Diving deep into B2B SaaS metrics with Mike DePaschalis, Head of Finance at Postal.io

Episode Description

In this episode of Diving Deep, Subscript's CEO, Sidharth, has an engaging conversation with Mike DePaschalis, Head of Finance at Postal.io.

Sidharth and Mike go deep into B2B SaaS metrics as they discuss:

What you can learn by looking at cohorts of your customers over time.
The importance of allowing your finance team to work on the business instead of in the business.
The downsides of keeping your subscription metrics in Excel
And more!

Show Notes

Follow Sidharth: https://www.linkedin.com/in/sidharthkakkar/

Follow Mike: https://www.linkedin.com/in/mikedepaschalis/

Follow Subscript: https://www.linkedin.com/company/subscript/

About Diving Deep with Subscript

Diving Deep with Subscript is a video series where we dive deep and explore SaaS metrics with leading investors, CEOs, and finance leaders.

Watch the entire series of Diving Deep with Subscript

Get caught up on the entire series right here: https://www.subscript.com/diving-deep

Episode Transcript

Sidharth Kakkar
I actually wanted to set the stage a little bit and ask a really bad question, which is what do you see your role as and what is success for you?

Mike dePaschalis
Yeah, that's a great question. I see my role as being the background to the company and allowing other departments to execute on their jobs. And so I provide a lot of gateways for marketing, sales, product, engineering to be able to execute on their daily tasks. I operate more in the background and so I allow the company to execute on their goals and really just provide the background support that a lot of these other departments need.

Sidharth Kakkar
If you go one level deeper, what does that mean?

Mike dePaschalis
Yeah, so we're going to get into it. But a lot of what I do is reporting and I provide a lot of key insights that these departments don't necessarily have and they don't look at on a daily basis. They're so busy executing towards their goals. And so my job in the background is to provide these metrics and these different insights that they don't necessarily have on a daily basis and that allows them to continually execute effectively and allow all departments to really come together and execute towards that common goal, right?

Sidharth Kakkar
Yeah, that makes a ton of sense. So I guess if you were to then say, why is it important for leadership team to have great metrics? Why would you say it's important?

Mike dePaschalis
It's so important. Our executive team, we get aligned on a weekly basis around these common goals and the most important one is revenue. We're in a hyper growth startup and so we're constantly striving to optimize revenue, but more importantly, we're doing it in an efficient way. You could easily throw reps on the wall to get revenue, but is it the most effective way? And so we constantly look at marketing spend or the number of reps we need for, quota attainment and all these different factors that go into that bottom line. And my job is to help guide them in the most effective and efficient way of doing that.

Sidharth Kakkar
Yeah, it's interesting because, yes, in a fast growing startup, revenue is the thing that matters most. But then you have almost like all the second derivative stuff that is going to if you only pay attention to revenue, you're going to miss so many important things. I'm curious, like given 2022 is quite a different year than 2021 in a lot of ways, I'm wondering if some of the focus on which of these metrics has changed for you at all or is it roughly the same?

Mike dePaschalis
At its core it hasn't, but some of them have. Being super early on, when we were sub $100,000 in ARR, we were looking at the top of the funnel way more close and we nitpick all these little different metrics within the top of the funnel. But now that we've grown so much, we've been able to kind of take a step back and look at the real key metrics that we've identified as core factors to our business. And so that's allowed us to really optimize those key ones and really zone in on the metrics that matter most. I remember very early on here, honestly, I think we were sub $100,000 in ARR, our leadership team got together and we compiled a list of so many different metrics that we've all tracked in our past lives, and it was a huge laundry list. And I remember I used to do this weekly reporting in Excel manually, and we had all those metrics on there, but over time, we've evolved where we've identified, like I said, the ones that really matter to us. And so we've been able to hone in on those. And now I don't feel like I'm wasting my time with some of these metrics that don't really move the lever for us, but we've really been able to identify those key ones and really optimize everything around those metrics.

