The magic of benchmarking for driving alignment & growth in SaaS companies

For more than 70 years, it was a widely accepted belief that running a mile in four minutes was simply beyond the capabilities of the human body. On May 6, 1954, Roger Bannister shattered that belief with his historic race in Oxford, England, where he finished with a time of 3 minutes and 59.4 seconds. 

Bannister's record didn't last for long. It was broken just 46 days later, and in the following year, three more runners would go on to break the four-minute barrier in a single race. Bannister’s run that day is historic because he was the first to break the record. But the real legacy of his feat is what it taught the world -- how, when we break through our limited thinking, we can achieve things we never thought possible.

This is particularly relevant for SaaS companies, who often face daunting growth objectives. It may help to know that Bannister faced some pretty stiff challenges too. The running conditions on that day in 1954 were far from ideal. It was windy and raining, and he was running against a strong crosswind that was sure to slow him down. Bannister had little use for limiting beliefs, and by choosing to focus instead on developing his own unique running style he was able to achieve the impossible. 

You can, too. If you’re struggling with growth targets in your business that feel impossible, benchmarking can help. Using benchmarks, you can develop your own unique plan for growth that will help you achieve them despite any headwinds you may be feeling in the current market. We'll show you how in this article.  

Benchmarking makes the impossible possible

SaaS financial planning is tough. As a leader in your company, you're juggling multiple mandates, and chief among them is growing your business faster. It’s your job to figure out what your costs should be, how to reduce your spend, make your teams more efficient, improve your ROI, etc. So, you take a deep dive into your data, looking at the complex interrelationships between all your metrics and crunching the numbers. A few weeks later, you emerge with a new plan, which you now must present (perhaps with a bit of dread) to your teams.

Let the race begin…

When you tell your teams they must reduce their spend, they start to argue. The growth targets you’ve set for them already seem impossible, and when combined with a tighter spend, your teams immediately start pushing back, hard. Each of them has their own rationale for why they need more budget, and all of them are convinced that what you’re asking for is simply unachievable. 

While your teams argue about what is and isn’t possible, you're wasting precious time. Getting mired in such debates ultimately leads to one or both of two outcomes:

• You fail to achieve your top-line revenue targets.
• Your costs increase due to poor planning and inefficient use of resources.

You know they can do it. Just like every runner before Bannister thought the four-minute mile was a physical impossibility, your teams are letting their limiting beliefs stand in the way of what they can achieve. But how do you convince them of that? 

How do you break through that barrier?

The magic of benchmarking for driving alignment

The magic of benchmarking is that it changes the whole conversation about how to meet your growth targets. By setting targets that are calibrated against best-in-class companies that are similar to your own – you show your teams what is truly possible for your business. 

Once your teams know what’s possible, the whole conversation shifts to how to achieve it. Benchmarking helps you break through those limiting beliefs to develop a data-driven strategy, one in which the goals of each team and the actions necessary to achieve them all map back to the higher level organizational goals you’ve established to grow your business. 

This is true alignment, and your business likely won’t succeed without it. 

Achieving alignment is critical for growth, and 70% of companies that have a mechanism for translating their strategy into operational activities are more successful. When you make your benchmarks actionable, your chances of meeting your targets increase dramatically. 

Alignment makes growing your business easier

Having a strategy isn’t enough. It’s hard to execute on a strategy not everyone agrees with. People have to believe in your strategy to align with it. Benchmarking not only changes the conversation about what is possible and what isn’t, it also makes it easier for people to align around your strategy because the rationale behind your decisions is clear (and clearly objective).   

When everyone is on the same page with the targets they need to reach and why, each person can see the value of his or her individual contribution to the company's objectives, which leads to greater employee engagement and productivity. 

Alignment creates a culture of collaboration, too. When all your teams are aligned around common goals, they'll start working with each other instead of against each other.

Alignment can unleash massive growth in your business. According to Gartner, companies that are able to execute on new growth strategies increase their profitability by 77%. So, if you find your teams are at odds, it's time to start benchmarking to give them a strategy they can all align with to grow your business.

