In the first In our Cloud Quarterly Report series, we’ve talked about how the market has shifted to underestimating the profitability of cloud companies, even with growth.This thread on Twitter goes deeper into that data).
There is no shortage of performance metrics that cloud executives track to get a better view of their overall economy. Sales and marketing efficiency metrics like LTV-to-CAC, CAC return, and the magic number are staples in boardroom and fundraising materials. As the market has turned, multiple burn (net burn/net new ARR) has emerged as a popular and comprehensive way of looking at growth that equates to burn and ARR growth.
The problem with these performance metrics is that they are not realistic enough to apply to your employees. They feel more like financial metrics than practical ones, and it’s hard for employees to execute against these concepts.
Improvements to a product can have a big impact on sales efficiency, but those improvements are the product of product and engineering rather than something that might feel like a high-tech brain. Too much burnout focuses on “bad burnout” rather than identifying which activities increase profitability.
It is still very important to be a winner in your market.
Our advice to cloud CEOs? At your next cross-functional meeting or your next one-on-one with functional leaders, align your team around ARR per employee – a measure we call APE.
APE is a very simple measure that we think can serve as your north star as you navigate these changing times.
Why should APE be an effective North Star?
The cost structure of cloud companies is primarily driven by people. There are other costs to keep in mind such as cloud costs, real estate and other SaaS applications to run your business. But 70% of your costs can be directly related to your employees. At the end of the day, your employee base is where it all starts if you want your business to be more efficient.
A key point here: growing the employee base should be done through smart, measured hiring, not reactive force reduction. Achieving the former will help your business avoid the latter. As you try to instill this hiring discipline in your organization, APE can be a powerful tool.
