Revenue, Always on My Mind
The song ‘Always on My Mind,’ first recorded by Elvis in 1972, was again recorded by Willie Nelson in 1982 and once more by Michael Buble in 2007. No matter whose vocal stylings are belting out the lyrics, this song always catches my ear, and gives me a nudge in the ribs. I’ve been in airports, taxis and elevators, letting the lyrics remind me of one thing that’s always on my mind – revenue.
- Will we make our quarterly targets?
- Should we start to fundraise again?
- How will an increase in digital marketing spend move the revenue needle?
- Can we take our ambitious goals and break them into manageable pieces?
- Should we go after every customer, or just the most profitable?
Before you judge, yes, of course, my family is always on my mind, but I know I can rely on their happiness and support as long as I keep being a good father and husband. As a CEO though, I don’t always have that luxury with my business. And I know I’m not alone.
I have colleagues at this very moment losing sleep over upcoming board meetings and quarterly reports. On their minds are questions like:
- How accurate are our cost per acquisition, churn rates, and recurring revenue forecasts?
- If our investors want more revenue growth or earnings per share, how can we best deliver?
Three Words to Calm Revenue Frets
The answer to what’s on our collective minds – and those of any leader of an insight-driven organization – may well be summed up by three simple words: revenue performance management, or RPM.
RPM is a combination of purpose-built technology and collaborative processes that help businesses better predict often complex revenue streams. It starts with more accurate prediction, then enables businesses to optimize revenues by focusing on the most profitable customers, products and channels. And it requires tools that combine financial and non-financial metrics, people and data sources from across the organization.
In the vast majority of businesses, RPM is the untold story behind the top line. It’s is why some companies are thriving, and not surviving:
- At crunch times in the planning process, they’re ready with scenario modeling
- They facilitate accountability and collaboration across all revenue generating business units
- No matter how volatile the market or fierce the competition, they make real-time data-driven decisions
When you start to hold others within your organization accountable for revenue generation, the stress CEOs and CFOs carry around revenues starts to melt.
When first introduced to the concept the skeptic in me asked, if RPM is such a game changer, why don't we see more of it? The answer is easy, and why we see slow adoption with most new business processes. It requires a shift in:
- Thinking from ‘where to cut’ to ‘where to spend’
- The finance role, from collecting information to sharing insights
- Sales and marketing from ‘spray and pray’ to targeting the right customer at the right time
From Cutting Costs to Investing Resources
When profits become an issue (they always do at some time or another), the stereotypical message sent down by finance is a harsh NO to any expansion or spending. Spending cuts are familiar, habitual and easy to justify.
Traditionally, spending cuts start with the marketing budget. “Prospects know about our brand; the world won’t forget about us if we don’t participate in an industry event or two.” “The website upgrade has been put off for three years, let’s pinch pennies for at least another.”
Pressure on sales leaders to trim the fat causes intense staffing scrutiny. “Sales teams don’t require support staff, do they?” “Closing a branch to focus on another region will remove red ink off the books.”
As for customer care, somehow we forget it’s seven times as expensive to acquire a new client as it is to extend the subscription of an existing member. “The loyalty program is fluff, kill it.” “Onboarding doesn’t require in-person visits, let’s save on travel.”
It’s easy to cut or pause spending – that’s why we do it. What makes it easy? The decision to cut budgets requires considerably less or no data analysis. We can make a safe assumption if there is such a thing.
Assumptions – the Not so Silent Revenue Killer
Speaking of assumptions, this is a good time to ask yourself if assumptions helped lead to your current challenges with revenue predictability and optimization. To illustrate, see if any of these sound familiar:
- “At my last employer, we hit our sales targets by hiring more reps and sending them out to knock on doors.”
- “Most businesses in our industry are moving to a self-serve customer onboarding and support system.”
- “Decreasing customer service tickets has nothing to do with the kind of customer we attract and onboard; it’s simply a cost of doing business.”
Maybe this line of thinking is working for your business. For me (and my team), when we’re concerned with how to grow revenues, where we should invest sales, marketing, and customer care resources, I demand data-driven decisions.
Revenue Targets: A Team Sport
In my experience, decisions made in silos rarely pay off. The best decision-making involves multiple departments, and insights from financial and non-financial data. Let’s take a look at what I call silo success:
- Marketing has a positive return on investing in an industry event. Marketing increases lead generation for the month, and sales close on them. Cost per lead lowers, and sales make their targets – success, or is it?
- A month later, more than half the customers sourced from that event turn into high-maintenance drains on resources. Customer acquisition and retention costs skyrockets for the quarter.
- What’s worse, this exact same scenario happened last year. The size of client, combined with the industry isn’t a fit for the product. It requires excessive configuration and ongoing support.
I recently shared with my team an article in Inc. Magazine, 4 Ways Successful Leaders Tackle Difficult Decisions. It drives home the importance of decision-making as a team. As people, we have the need to be valued, and the most valued people in any successful business share the data they’re collecting. When the rubber hits the road, however, this can be easier said than done.
Marketing relies on data from Google Analytics and marketing automation systems to determine success. Sales and customer success teams are leveraging Salesforce.com and customer survey data, while finance is knee deep in ERP and GL systems. These silos may work for reporting on what’s already happened, but tear them down and you’ve got a holistic view of the future. You’ve got revenue performance management and your team transforms into a data-driven machine.
Contrasting with silo and assumption-driven businesses, one that’s adopted RPM looks something like this:
- Marketing knows an increase of X amount in X tactic will generate X leads. Sales determines that the best leads come from X territory and take X amount of time to close. Customer success knows required resources for onboarding and ongoing training.
- With finance in the lead, each department receives the funding they need, plans execution starts and predictable revenue is generated – without habitual budget cuts.
- The result: a team not thrown into panic pouring money into anything they think will work to bring in new customers – a team that finds the most profitable customers, in the least amount of time, with the least amount of resources.
The Right Kind of Revenue
Beyond accurate predictions, RPM recognizes that not all revenue is created equal. It’s a strategic approach to predictable and smart revenue that’s optimized and dependable. Customers with a healthy lifetime value. Shifting from ‘any customer, from anywhere, at any cost’ to customers you can easily attract, satisfy and retain.
Sitting in a boardroom, surrounded by department heads who see life from each other’s perspective, who plan and forecast together, who have the answers before I pose a question. That’s collaboration. That’s data turned into insights. That’s knowledge turned into action.
As for the song currently looping in my head after discussing revenue performance management, it sure isn’t Puff Daddy’s Mo Money Mo Problems. In fact, I might pull out the guitar tonight to string together the lyrics for Mo RPM, Less Problems (the title could use some work).