You’ve finally gotten around to setting up your CRM (hopefully Hubspot for a few reasons we’ll identify in a separate article) and now you need to get more rigorous about tracking deals through the pipeline as well as providing analytics to your investors and board.
This is for B2B startups with a “sales-assisted” sales model which means your marketing team’s role is to book qualified meetings for your sales team and sales life cycles are usually 2-6 months. This article describes how to set up your funnel regardless of what CRM you’re using including stage definitions and some industry metrics.
Funnel Overview
Here are the recommended funnel stages. You can obviously add more stages, but these are the major progress gates that most companies will need to report on.
Lead Qualification
There are many different frameworks to qualify leads, but one of the most common (and easiest to remember) is BANT which stands for Budget, Authority, Need, and Timing. These definitions are critical to help clarify how to move deals through the funnel as you’ll see below.
- Budget – Does the prospect have a budget to allocate to the purchase?
- Authority – Does the prospect have the authority to make the buying decision? Oftentimes, you’ll have an entry point into the company, but they have no authority to purchase.
- Need – Do they have an interest or need in your solution? You could be talking to the right person, but they may not have any interest. If this occurs frequently enough, then it’s not a good signal for your product/market fit.
- Timing – How soon are they ready to move on a decision?
Stage Definitions
IQL (Information Qualified Leads)
This stage is rarer but incredibly useful to identify prospects that have requested info either via an email reply, LinkedIn message, website download, webinar attendance, or during an inbound or outbound call. The prospect may not be ready for a meeting, but there is an active dialogue with them.
MQL (Marketing Qualified Leads)
MQLs are most commonly defined as when the marketing team has a prospect that they deem interested. We suggest that this be more specific and define it as any prospect in the target audience that is interested in the product and has scheduled a meeting with a member of the sales team.
Rescheduling
This stage allows you to identify those prospects that have booked a meeting but did not attend. The intent is to identify the percentage of no-shows as well as identify what percentage of those no-shows were able to be rescheduled.
SQL (Sales Qualified Leads)
After the initial sales meeting occurs, it’s up to the account exec on the sales team to approve the lead. This is the primary handoff between marketing and sales, so it can get contentious. In order to make the definition more objective, marketing should provide leads that are the right target audience (Authority) and have an interest in the solution (Need). Marketing should not be responsible to assess budget or timing since depending on how well the sales team can convey the value, then usually the prospect will allocate a budget and accelerate the timing of the decision.
Opportunity
Opportunities are when the prospect is fully qualified with a near-term decision meaning all aspects of BANT are satisfied. It is the right decision maker with a need and near-term budget available. Any stages after SQL can be broken down into more refined stages to align with your sales process (e.g. add a separate Contract Sent stage).
Closed Won
You have a paying customer!
Closed Lost
You lost touch with the prospect or they declared they won’t be purchasing. It is important to identify why the deal was lost to help improve the process.
Delayed
This is another optional stage that can be used as a parking lot for deals that are still active but have been delayed by the prospect (e.g. please contact me next quarter).
Stage Summary
This table summarizes the stages along with what new attributes are often defined per stage as well as industry averages for each stage to convert to the next.
| Stage | Definition | Deal Attributes | Owner |
| IQL | Active dialogue with the right Audience | ContactCompanyChannelCampaignSegment (e.g. target audience) | Marketing |
| MQL | Meeting scheduled with the right Audience with Need | Meeting date | |
| Rescheduling | Attempting to reschedule an MQL | ||
| SQL | Sales team approves Audience and Need | Sales | |
| Opportunity | SQL also has Budget with near-term Timing | Potential ACV or MRR | |
| Closed Won | Paying customer! | Actual ACV or MRR | |
| Closed Lost | Prospect has stopped contact or stated they will not purchase | Reason why prospect was lost | |
| Delayed | Prospect has asked to be contacted in the future | Re-engagement date |
Funnel Analytics
Setting up the funnel correctly, now gives you access to more meaningful analytics. Here are the most important.
Stage Conversation Rates
The most important metric is how well your marketing and sales teams are converting leads into customers. Most CRMs will provide metrics on conversion rates from one stage to the next. Here are some expected ranges of conversion for a typical sales-assisted, B2B startup.
| Stage Transition | Conversion Rate | Notes |
| MQL -> SQL | 90% | Over time your marketing time should be very good at providing leads that your sales team will approve |
| SQL -> Opportunity | 40% | This can depend on how much solution is a “must have” and how good your sales team is |
| Opportunity -> Close Won | 40% |
Therefore, the percentage of MQLs that convert into customers should be between around 15% and usually ranges between 10%-20%.