Sidharth Kakkar
Can you tell us more about sort of what are the metrics that end up mattering for your business versus the ones that didn't end up mattering?

Mike dePaschalis
Yeah, so our top of the funnel is the most important to us, and those are the ones that we've honed in on the most. We were looking pretty early on at the type of subscriptions that our customers bought. Over time, we wanted to influence what bucket they went into, but we realized that we don't necessarily care what bucket they go into if it's an SMB, mid size, enterprise logo. At that point in time, we just wanted customers. And so one of the things that we've really started moving towards is optimizing for which kind of customer we want. And so that influences all the influence that we have at the top of the funnel to set the stage for the type of customer we want. And so allowing us to hone in on the metrics and the KPIs that allow us to get those end customers that we want has really allowed us to grow our business the way we have. And so for us, the most important is just top of the funnel, MCL, MQL, SQL, conversion rates, and then most importantly, how do those turn into close won opportunities.

Sidharth Kakkar
Some of these metrics, like MQL or SQL and stuff like that, they seem like they would be shared with your marketing leader, and your sales leaders are probably also calculating them or obsessing over them, whereas I'm sure some of the other ones are probably less shared, like maybe like retention or maybe even top line ARR as opposed to bookings. How do you think about that universe of, like, things that you work with other folks on getting right and things that are like squarely in your universe?

Mike dePaschalis
It's a good question. I had some notes in here. The main thing for us is that we've allowed transparency to our sales and marketing team on those KPIs and those metrics and we've given guidance for them over time. And so one of the ways that we've done that is through this cohort analysis over time. And I'll be honest with you, that's probably one of my favorite KPIs and metrics to look into is how do these certain cohorts perform over time and like how can we optimize over time those conversion rates from MCL to MQL, from MQL to SQL. And we look at that constantly and we obsess over them. And so the hardest part for us in the beginning was doing all this stuff manually and that was a big blocker for us when we would go to our department, our leadership team, and we'd say like, hey, and this would be like two or three weeks after a period ends, we'd be like, hey, this is how you perform during the period. And it would be bad data because at that point you're already three weeks into the next period. And so what we would try to do is we try to do all this reporting at the end of the period and then we do an accounting close and there was just so much stuff going on.

Mike dePaschalis
But these leadership teams would operate in a space where they didn't know what they were trying to optimize for, right? And so one of the biggest things for us was being able to unblock that and provide automation and structured reporting that we consistently use. And we even have this data at a real time basis so these leaders can make quick and decisive decisions immediately. And we saw a huge benefit in that too. We implemented an FP&A software in February and our go live date was March 1 and we came out of the month with all this data that was ready for us and it allowed all of our leadership team to make very quick decisions. And we actually pivoted from a strategy that we thought would work, that we realized didn't work. And that was when I realized the benefit of having this structured reporting and being able to provide it to all these leadership teams, the leaders of these teams, and it allowed them to work more on the business instead of in the business, which is a huge unblocker for us.

Sidharth Kakkar
Cool. Are you able to say sort of what that insight was and how it came about?

Mike dePaschalis
Yeah. So in the beginning of the fiscal year, we thought our target market was more on the SMB side and so we optimized our marketing and some of our sales functions around that. However, we quickly realized that it wasn't going to be effective for us to do that. And so we immediately made the pivot based on the data to really push up market. And now we're servicing these mid market and enterprise customers. And I do look back at that moment when we all took a look at the data that we accumulated over the last couple of months, and we really saw those key indicators that, hey, we're getting pushed up market. We don't want to stay in this SMB side anymore. We have this really good opportunity to see this mid market, enterprise segment that there only are one or two players in the space. And so that was the biggest thing for us, and it's completely changed the business.

Sidharth Kakkar
Amazing. And it was more sort of like the top of the funnel metrics that helped you realize that's where the pull from the market was.

