanks.

Thanks, David. You can go ahead and kind of flip through to the next slide after the speaker slide here, and we'll get into a couple of definitions about what we mean by RevOps, because everyone seems to have different definitions there. And then while corporate finance might be a little more well-defined, we still want to make sure everyone's on the same page there. So when it comes to revenue operations, what we mean when we talk about RevOps are the alignment of people, process and technology that drives revenue as efficiently and effectively as possible for a business.

So people, right, everyone hires marketing people, salespeople, customer success, support people. Those people do things every day, right? They have playbooks that they run, plays that they follow. That's the process part of this.

And then the third thing is the technology aspect. Everyone on the marketing, sales, and success teams, they use technology to do their jobs. They have a CRM, a sales engagement platform, data providers, a whole slew of different technology and tools. So when we talk about RevOps and what those three pieces specifically mean, those are the things that we're talking about.

And Jeff, I'll turn it over to you to talk a little bit about what we mean when we think about corporate finance through this lens as well. Thanks, Matt. So before going into revenue operations, I was also in FP&A at both Intel and at Google. And at those organizations, there are a vast array of capabilities for corporate finance.

So if you find yourself doing budgeting, capital structure, you might find yourself in a role called corporate finance. FP&A is, for the most part, a strategic arm of the finance organization. They do take care of some of the tactical budgets, planning, and forecasting. Then you have a couple of other functions.

Treasury, that's cash management for those who perform business and conduct business internationally. There might be some FX hedging and risk management. For the accounting side, bills payable, bill receivable. Make sure that you're in compliance for GAAP and IFRS, the international finance reporting standards.

So tax, investor relationships, and payroll. So there's a lot of capabilities. They might have different titles, but when I think about corporate finance, it falls under one of those functions. Yeah.

And so we got the definition of REV OBS, the definition of corporate finance. So Jeff, I guess as a revenue operator then, right, you've also made the leap from finance, FP&A over to RevOps. Why, I guess, is it important for folks in RevOps who are operators to understand corporate finance? So when I think about corporate finance and RevOps as partners, the classic definition and typical interface is that top-down and bottoms-up iteration.

But when you think about what that means from a day-to-day quarter, there are four big buckets. The first is resource allocation. Second is the ability to forecast revenue. Third is making sure that you are compliant and you have strong governance structures of professionalization of your risk management.

And then lastly, cash flow management. I've included a couple of sub-activities where there is a lot of crossover, particularly during planning season, headcount, org design, thinking about programmatic spend, discretionary investments for tooling that I refer to either process or systems And then if we go across the other sections revenue forecasting segmentation channel optimization and pipeline management Now the compliance and governance this is where things can get a little different When you think about GDPR, CCPA, these emerging fields for compliance, particularly if you're conducting business in Western Europe.

And then deal structuring, deal terms, particularly for those large strategic accounts. They may push the boundaries of what you have to offer on the menu or on your product roadmap. And so that finance and RevOps organization works together to identify how do we de-risk these deals as they come into the pipeline. And then the growth at all costs era for companies has largely ended.

And now we're in a place where productivity and efficiency gains are the rage. And so deal structuring, incentives and commissions, forecasting collections, and really getting a handle on sales cycle. That's what, you know, investors, shareholders, and internal management is really looking at for productivity gains. Yeah.

Yeah. And one specific example of that, right? I remember Conless Times being in rev ops where folks on the sales team would ask to change like when we would send out the first bill or invoice or when the effective date of the agreement would be or when we would first actually give them access to the product. Like all of those things that you're trying to call it craft in the deal making process, a lot of those have an impact on when you can start recognizing revenue on your financial statements.

Right. And so that and if you're looking at how you're growing month over month, quarter over quarter, like those are the exact reasons of the things you have here, Jeff, on like why it's important to understand the connection between those things. And so, yeah, I think on the next slide, David, Jeff's going to get into if you look at kind of the revenue operating model. Again, we'll kind of go through top of funnel, middle funnel, and then things that happen post-sale.

But Jeff, tell us a little bit about what happens top of funnel or the tofu side of things. So in revenue operations, we think about the full lifecycle of a customer. We want to express that in the form of a model, very similar to finance with the three financial statements. We want to build something very similar that is mechanistic and models how the business actually acquires customers and then how those customers then eventually expand with us.

The first module that we'll cover is the TOFU model. That's top of funnel. And what we're looking here is how do we generate pipeline? We have a couple of channels that marketing can invest in.

You may invest in all of them, but there's a variety of sources of how leads become first aware of your solution in your company. content syndication, organic, events, thought leadership, social, search. All those channels help bring leads to the top of the funnel. And what we have here is a funnel that then breaks out the different segments of the customer or the prospect's life cycle.

