Last year the Angel Association celebrated a decade of angel investing in New Zealand. And it was terrific to have that line up with some impressive success for angel backed companies with PowerbyProxi selling to Apple, Publons selling to Clarivate and ImeasureU selling to Oxford Metrics. Last year was also record year for ‘dollars into deals’ with a 26% increase on the previous year’s investment at $86m. They held their 11th Annual NZ Angel Summit last month where Owen Scott presented on the metrics that matter.
Video transcript below.
What do we track to ensure traction?
Right, so just a little bit of an introduction to myself. You all know John, but I just need to give a little bit of context to the metrics I’m going to talk about. I’m really a sales and marketing guy, I don’t really know about some of the other metrics that John is talking about there. My company is called Concentrate and the best way to think about us is we are the outsourced marketing department for about 25 Kiwi tech companies. All we work with is tech companies, it is all I know and all we do.
So that’s sort of the background for today. But more importantly for the last nine years we’ve run a benchmark study around sales and marketing for Kiwi tech companies. So, we typically have 300 to 350 tech companies that give us all their data around sales and marketing. How much they are spending, what they are spending it on, what’s working, what’s not working. And in recent years we’ve benchmarked that and compared it to USA companies because most of the companies in New Zealand were actually operating in the USA so we thought that would be a really good thing to do.
And also, we’ve started to look at the patterns of the high growth companies compared to the rest of the pack. And I suppose one of the real themes that’s come out of the survey over the last nine years is that New Zealand companies, we’re really good at sales, but we’re actually quite inefficient and we could be more efficient in the way we’re doing it; get more throughput in the sales machine.
The way we operate is what we call a lone wolf, so we’ve got really good sales people, we buy them plane tickets and we send them off to trades shows and they do a marvelous job and get another deal and bring them back home and we feed off them for a while and then we send them off again. Great sales people but quite inefficient.
So, some of the metrics that I’m going to talk about now are really trying to, I suppose, keep an eye on that sales efficiency, it’s really key. So, it’s really hard for investors to go into a company and all the obvious metrics, like revenue and sales, where everyone tells you it’s going really well. But what are the metrics that if you come down a layer, you can tell whether the company has got a well-oiled operation around their sales or not.
investment in sales and marketing
So, the most obvious metric obviously, when you are talking about sales and marketing is investment in sales and marketing. And Kiwi companies, we’ve found, actually invest a truck load in sales and marketing. In terms of salaries and non-marketing spend, the average is about 30% of turnover. High growth companies go right up to 80%, the smaller companies it doesn’t quite work as a percentage of turnover for smaller companies. And the larger companies settle down at about 20% of turnover. But that doesn’t really tell us much, it just tells us we are spending money. And Kiwi companies actually benchmark really well to US companies on that core spend.
Leads generated by marketing
So really the first metric that we really dig into is leads generated by marketing. So, one of the problems we have is that one of the questions we ask Kiwi tech companies is ‘what is your primary source of leads’. And Kiwi companies, basically 36% of Kiwi companies said marketing. If I look at USA companies, 80% of similar USA companies get their leads, their primary source of leads is marketing.
So, in New Zealand we have a sales department that tears around the place and they find leads, warm leads up, nurture leads and eventually close them, and we don’t have marketing departments. So, what we need to do is we need to make sure that your company has a marketing department that is responsible for generating leads. We need to hold their feet to the fire and have that as their KPI.
So as an example, one of the companies we work for, Spidertracks, so they do GPS tracking for airplanes and helicopters, things that fly in the air. We’re their outsourced marketing department and every month we have to deliver 120 qualified, marketing leads to their organisation. That’s our KPI, nothing else. And their Marketing Manager, that’s his KPI, and also he has a KPI around revenue. So, we’re not talking about brands, logos, colours, trade shows, we’re talking MQLs. So that’s the first one we should really have.
Having key metrics at each stage of the pipeline
And I think, I suppose the second metric is really other parts of that pipeline so it’s really having, if you think of a pipeline if we are trying to generate leads through a website we’ve got website visits, we’ve got leads, we’ve got qualified leads as we move down to sales, so it’s trying to have a key metric at each stage of that process.
One of the harder ones is really trying to understand that sales efficiency. It’s just a really hard thing to get our head around. But some of the ones that we’ve dug into to try and understand that sales efficiency. One area is the average experience required for a new sales hire. So, in New Zealand when we asked 300 odd companies, they said the average was 5 years because they want an experienced lone wolf that can hop on a plane and go and do deals. The average in the USA for similar companies, actually for SaaS companies, was 1.4 years. Because they’ve operationalised their sales process into a system and in the same thing ramp up time, New Zealand is five months, in the USA it’s two or three months.
And the final one was really around salaries. So, we actually found that New Zealand companies, the sales people we employ in offshore markets, we paid about the same overall on target earnings as USA companies which was quite amazing really. But we have a far higher base component. So, we have very low variable and pay 83% higher base than the USA counterparts.
We’ve got the experienced sales person, does everything, no marketing department. In the USA they’ve got younger, operationalised system and they have far more throughput. So, I think it’s really more trying to have some metrics in place to give you some visibility to the behaviour of sales and marketing rather than the obvious thing which is revenue.