Mike dePaschalis
Totally. We saw an increase in marketing spend due to the way that we looked at our inbound leads. And so we realized that it just wasn't effective for every lead that came in, we were spending way too much. And so we realized that if we pushed the market, we had this opportunity to optimize ours and really train them and show them how to push up market, how to really get in the door with these mid market and enterprise teams. And then we're a platform pricing as well. And so once we're in the door with one department, we just allow the whole firm to be able to use us, which is a great opportunity for us to be sticky in these mid-market, enterprise companies. But in these smaller SMB companies, we realized that it was just tough to be sticky because they're so small. And so a lot of these metrics just really showed us that we have this really big opportunity to seize that segment, and we just jumped on it.

Sidharth Kakkar
That's cool. Some of the things you mentioned, like the customer sticking around or growing with you, are sort of more on the after close side of things. And I'm curious how you think about the top of the funnel until a deal closes or new business closes, and then sort of the post close world of metrics. How do you think about the two separately?

Mike dePaschalis
Yeah, super important. Our post sale metrics are the ones that I track the most. So I look at net retention rate, but I look at it in a cohort basis. And honestly, that's my favorite way to look at it. I love looking at the group, the cohorts of close won customers and how they perform over time, not only in an ARR perspective, we have a consumption model as well, where people can purchase things in our marketplace. And so we actually track the spend of those cohorts over time. And so a leading indicator for me is how much does a certain cohort spend over time, and does that increase period over period? And so that tells me a lot about the customer health in regards of we call it GMV gross merchandise value. And so does that GMV grow over time? And does the average grow overtime? Does the number of sends grow over time? And if it does, great. That's a really healthy customer cohort. And luckily, we've seen all of our cohorts increase over time, and that tells us a lot about the business, specifically to our customer health and how they perform and are they finding value in our products.

Mike dePaschalis
And it seems like they are, especially if it grows over time.

Sidharth Kakkar
Got you. That's so interesting. Actually, can you go a little bit further into why look at it on a cohorted basis as opposed to just like one retention number per month?

Mike dePaschalis
It's interesting to look at it on a cohort basis because we can identify the things that we did in a certain period that allowed for that end result. And so if for whatever reason the metric is down during a given cohort, we could go back and look at all the information that was provided in that period and say, we can really point to this could have influenced this. Right. And so it tells a better story of when something was created and then over time, how does it perform? And that's more important to us than just these short glimpses of we created or we had a customer close this month and then they did this the next month. Sorry, they did this this month. And it's just so short term. We like to look at it on a longer period of time, and it also helps us understand the business more. And really, like I said, point to things that we've done over time that will allow us to repeat those actions and continually execute the same way.

Sidharth Kakkar
Yeah, something we often hear from companies with the usage based or GMV pricing model is that they have trouble sort of getting all the data together in order to do the appropriate analysis. How do you solve that problem?

Mike dePaschalis
We have a lot of systems in place. We really did a good job of setting it up from the beginning and identifying what we wanted to track and how we wanted to structure the data. And so when I joined, we were pre revenue, and a lot of that time that I joined, when we were pre revenue was setting up the data in an effective way to be able to report on it later on. And so we set this baseline very early that allowed us to grow and scale, but not lose sight of those core data points that have allowed us to make decisions. We have a prepaid drawdown model, and so our customers actually upload funds, and for us, that's a huge indicator of what they're going to spend in the platform later on. And so we set up that data model where we have very clear transparency into how much they've uploaded, which account it is, and then over time, how much did they spend on it. Yeah, we spent a lot of time in the beginning just making sure that we set this company up for scale and that we don't run into these issues later on.

Mike dePaschalis
As far as you know, now we're scrambling and we don't know where the data is. We've done a really good job of just setting it up for scale.

Sidharth Kakkar
Very cool. Do you have like, a data team to manage that or to draw insights from it and make the call for charts and stuff like that? How do you do that?