They first become a lead, and then internally, the go-to-market team is scoring that lead. It's what we call an MQL, a marketing qualified lead. And from there, that's a lead that the marketing team determines is ready for the sales team to engage with. So once the sales team engages with that lead, we call it a sales qualified lead.

Now on the bottom left, I have a bunch of unit economic and ratio metrics that gauge how efficient we are. So we're not only looking at the volume of leads, we're looking at the quality of the lead in terms of its expense. How much did we spend in terms of a cost per lead and every other metric down the funnel until we get to cost per opportunity and cost per win. If you're familiar with customer acquisition costs, this is a component of the marketing side of that customer acquisition cost.

And it's something that we finally tune over time and where RevOps, MarketingOps, and Finance can optimize over time. yeah yep and so uh we have kind of top of funnel a lot of the programs that drive like you said leads and then we essentially kind of convert those whittle those through the uh the the process that we have the life cycle that we have leads to mql to uh sql and so david if you flip to the next slide i think we'll get into you know essentially the things get handed off from marketing, call it over to sales, right?

Now you have some opportunities that you start to kind of work. So walk us through kind of the next step after you get through top of funnel and you get to this kind of middle of funnel kind of sales area. Now, this is where we get into where sales gets engaged, right? So it's a selection process for the buyer.

The buyer essentially has already They become aware, they become interested. They believe that their pain can be solved with your solution. And ultimately, they're engaging with your sales team. And so here we have a couple of tools in our tool belt as a chief revenue officer, as a revenue operations leader.

We want to be able to look at our funnel from where did it come from, the source, inbound, outbound, partner led, and then look at our different segments. You might be selling to S&B or a combination of mid-market and to the enterprise. Those are going to have different pacing to them because ultimately the buying committees become larger as you move from S&B to enterprise. And the type of seller you need is going to differ.

There's some regional differences as well. Purchasing in North America, Europe, Middle East, and Africa, EMEA or APAC. These different regions have different buying behaviors And so we want to be able to segment our funnel appropriately And then obviously new versus expansion Expansion comes in two flavors You selling more of the same That's an upsell or a cross sell. You're selling something new, but they're not necessarily a new customer themselves.

And so once we get through the selling funnel, there might be multiple people who are involved. And selling, in my mind, is not an individual sport. It's a team sport. So you have folks in biz dev, sales development function, AEs, which we refer to as account executives.

And then you may have a technical component, a heavily technical sale, and you have a pre-sales or solutions consulting type role in your organization. And that's going to carry the buyer all the way through the different stages in your selling process from early stage to the middle stage to the late stage. And ultimately, what you're looking for are deal velocity metrics. We want to look at win rate, volume of pipeline, what the average sales price is, and how long it takes to win.

And that is going to give us our sales yield. How many customers can we win in any given period? Yeah, and fun, actually, you mentioned some of the metrics. I know when it comes to average deal size and sales cycle, for example, one of the fun little tricks I learned, at least for, you know, depending on, this doesn't always hold true as you start to get into some larger deal sizes, but if you're in the 15, 20K, 30K sort of range for deal size, let's say your average deal size is 15K, I'd be willing to bet that your sales cycle is typically 30 days.

So a fun little trick is like 2X your deal size will typically get you to your sales cycle, And you'll find that those two things are typically in lockstep up until you start to get into some of those much, much bigger deals. But, yeah, totally makes sense. So we got the programs are on top of funnel. Right.

Drive demand, generate pipeline. We've got sales that kind of works things kind of middle of funnel. Right. And that ultimately produces new customers.

So now we have new customers. We I'm assuming want to keep those customers. Right. We want them to stick around.

We want them to not only continue to buy the same thing that they've already bought from us, but hopefully buy more of it or buy other products that we have. And so, David, if you flip to the next slide, let's talk a little bit about the renewal and expansion side of this, Jeff. And like what happens post-sale, right? So you land all these new customers.

You have this existing book of business. What do you do then? How does RevOps kind of play a role in that process? So it's not expressed here, but there's the last 10 years, we had something called flip my funnel and you had a funnel and then you flipped it.

And so you had this, you know, downward shaping funnel where the width gets narrower towards the bottom and then we flipped it. So the opposite, it actually starts narrow and then becomes wide. Over the last couple of years, people have referred to the customer lifecycle as a bow tie. You essentially take those two funnels and flip them.

So you have two funnels opposing each other. Now, once you acquire a customer, you're now on the opposite side, the right-hand side of that bow tie. And what you're looking to do is renew every single customer. And they're going to renew because, quite frankly, they find value in your solution.

