If you’re anything like me, many of you probably watched quite a bit of basketball over the winter months. You watched players passing, and catching, and shooting, and playing their positions to the best of their ability in an effort to help their teams win. What you didn’t see was the strategy, the play calling, the training of the players, the daily coaching and accountability, the preparation, and the selection of who is on the team, what position they play, and whether they start, or serve in a back-up role. However, you can be certain no coach has ever sent five players onto a basketball court without training, structure, expectations, and alignment to team goals and just told them to play football. Then why do business owners do this with their sales function? “You’re a salesperson, just go out and sell!”
When you own a business, you are the coach. You need to determine the strategy, the structure, the roles, the coaching and accountability of your team, and how you prepare for success. Before pointing at your “players” as the reason for your revenue challenges and turning to a “quick fix” like sales training, investments in marketing, hiring a fractional VP of sales, or deployment of a CRM, make sure you have done your job and developed the strategy, structure, alignment of resources, clarity of roles and high performing expectations, and aligned your variable compensation structure to incremental and highly profitable contributions from the sales team. Without this structure in place and direct alignment to how, where, and with whom NET PROFIT is developed, the sales team will continue to underperform, marketing dollars will largely be wasted and, ultimately, organizational value and transferability of your business will be negatively impacted.
So, if you’re a business owner with little experience building or deploying revenue functions, what should you do? The answer lies in the creation of a scalable, repeatable, intentionally built Revenue Function Operating System™. The Revenue Function Operating System should always be developed based on your financial model. It is what should drive all other decisions regarding future investment and alignment of resources.
While it is imperative, as a business owner, that you understand the NET PROFIT by customer, product and/or service, and sales team member, the vast majority do not and, therefore, waste time, energy, resources, and money on marginally, or even unprofitable, pursuits. In a recent engagement, our study helped the business owner determine that any customer with annual revenues of less than $20,000 was unprofitable and created an opportunity cost that allowed them to restructure and divert resources and cash to growing more profitable areas of their business. Another study revealed that the average GROSS PROFIT of the client’s bottom 50 customers was $26. $26!!!! That was before the company paid for inventory carrying costs, commissions, wrote off bad debt, paid for labor in the warehouse to box and ship the product, paid for overhead, etc. And, while they were a growing business, it also revealed that not one of the company’s top 50 customers was brought to the organization via the sales team in the last 5 years. Houston, we have a problem!
Once the financial model is completely understood, the following questions can be answered:
With the most profitable products/services, what business problems are we solving?
Who should I direct my sales and marketing teams to pursue?
What products and/or services should they be focused on?
What is the appropriate messaging sales and marketing should be conveying that differentiates our company and compels prospects to act?
How should resources be aligned and targets assigned?
What should their goals be?
What does success look like?
Where can resources be reallocated?
How do I compensate based on the incremental contribution to business value?
How do I determine where to invest marketing dollars and determine my return?
These are not just questions that would be nice to know the answers to, these are THE QUESTIONS that should drive your organizational strategy and how you align and deploy resources. The answers to these questions will largely dictate organizational value and how you can maximize exit opportunities. How well you not only answer the questions, but act upon the answers, will determine how you fund and grow your business. The revenue function is often referred to as the “growth engine,” or the “sales engine.” While all other functional areas are important, have you ever heard of the “HR engine,” or the “accounting engine?” It is unlikely you ever will!