This also allows you to provide expected value projections of revenue. For example, if you have $200k of potential revenue in the Opportunity stage, and you know that historically you convert 40% of those opportunities, your projected effective revenue is $80k ($200k * 40%).
Stage Lifecycle
The time it takes to close deals is important too to identify. The most common question asked will be about the length of your sales cycle from lead to close, but it will help you to optimize your funnel if you know how long prospects spend in each stage on average. Again, most CRMs will provide these reports by default.
Loss Analysis
Any deal that is lost should have a reason category attached to it in order to analyze metrics on what are the major reasons for the loss. Common categories include:
- Using competitive solution (why is our value not better?)
- Using internal solution (why is our value not better?)
- Too expensive or not enough budget (is our pricing aligned with the market?)
- Wrong buyer (why couldn’t we reach the decision maker?)
- Internal customer issues (everything aligned but the customer had a reorg, acquisition, etc that derailed the deal)
CPL (Cost per Lead)
Calculating the cost per lead is why it’s important to identify the channel for each lead, so you can allocate the proper cost. This can get more complex if you’re deploying multi-channel campaigns (which you should!), but we’ll keep it simple for now by assuming either the leads are coming through one channel or we’re just using the last channel that converted as the primary channel.
Usually, the CPL is calculated for leads that reach the MQL stage, but you can also use SQLs if you prefer.
Ideally, you’ll also include the personnel costs (your team’s salary, contractors, or any marketing agency costs) in your CPL calculation, but this can be difficult to isolate if you have marketers working on multiple channels. It’s most important that you keep it consistent across channels, so you can compare accurately across channels.
Here are the costs to consider per channel. The calculation is easy by summing up the total costs per month (or any period) and dividing by the total number of leads for that time period (e.g. ($5k for SDR + $1k for the list and software) / 20 MQLs = $300 / MQL).
| Channel | Software Costs | Personnel Costs |
| Email Marketing | Prospect list Custom domains Email account fees Email software | CopywriterEmail marketer |
| LinkedIn Automation | RPA software | CopywriterAutomation marketer |
| Paid Ads (LinkedIn, Facebook, Google, etc) | Ad spend | Asset generation Ad marketer |
| SDRs (telemarketing) | Prospect listDialer | SDRSDR manager (partial) |
| Referrals | Referral software | Bounty or referral fees |
| SEO | SEO software | |
| Social media | Social media software |
CAC (Customer Acquisition Cost)
If you’re calculating the cost per lead and conversion rates accurately, determining your customer acquisition cost is simple. However, since CAC is compared more often across companies, it is critical that you can include all of your marketing and sales costs including personnel costs even if you weren’t including them in the cost per lead. This includes:
- All marketing spend
- All salaries and bonuses for marketers and sales including employees, contractors, and agencies
- All sales commissions
- All overhead costs (e.g. your VP of Sales salary)
Because of those additional costs, CAC is usually calculated per month or quarter and not aggregated by channel although it is helpful to calculate by segment (e.g. mid-market vs enterprise) if you can as you’ll see below.
Therefore, if your monthly sales and marketing spend is $50k per month, and you convert 5 new customers per month, then your CAC is $10k / customer ($50k spend / 5 customers).
LTV (Lifetime Value)
While LTV is not technically related to your sales funnel, it is important to understand your LTV to ensure your sales funnel is converting the right customers. Lifetime value is simply the average amount of revenue for your customers over their entire lifetime although this is sometimes limited to year 1 revenue to simplify comparisons. Obviously, the critical factors are your retention rate and average MRR.
Ideally, this is based on your historical customers and how long they paid you, but you can use forward-looking calculations if you know your average MRR and monthly attrition.
For example, if your monthly customer attrition is 5%, then your projected customer’s lifetime will be 20 months (lifetime = 1 / attrition rate). Then, if your average MRR is $4k per month, your average LTV is $48k.
LTV/CAC Ratio
This is the holy grail of most SaaS companies! It shows the multiple of revenue generated over the cost to acquire each customer. You want to target your LTV/CAC ratio to be at least 3x, and the higher the better of course.
Given the examples above, if our LTV is $48k and our CAC is $10k, then our LTV/CAC ratio is 4.8 ($48k LTV/ $10k CAC). Almost every VC would be interested in those SaaS metrics!
Conclusion
It is always surprising how few companies have properly set up and instrumented their sales funnel to calculate these metrics. However, it is absolutely essential to ensure your marketing campaigns are fully integrated into your CRM, and your sales team is properly keeping their funnel up to date. Otherwise, you won’t have the data you need to properly optimize your growth and scale.