Not only do they find value in the original solution, they're actually expanding across the entire user base or increasing usage, depending on what your pricing model is, user or usage base. and then ultimately looking to buy a whole new set of solutions from you. Now, what that means is that for every $100,000 you're spending with you, how much of that would churn or downgrade and then how much of that would expand and how much of that would churn. So we have a metric net recurring revenue.

I think folks might be familiar with it, but we're ultimately looking at a ratio against 100. If NRR, net recurring revenue, net revenue retention is under one, It means you've taken a dollar of a cohort and it turned it to less than a dollar. That's bad news. What we want instead is to stack that so that it's positive over 100.

So take $100 and it becomes 110 over time. And every new dollar you're selling to new customers actually just grows on top of your growing customer base, leading to exponential growth. And that's the key for anyone with a recurring business model. So if you have a recurring business model, the trick is The starting MRR, the monthly recurring revenue, is what it is, but you want to increase expansions as much as possible, and you want to decrease contractions and churn as much as possible.

Now, what's not mentioned here are FX. There's obviously other areas where you could be impacted, but for the most part, you're really looking at these core areas as drivers that you can inflect. Yep. Yeah, that's right.

And the other thing to point out is this number changes given the time period that you're evaluating it over. as well, right? So keep in mind that, you know, like monthly recurring revenue and the dollars that contract churn expand, right? You're essentially, you have a starting point and an endpoint, right?

So as you change your starting point and your endpoint, you will change the output the NRR number that you ultimately get So yeah another thing to keep in mind And so David if you go on to the next slide so we kind of walked through the again the operating model right Like how does RevOps kind of play a part in you know driving revenue outcomes for the business? And so what I wanted to do is just give you a quick sense of how those things actually translate onto financial statements, you know, the input and the side.

So Jeff talked a lot about, you know, top of funnel, the marketing team, right? You're investing in these different programs. You're marketing to prospects, to drive pipeline, to drive demand. You're marketing to your current customers, right?

You want them to learn about new features that you have available. You want them to learn about new products that they can buy from you. All of those things support your sales team who is going out and, closing new business, acquiring those new logos. They're talking to your current customers to see where there might be expansion opportunities for them to get more value from product solutions that you offer.

And then your customer success team or your account management team, they're building the relationships with your customers and making sure that they're successful with your product. So at the end of the day, all of those inputs that we just talked about, that your marketing team, your sales team, your customer success team is doing, those all drive revenue that ultimately gets added up and recognized on your financial statements, right? Typically is top line. And so if you look then at, call it the spend side or the expense side of things, again, those same departments, teams, right?

The marketing team, sales team, CS team, you're spending money on people's salaries. You're spending money on the CRM, the sales engagement platform, the data providers that you have, and you're spending money on programs, right? LinkedIn ads, Facebook ads, Google ads, you know, other things, right? To help support all those teams, those also get added up, right?

And, you know, kind of get recognized as, in this case, right? The sales and marketing expense on the financials. And then, David, if you go to the last slide after this, what you can then do as a revenue operator or anyone, investor, board member, shareholder, right? If you're evaluating the financial performance of a business, right?

You start with those financial statements and some of the key metrics that you're ultimately going to look at to help evaluate performance are things like customer acquisition costs, the sales and marketing spend that you saw on the income statement that we just showed, right? Divided by the number of new logos or customers that you acquired over that same time period. That can tell you how much money are you spending on sales and marketing to acquire one new customer. Same thing on the cost per lead side, right?

You're spending marketing, you're spending marketing dollars collectively on different channels. Take that marketing spend divided by the number of new leads that you've generated over the same time period. That can give you a sense of how much money you need to spend in order to generate a new lead for your business. Same thing on the opportunity side with marketing spend and then looking at the opportunities that are generated from that marketing spend can give you a good sense of how much money do you need to spend to generate a new qualified opportunity.

And then we hit on this already with net revenue retention. Again, Jeff explained it really, really well. This strips out anything you do when it comes to new business or new logos, right? So the thing that's great about this metrics is it can tell you if you never sell another new customer again, can you remain in business, right?

And if you're generating, you know, more than $1 for every dollar that you get in, then the answer to that is yes. And then like Jeff said, you add new customers on top of this and things just start to compound. So that's kind of the, call it the connection, right? Between this operating model and all of those inputs and how they translate into the financial statements.

And then, David, you said at that beginning, we've got a 12,000 person community and RevOps Co-op actually just crossed the 13,000 member mark. So we have a free membership tier where anyone who's interested in RevOps can join. RevOpscoop.com is the website and we'd love to have anybody as a member.

We do talk about stuff like this and a whole lot more all the time. Great presentation, fellas. Thank you. And a great 20 minutes of time.

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