RVNU #008: Sales math: 3x’ing ARR in 12 months
A framework for founder & revenue leader alignment
Notebook LM audio discussion of this Newsletter:
Introduction
I’ve spent my big chunks of my career working in 3x ARR growth environments. There are multiple ways to get to that goal. And whilst it’s never a one-person show, as the revenue leader you’ll be the first to get fired if the company fails to hit this goal. Somehow I was never fired. I think the big reason was the work I did upfront before agreeing to the goal. In short, you need to believe you can make the math add up. This article is all about understanding that math and the levers at your disposal.
The scenario
Imagine you’ve just joined a venture-backed Series A SaaS company as the new VP of Revenue. You’re tasked with scaling the company from $2M to $6M ARR within the next 12 months. You’ve got a team of 4 sales reps, with approval to hire 4 more, bringing the total to 8. The average sales price (ASP) is $50,000, the discovery-to-close rate is 20%, and the current marketing funnel converts leads to MQLs at 1%, with a 60% MQL-to-SQL conversion.
This is an atypical senior in a B2B SaaS startup at the point of series A.
The challenge:
Now, the challenge: how do you align all of the moving parts to hit an aggressive $4M increase in ARR? How do you balance the interplay between sales execution and marketing’s role in delivering the right leads? Most importantly, how do you ensure your plan isn’t derailed by an overzealous founder uninterested in a bottoms-up growth analysis? Let’s dive in.
Step 1: Set Your Revenue Target
Easy, this part is normally set by the founder taking a top down approach based on venture capital expectations of what is required to reach the milestones for the next round of funding. The mission is to add $4M in new ARR over the next year. With an average deal size of $50,000, you’ll need:
$4M ÷ $50,000 = 80 deals over the next 12 months.
But therein lies the challenge, we need to ground this ambition in the reality of the company, not some dream number that’s anchored in nothing more than an capital allocators fund thesis. Here’s how I did it:
Step 2: Assess Your Current Sales Funnel
Here’s the current state of your sales funnel:
Close rate: 20% of SQLs turn into closed deals.
MQL-to-SQL conversion: 60%.
Lead-to-MQL conversion: 1%.
To close 80 deals, you’ll need a pipeline that produces enough SQLs. Based on your funnel’s current state:
80 deals ÷ 20% close rate = 400 SQLs.
400 SQLs ÷ 60% MQL-to-SQL conversion = 667 MQLs.
667 MQLs ÷ 1% lead-to-MQL conversion = 66,700 leads required.
You should now begin to see red flags. The biggest of which in my opinion is the heavy pressure on marketing to deliver volume—66,700 leads in a year. I’ve never experienced such a step change, so this expectation is unrealistic.
Step 3: Ramp Time for New Reps
With 4 new hires on board, ramp time becomes a key factor:
Months 1-3: New reps will be at 0% productivity.
Months 3-6: They’ll reach 50% capacity.
Months 6-12: They’ll be fully productive at 100% capacity.
Factoring in ramp time, using the above math, your 8-rep team will operate at an average capacity of 6.5 fully productive reps throughout the year. This is often missed by founders and VPs who don’t have a finance or revenue operations team to support them. The failure to do just this piece of the math, routinely gets revenue leaders fired. Scrambling to hire more reps, and reduce revenue targets half way through the year rarely cuts it.
The number of fully productive reps impacts how quickly you can generate pipeline and close deals - clearly central to your ability to hit the growth number.
Step 4: Strategic Optimizations
Now this is where the negotiations start with both the founder and the marketing lead. One point of note, in most of my roles as a general manager or chief revenue officer, marketing fell either entirely under me or I had heavy influence over all marketing decisions - this definitely made this process easier, but my job far more intense!
Regardless, brute-forcing volume isn’t the solution. You’ll need to strategically optimize key metrics in your sales funnel to generate more value with the resources you have, and you’ll need to align with all parties involved that everyone is prepared to sign up to these optimizations. And by signing up I mean, be on the hook for revenue growth.
In my opinion everyone across the GTM org, marketing through to customer success should be on the hook for ARR. In fact, I see no reason why product, especially in a PLG environment should not be on the hook for ARR too. But let’s save that debate for another newsletter!
Here’s how you hit 3x ARR:
1. Increase ASP by 20%
Raising your ASP from $50,000 to $60,000 means need fewer deals per head to hit your target, this is key in zeroing out the ramp time of your 4 new reps:
$4M ÷ $60,000 = 67 deals instead of 80.
My take: “if there was one lever I’ve pulled most frequently and most dramatically to impact growth it’s this one. Every company where I have led revenue this number has dramatically increased, and always more than 20%. Me and my teams have routinely achieved >100% growth in ASP, and at Wonderschool, is was >1,000% however as discussed in last week’s newsletter that was part of a major pivot”
2. Improve Lead-to-MQL Conversion from 1% to 2.5%
While increasing lead-to-MQL conversion from 1% to 2.5% won’t ease the pressure on marketing, it will shift the focus from sheer volume to higher-quality, more targeted lead generation. This strategic shift requires marketing to refine their approach, likely leaning into account-based marketing (ABM) or more tailored lead generation methods.
