Any revenue-focused executive who can’t reliably deliver on his or her revenue commitments will soon be out of a job. Yet according to CSO Insight’s 2010 Sales Performance Optimization study, only 52% of sales reps met quota in 2009, and companies achieved only 78% of their revenue plans. As a result, CEOs and their executive teams at public and private companies faced tough questions from their boards about their ability to deliver consistent, predictable revenue – and more than a few lost their jobs.
The problem is that these companies are using an outdated revenue engine that was originally built for a different buying and selling climate. In contrast, today’s best companies are using a new revenue engine that uses repeatable marketing and sales 2.0 techniques to grow revenue predictably and reliably.
The Old Revenue Engine
The old revenue engine is focused on the sales team. When companies want to double revenue, they double their sales force. In the past, this model worked. Information that prospects wanted (e.g. pricing, product details, customer references) was not readily available with just a few clicks, so prospects were willing to speak with a sales rep to get it. Sales reps did their own prospecting and generated 70% or more of their own opportunities – and as a result, marketing was seen as a cost-center whose budget does not go up when revenue targets go up.
But things change. Recent years have highlighted the flaws of the old revenue machine, including:
- It’s outdated. The way buyers research and buy solutions has changed forever, and the old sales process can’t keep up. Today’s buyers have an abundance of information at their fingertips, and are using it to seize control of the purchasing process. They don’t want to speak with a sales rep before they’re ready to do so on their own terms. Companies using the old revenue engine see this every day when they call prospects prematurely and end up simply annoying the prospect and wasting the sales reps’ time. (My motto: if you can’t add more value to the prospect than they can get in five minutes searching on Google, then don’t call.)
- It’s expensive. Having sales reps doing their own prospecting is a terrible idea, especially for companies that sell products with less than $250,000 contact values. They’re bad at it, and they’re too expensive to throw at what is essentially a “scale” problem. And even if a rep does some prospecting successfully, as soon as they generate some pipeline, they become too busy to prospect. It’s not sustainable.
- It’s not predictable. The old revenue engine suffers from feast or famine. We see this all the time with hockey sticks at the end of the quarter, followed by complaints to marketing since there are no sales leads and the pipeline is now cleared out, followed by panicked prospecting to try to make something happen in time to make the numbers. These wild pendulum swings may create great sales heroics, but they also create ulcers for anyone responsible for delivering on a predictable revenue number.
A sales machine on its own is no longer sufficient to drive a company’s revenue growth. Companies need a new revenue engine.
The New Revenue Engine
The new revenue engine consists of systematic, repeatable processes than span marketing and sales to drive consistent, predictable revenue. It recognizes that demand generation is the key source of new customer acquisition, and it knows the primary job of a sales rep is to sell and close business, not create new opportunities.
The new revenue engine works best when all of these processes are in place and working effectively:
Lead generation. Marketing leads are the fuel that powers the revenue engine, so a predictable flow of new qualified sales leads into the top of the funnel is essential to driving predictable revenue. Big lead generation programs like trade shows still play a role, but so do methods that create a steady stream of quality leads such as word of mouth, organic search optimization, and content-based marketing.
Lead nurturing. Nurturing is all about staying in touch with prospects as they educate themselves, until they’re ready to engage with a sales rep. Since some prospects will be ready quickly, and others will take longer, it has the effect of “smoothing” out lumpy lead generation to help deliver a steady stream of leads. It’s like the farmer who plans different crops that ripen at different times so he can eat all year.
Lead scoring. Scoring goes hand-in-hand with lead nurturing, since it tells you when a lead is “ripe” and possibly ready to engage with sales. The key is to focus not on self-reported and often inaccurate firmographic and BANT criteria, but on the actual buying behaviors the prospect exhibits (repeatedly visiting the website, downloading later stage content, using your company brand name as search term, etc.).
Lead qualification. Once inbound leads are determined to be marketing-qualified, don’t send them directly to an account executive. When salespeople qualify their own leads, leads get lost, and lead scoring by itself is insufficient since it at best indicates accounts that are likely to be qualified. Instead, between marketing and sales there should be a “human touch” in which someone actually speaks to the prospect to determine if they want to engage with a sales rep. If so, pass the sales qualified lead on; if not, mark the lead as truly disqualified or more likely send it back for further nurturing. With this process in place, by the time the “expensive” sales rep gets the lead, it has been qualified by both marketing and by inside sales and the vast majority should be worth the sales rep’s time.
Sales development / prospecting. This is the function that prospects into accounts where there is no active or pre-existing interest. Even companies that generate a great flow of inbound leads can still benefit from this, since (1) the competitors are prospecting into accounts, so waiting for inbound interest can be a recipe for ending up as “column b” and (2) it’s an important way to generate business in new markets where the inbound interest is not as high. Some companies have their sales reps perform this function (which can be expensive) and some have the lead qualification team do it, but some of the best companies have teams that specialize on this function alone. The reason? The mindset and skills required to qualify an inbound lead are very different from that required to prospect into a cold account, so having the same team perform both functions can hurt productivity.
Traditional sales. Even when reps get a steady flow of highly qualified leads, there’s still a lot to be done to turn qualified interest into revenue, ranging from building ROI cases and positioning versus competitors to negotiating discounts and managing contracts. The new revenue engine doesn’t change the skills and best practices required here, but it does help reps focus their time and energy on the activities that are most likely to drive business.
Customer success. It’s been proven time and again that companies with the most satisfied customers in any industry grow faster than their peers. Over the long run, no company can have an efficient revenue engine if they don’t have happy customers. This is even more important for any business with a recurring revenue model, since for those companies keeping a customer is as valuable as signing a new one.
Benefits of the New Revenue Engine
The new revenue engine provides benefits across the revenue cycle, including:
- Lower Customer Acquisition Costs—As a result of more effective marketing programs and more efficient sales efforts;
- Reduced Wasteful Spending—Cold calling, direct mail pieces and other high cost lead generation tactics, which companies often turn to at the end of a quarter once they realize they aren’t going to hit quota, are eliminated;
- More Predictability in Sales Forecasts—The focus on lead qualification leads to repeatable, predictable processes and a steady stream of sales-ready prospects, higher close rates, and more consistent growth;
- Greater Pipeline Stability—Sales teams are able to avoid the feast or famine routine of 100 deals closing in one quarter, while only 10 close the next.
Learn More
If you like this post, check out these new whitepapers that helped inspire it:
- The New Revenue Engine: An Inside Look At How Leading BtoB Companies Are Improving Efficiency & Effectiveness By Building Shared Sales & Marketing Machines
- Predictable Revenue (Excerpted from the new book “Build a Sales Machine”)
Original Post: http://blog.marketo.com/blog/2010/03/the-new-revenue-engine-predictable-revenue-revenue-machine.html
