Working backwards to uncover key success factors

  • Our hypothetical business is doing $5m ARR, with an annual goal of 50% growth.
  • That works out as an increase of 3.5% a month to hit $7.5m ARR in 12 months.
  • Which is an average of $15k net incremental revenue in Q1; 16.5k in Q2; 18.5k in Q3; and 20.5k in Q4.
  • So for the first 90 days — this business needs $750 a day in incremental revenue. (Assuming 20/days a month)
  • Average Revenue per Annum (ARPA) is $200. Churn is 2% and Installed Base Growth is 1% a month.
  • So — we lose ~$8.5k a month in Q1 to churn, and gain ~$4.5k in upgrades — for an installed base loss of 1% or $4k each month .
  • That’s a daily starting position of negative $200.
  • Now our $750 a day growth goal becomes new sales of $950 a day.
  • Which at an ARPA for of $200 is 5 new accounts per day.
  • This business has a sales qualified lead (SQL) to close rate of 33% — 1 in 3.
  • So we need 300 new leads a month — 15 a day — to get to 5 new accounts.
  • Step back up the funnel — a third of marketing qualified leads (MQLs) make it to SQLs — so we need 900 MQLs a month, or 45 a day, to get 15 SQLs.
  • All MQLs come from the web site, and visitors convert to leads at a 5% rate. So you need 18,000 visitors to get 900 leads. 900 new visitors a day.
  • Now we have our marketing goal — 900 visits a day of high enough quality traffic that maintains the conversation rate at 5%.

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