67 deals ÷ 33% close rate ÷ 60% MQL-to-SQL conversion = 339 MQLs required.
339 MQLs ÷ 2.5% lead-to-MQL conversion = 13,560 leads required.
This shift forces a deeper question: Is your current marketing team capable of delivering more targeted, higher-quality leads? Often, marketing teams are optimized for generating volume but lack the skills to produce focused, high-converting leads. The success of this plan now hinges on whether marketing can adapt and whether you have the right people to execute this more nuanced approach.
My take: “This is a critical discussion point every prospective VP of Revenue must have with a founder before joining a startup. I recall a major miscalculation happening on this very subject at Guidebook which had us scrambling in my first quarter as Chief Revenue Officer - no fun whatsoever! Generally speaking, I have much more confidence in an startup being able to significantly improve the lead to MQL conversion rate than I do them increasing the lead volume by a similar clip.”
3. Optimize Close Rate from 20% to 33%
Improving your close rate from 20% to 33% means fewer SQLs are required:
67 deals ÷ 33% close rate = 203 SQLs.
203 SQLs ÷ 60% MQL-to-SQL conversion = 339 MQLs.
With fewer SQLs required, the burden on your sales team decreases, giving them more time and focus to work on high-quality opportunities, and critically it will give them time to run their own outbound efforts. At this price point, you would expect reps to want to generate some of their own pipeline, which in my experience is often the catalyst for major shifts in contract sizes.
My take: “I have taken huge price increases in the discovery-to-close rate in startups and publicly traded companies alike. It’s ultimately about raising the bar across all of GTM, which takes work but is almost always possible. And the thing I love most about improving this metric, is that it’s inextricably linked to an improving in net revenue retention (NRR) - the key metrics in any SaaS company. In my experience improvement the discovery to close rate is a leading indicator for a future increase in NRR.”
Summary Table
The $ Value of These Improvements
The financial impact of optimizing ASP, lead generation, and close rates is significant:
ASP Increase: A 20% boost to ASP results in $670,000 in additional revenue, reducing the total number of deals needed.
Close Rate Optimization: Moving from a 20% to a 33% close rate leads to 27 additional closed deals:
27 × $60,000 = $1.62M in added revenue.
These improvements together generate $2.29M in additional revenue in a single year, putting you significantly closer to your $4M target.
At RVNU, we tie ourselves inextricably to improving these metrics and it’s how we justify our pricing - 10-20% of that value we helped create is what you should end up paying for our services and it’s how you should think about pricing strategy too.
So, whether you:
get insights for free via this newsletter or our free GTM debt self assessment
subscribe to an RVNU course, and adapt our frameworks
are part of one of our communities
join us on a retreat
hire us as co-pilots
At the end of the day, controlling your revenue levers is critical for fast growth, so you have to understand hem in great detail.
Why Marketing Alignment is Critical
This entire approach hinges on more than just sales performance. Marketing’s contribution is essential. Shifting the lead-to-MQL conversion from 1% to 2.5% moves marketing from a volume-driven strategy to a targeted, quality-focused approach. This shift demands a change in how marketing operates—and raises the question of whether the current marketing team is equipped to execute this refined strategy.
As the VP of Revenue, you need to ensure you’re not operating in a silo. A clear and aligned plan from marketing on how they will contribute to the strategy is non-negotiable. Without it, you risk having an underperforming sales funnel due to poor lead quality. The VP of Revenue who fails to address this risk early becomes a sitting duck when the numbers don’t materialize.
Key Insights
ASP Increase: From $50,000 to $60,000, which contributes to higher revenue with the same deal volume.
Lead to MQL Improvement: Increasing the conversion from 1% to 2.5% focuses marketing on higher-quality leads, which reduces the total volume needed but requires more targeted efforts.
MQL to SQL Improvement: Optimizing this conversion rate from 60% to 72% shows greater efficiency in moving MQLs further down the funnel.
Discovery to Close Rate: Improving this from 20% to 30% is a significant lever in closing more deals with the same opportunities.
Conclusion: Build Your Success Through Strategic Alignment
In conclusion, working backward from a clear revenue goal—like going from $2M to $6M ARR—requires more than just sales execution. By optimizing ASP, lead conversion rates, and close rates, you can significantly increase revenue. But the success of this plan is tied to the quality of the leads your marketing team generates.
The key to hitting your target isn’t just about scaling sales; it’s about strategic alignment between sales and marketing and the founder.
I used a version of this plan, coupled with a grounding in the RVNU framework to ensure that we set realistic targets and had realistic resources in order to do realistically hit that famed 3x ARR post series A in all of my revenue leader positions.
And we do this routinely with every client at RVNU as the very first step in our engagement. Try it and let us know how you go.
You got this 👊🏼
Wayne
Bonus subscriber content: Click here and request access to the Google sheet that houses these numbers, and adapt them accordingly for your business.