Mike dePaschalis
We actually just hired on a data scientist. Before that, it was my team and I. A lot of the data sits in our financial systems, and so we were able to pull this info pretty easily and match it up to all the sales info that came from our CRM. But now that we brought in a data scientist, we're working on actually using a BI tool that will allow us to track the number of sends, what vendor came from, all these different things. And it will just allow the team to grow and make even more insightful decisions based on all the data that comes in and all the sends that we have throughout the platform. It really just over time, it just accumulates and we can start to make more educated decisions based on all the data that we've gotten. And they've started to get into the metadata, too, of like, most of the stuff that I had was top level, which was still good at the stage that we were at. But now as we start to grow, we've really wanted to get into what are the underlying details. And so the data team that we've brought on has really unlocked that for us.

Mike dePaschalis
And so having the finance department working tandem with them has been a huge success. And so we work with them constantly to make sure that we're getting all the good data and clean it up and put it in a reportable fashion to the people that it matters to most.

Sidharth Kakkar
Before this was the finance team downloading the data from the systems and doing it in Excel?

Mike dePaschalis
Oh, yeah, we were doing everything in Excel. Having the systems in place have just changed everything. It's less stress on me and my team. We've been able to focus on other things and like I said, be able to work on the business instead of in the business and getting away from Excel, you make a lot of manual errors. We're only human, right? We've done a really good job of moving away from Excel and doing all this manual reporting and putting it all into a place that's not only it's not prepared manually anymore, but it's also very transparent for everyone else too. And that's the key thing, is when you have it in Excel, it's really hard to be transparent with it. But moving away from that and putting it in systems and allowing other people to view those systems has been huge for us.

Sidharth Kakkar
What would you say are the new challenges in this sort of new world of data and using, creating and sharing reports that you have? What are the things that are hard now.

Mike dePaschalis
Right now it's hard to zone in and figure out what data is the most relevant. For right now, with the abundance of data that we collect, it's hard to really zone in on what matters the most. And you can kind of get lost in all the different metrics that are coming at you or all the different data flows that come in. And so for us, we need to identify what matters to us the most and then optimize on that. We don't want to just pull in all this data and then realize this is way too much. And so we really want to look at what matters to us most and how can we optimize it.

Sidharth Kakkar
Yeah, that makes a lot of sense. With public SaaS companies being down so much this year, how do you decide to now push the gas versus play it safe in order to get to default alive? How do you think about that trade off?

Mike dePaschalis
For us, it's pretty easy. We've seen this tremendous market opportunity and we understand that the TAM is there. And so we look at it how we operated during COVID, and almost like a repeat of that, we actually saw a tailwind with COVID that allowed us to grow the way that we did. And so for us, we realized that people are constantly looking for different channels to reach prospects through. And so for us, we know that that's not going away. And so we keep getting pointed in the direction of keep investing in the top of the funnel. We understand that the TAM is there. All of our metrics are pointing us in the direction of keep investing. For every dollar of marketing you put in, you get X amount out. Right? And so we have this very predictable model that has allowed us to scale, especially during times like this. And so the way that we look at pedal to the metal or put on the brakes is by do we have a repeatable process where we know for every action there's a predictable reaction. And for us, we identified that. And so we've actually taken this time as an opportunity to grow even more.

Mike dePaschalis
And my recommendation for other companies would be to do the same. If you have a predictable model, absolutely. Keep going. As soon as that model stops becoming predictable though, it's time to take a step back, analyze and react. Right? Yeah, that's how we're looking at it.

Sidharth Kakkar
Has anything changed for you all in terms of like, is the market environment changing? What is different for you? Or is it all sort of the same?

Mike dePaschalis
For us? All sort of the same. Luckily, we really haven't felt too much of a squeeze from the environment going up. Market has helped us as well. Unfortunately, all these smaller businesses struggling with the economic downturn, it's really allowed us to identify, hey, it was a great choice to move up market and service, these mid market enterprise customers, and we've seen so many of them come to us over the last four or five months. And so for us, we look back at some of these decisions that go back to looking at the data, all these decisions that we made four or five months ago, and it's really shown, like, we've seen the dividends now, especially in the economic downturn, that we've really tried to do our best to recession proof the business. And so we didn't necessarily predict that a recession was going to come. We knew it was going to come at some point, but we didn't think that what we were doing at a given point in time, four or five months ago was actually going to yield the dividends that it did now. And so we look at all the decisions that we made and we realized that we did the right thing.

