1.

What are the key purposes of budgets in rapidly growing companies such as
Axonify?

Many people in the early stage businesses believe that it is almost impossible and
therefore useless to create forecasts as there is not enough historical data to predict all
the variables that are relevant. But the reality is that budgets are a key element in any
company. A budget is the most important driver in a decision making process and not
only a financial exercise that restricts the business expenditure. This aspect of a budget
is noticed even more in a rapidly growing company where aligning it with the strategy
and planning is crucial. Although strategy and budgeting are different in nature
(basically, strategy is considered long-term while budgeting short-term), aligning the
short-term orientation of the budget with the long-term nature of strategy is critical for
carrying out the organization’s strategy in an efficient and effective way.

All in all, the main purposes of budgets in rapidly growing companies are, among
others, the following ones:

- To align resources with strategy. Not only financial goals but also non-financial
objectives such as the process to capture a new client as well as the identification
of potential customers in the case of Axionify or also the client satisfaction. It is
crucial that senior management of the firm (VPs) and the board agree on the key
drivers of the business and how to achieve them (process and resources required)
to reach this agreement.
- Act as an effective element to predict future performance. Comparing the results
with the established budget and analyse its variances will help on better
understanding current and possible new business drivers to develop new KPIs
that better track the current goals. Also helps on identifying areas where the
business has improved, and where the business should improve and therefore
may be useful to establish new performance metrics.
- To help a CEO on managing expectations and taking decisions. A budget should
highlight risks and opportunities to anticipate required actions. This allows the
board to better plan possible scenarios and to make decisions based on risk and
return. In the case of Axonify this can be perceived when the board establishes a
limit on the amount spend on acquiring a new customer as profitability
objectives are as important as customer acquisition and revenue growth are.
- To spot bottlenecks and obstacles to grow. A budget must help on identifying
those activities that are struggling to meet the objectives established and
therefore are negatively affecting the revenue growth or profit of the firm.
- To support the financial position of the firm. Analysing the required resources to
establish a proper budget and the variances that may arise at the end of the
financial exercise may help the board of the firm to identify future needs of
financing and therefore act in consequence.
 2. Calculate the total budgeted cost for 2017 of generating the marketing-
qualified leads (MQLs) necessary to meet Axonify’s revenue growth goal.

New Goal: $10 million net new ARR in the next fiscal period.

This New Goal is divided in: $3 million coming from upselling activities and $7 million
from new customers.

AVG CAC should not exceed $150,000.

Data available from 2016

- AVG cost of an MQL was approx. $150.

- Deal size (in dollars) in terms of the ARR of new customers acquired in 2017
expected to be the same as it was for new customers acquired in 2016 ($150,000
per customer)
- In 2016, 7,472 MQLs (coming from 454 introduction calls from which 214
became discovery calls of which 173 were passed leads) led to 27 new
customers to achieve $4 million. Other costs included in the calculation of the
CAC for 2016 were: marketing salaries ($2 million), sales salaries ($2 million),
and other sales operating costs ($1 million).

Total costs for 2017

$7 million is needed to achieve from new customers and each new customer is
historically generating an ARR of $150,000. So 47 new customers are needed to
achieve the target.

Following the data from the acquisition process for new customers in 2016, the
probabilities of reaching an Introduction Call from a MQL is c.6.08%, then to reach a
Discovery Call is c.47.14% and to achieve a Passed Lead is c.80.84%. Finally, the
probability to acquire a new customer from a Passed Lead is c.15.61%.

Given this information, to acquire 47 new customers, a total of 301 Passed Leads are
needed, 373 Discovery calls, 790 Introduction calls and finally 13,007 MQLs.

Knowing that 1 ODR is needed to process 5 Passed Leads and for each ODR we need 2
sales reps, we find that Axonify will need a total of 60 ODRs and 120 Sales reps.

Furthermore, with the information from 2016 we have that the average yearly salary of
each ODR is $57,803 ($2,000,000/35 ODRs) and for each sales rep is $28,902
($2,000,000/69 sales reps). So the projected amount spent in salaries is $3,481,481 for
ODRs ($57,803 x 150 ODRs) and the same $3,481,481 for Sales reps ($28,902 x 120
Sales reps).

Finally, the total cost related to MQLs will be $1,951,022 ($13,007 MQLs per
$150/MQL) and Other costs associated to sales operations are estimated to be
$1,740,741 ($1,000,000 in 2016 to acquire 27 new clients is equal to $37,037 per client,
multiplied by the number of clients to acquire in 2017, 47).

To conclude, the total costs to achieve the targeted amount of $7,000,000 in new
customers (47) in 2017 are $10,654,726.

3. Estimate Axonify’s average total customer acquisition cost (CAC) for 2017.
In the longer term, how might Axonify improve the sales generation process
to reduce its CAC?

The total customer acquisition cost (CAC) for 2017 will be $226,696 ($10,654,726 of
total costs divided by 47 new customers to acquire).

To reduce its CAC, Axonify may improve the following aspects of the sales generation
process:

- Increase the probability of transforming a MQL to a New Client, by trying to

convert more MQLs in Introduction calls or Introduction calls to Discovery calls
or Discovery calls to Passed Leads or, finally, more Passed Leads to New
clients, as the overall process to convert a MQL to a New Client has currently a
probability of c.0.36%.
- Increase the capacity of each ODR to process a Passed Lead (which now is of 1
ODR per 5 Passed Leads).
- Train the Sales reps to reduce the time to close a deal compared to the time
needed by ODRs to generate the passed leads.
- Reduce the cost of each MQL which is currently of $150.
- Cut the salaries per employee (for ODRs and/or for Sales reps).
- Reduce the Other sales operating costs.

4. Evaluate the budgeting approach used by Axonify and recommend any

changes that may be necessary as the company continues to grow.