Benchmarking is a proven way to drive productivity and growth

The practice of using benchmarks to drive productivity and growth in business dates back to the 1880s and the Industrial Revolution. That's when a few smart industrialists started looking at the productivity of their more successful competitors, and seeing what was possible, began to look for ways to become more profitable, to make higher quality products at a lower cost and in less time.   

Over the following century and a half, the practice of benchmarking has evolved to include not only process benchmarking but also a wide variety of internal and external performance benchmarking and has been adopted in industries of all kinds. 

Today, businesses of all sizes, from global enterprises to small startups use benchmarking to drive high-level strategic decisions, implement operational changes, evaluate how their company performs against the competition, and identify areas for improvement. It's also worth noting that investors often rely on benchmarking to evaluate a company's prospects for success.

The real value in benchmarking, however, is the ability to leverage the insights gained from it to grow your business. Comparisons for the sake of comparison accomplish little. You need to make your results actionable. 

“SaaS benchmarks provide strategic goal posts. As operators of our business, we can use these goal posts to determine what is working and what is not working in our SaaS business model. Without measurement, we cannot improve.”
– Ben Murray, The SaaS CFO

How to use benchmarking to drive growth

Nowadays, you can find a wide variety of benchmark data for SaaS companies. Some are very robust,  others are not so much. So, it's important to look for benchmark reports from reputable sources. There are also a number of very well-regarded benchmark providers in the SaaS industry (e.g. OpExEngine) whose data you can rely on to support your benchmarking effort. 

At a high level, the process of using benchmarks to drive growth in your SaaS business consists of the following six steps: 

Step 1. Identify the metrics that matter for your business‍

These should be the strategic-level KPIs that matter most to your board and prospective investors. Typically, they will include a combination of financial and operational metrics and a few key SaaS metrics.

Step 2. Find industry benchmarks for your key metrics ‍

There are several sources for benchmarks available today. When choosing the benchmarks to use in your plan, it's important to use benchmarks from reputable sources and for companies that are similar to your own. There are a number of different characteristics you can look at here, such as maturity, revenue ranges, target market, etc. Just keep in mind that the more representative the benchmarks are for your company the more useful they will be.

Step 3. Establish your internal baseline for each metric‍

Once you've found good benchmarks for the KPIs you've chosen to focus on, you need to determine your baseline (or base rate) for them over some period of time, so you can compare them to your benchmarks. For each KPI, you'll calculate your baseline by averaging your performance results for that KPI over whatever period of time makes sense for your business (e.g. the past quarter or six months, or the past year, etc.).

Step 4. Use the benchmarks you found to identify your opportunities

This is where you compare your baseline for each KPI with your benchmark to see how you measure up. Falling short on one or more of your KPIs isn't a bad thing. This represents opportunities for improvement and the growth that will come with it.

Step 5. Make a plan‍

In order to take advantage of these insights, you need to make a plan with a realistic timeline for making the improvements needed to achieve the growth you're after. The key here is to start with the end in mind. For example, ask yourself, can you realistically meet each of your KPIs in three years? If so, build out a three-year plan. Whether one year or three, once you have a realistic timeline for meeting your benchmarks, it's much easier for everyone on your team to understand the steps needed to meet them. 

Step 6. Track your progress‍

Ideally, you should track your progress toward your goals on a quarterly basis. Benchmarks can change fairly frequently depending on the source, and running through this exercise on a quarterly basis helps you measure changes in your company's performance, which can help you keep up with your competition. 

For a detailed, step-by-step walkthrough of the benchmarking process, check out our blog, Making benchmarks actionable — The right way to use SaaS benchmarks for strategic planning.

Check out Drivetrain

Benchmarking has the remarkable ability to bring your teams together, aligned and working toward the same goals. To do that effectively, you need a system that provides a single source of truth that makes your benchmarks visible to everyone.

That system is Drivetrain, a purpose-built platform for managing both your collaborative planning and budgeting needs. Drivetrain aggregates all the data needed for planning and budgeting in one place so you can easily track your progress toward your benchmarked KPIs. Drivetrain makes benchmarking easier and helps your teams collaborate to ensure their activities are aligned. 

If you want to make benchmarking not only easy but truly effective, contact us today to book your demo.