Mike dePaschalis
And, yeah, it really hasn't affected too much of the top line.

Sidharth Kakkar
Awesome. Is there like, a conversation that comes to mind where the burn multiples came up, where you were like, well, we could do that?

Mike dePaschalis
Yeah, definitely. My CEO, Eric and I, we had a conversation about it, and when we started digging into the metric, we realized that there was a lot of value in it and it told a good story. And so it is a very broad metric, but it can pose a lot of questions. And so it allows us to figure out, okay, what lever do we need to pull? So if we increase burn, hopefully that increases revenue. Luckily, we have a predictable model that allows that holds true. But sometimes if your revenues I mean, if your revenue increases but your burn is decreasing, it's really good to dig in and figure out why is that right? Or worse, the inverse. Right. If you're burning a lot but no revenues coming in, that really tells the story of, hey, if we're at a three X multiplier, like, we're spending $3 to get one dollars NRR, what's the story behind that? And how can we optimize it in order to get the revenue that we want to get to? Best in class? Is one right for every dollar, one or less right for every dollar? For every dollar you spend, you bring in a dollar of ARR.

Mike dePaschalis
And that's what we're striving for every day, week, month, quarter. That's where we want to get to. And that'll allow us to really pour more fuel on the fire and allow us to continue with that hyper growth.

Sidharth Kakkar
Awesome. Yeah. It's such a good metric to watch for, especially nowadays. If you were to like, there's definitely some teams out there who maybe don't have a great burn multiplier, but I feel like, oh, well, our LTV:CAC is not bad. What would your pitch be to them? But you should maybe also still consider the burn multiplier.

Mike dePaschalis
Yeah, I mean, if your LTV and your CAC ratio is good. You have a predictable model, right? So that means that for every sales and marketing dollar that you spend, you know, how much ARR you're bringing in. And so if that's a good metric, hopefully your burned revenue multiplier is good as well. But that just means that there's extra fluff that you can trim off and so I would just take a look at the business as a whole and just make sure that you're optimizing for the correct things. So if that's more sales and marketing spend increase that to increase revenue, right? Or maybe you're lacking in the R and D department and just trying to make the product overall better. That would be my recommendation.

Sidharth Kakkar
For Postal. You were pretty early finance hire, right? Most companies don't end up bringing on a finance person and their pre revenue. What do you think is the ideal time for a startup who's thinking about when should we have an actual finance function? What do you think is ideal?

Mike dePaschalis
I was brought on pre revenue and I think I gave a lot of insight early on to the leadership team in the sense of hey, this is the model that we have and I think we can do this. My team and I have really honed in and created this predictable model that holds true to this day, which is crazy. We've operated with the same model for about two and a half years now and the benefit of bringing them in is that leaders can just execute on what is most important to their department and allow for the finance team to really get into the back office stuff and take that burden off them. I think that was the most important thing is that I was able to provide support for the sales marketing engineering roles departments where they could just really hone in and execute on their tasks at hand and they could better the business through their departments. And so by allowing them to just go and execute that was the biggest thing. And so sales didn't have to worry about compiling reports and understanding them. We were able to create those reports and we were able to provide them with those insights that they would have been taken off tasks if they had to do it themselves.

Sidharth Kakkar
To wrap up one piece of advice you have for other finance leaders at Series B companies.

Mike dePaschalis
Honestly just work on being so transparent with the metrics. Just be able to provide these leaders with what matters most to them and make sure that we're all striving towards the right goal and optimizing it along the way. Truly just be so transparent with the metrics and it's made such a big impact on our business by providing that transparency and automation. That would be my biggest advice and it's been a game changer for us.