Revenue operations has emerged as a board level issue for a simple reason – organic growth, and the commercial assets that create it, have become essential to value creation in every business. An analysis of total shareholder return of the S&P 500 over a twenty year span found that 58% of value creation is attributed to organic growth. The ability to grow organically has created more firm value than all the efforts to reduce costs, expand earnings multiples and improve free cash flow combined. The growing relationship between revenue growth and firm value can be seen in the high valuations awarded to businesses that can deliver predictable, scalable, and profitable growth or hyper growth (in the case of cloud businesses). For example, the marketplace values firms with hyper growth (over 40%) and predictable revenues (Annual Recurring Revenues) disproportionately. That is why a hyper growth business like HubSpot commands PE ratios in the hundreds while not yet showing a profit. It also explains why a pure play SaaS business like Salesforce.com – where the majority of revenues are recurring, and revenue growth rates are in double digits – will have a valuation in excess of 60 times its earnings while the average business in the S&P 500 growing at 4% has historically generated 18 times its earnings.
The Opportunity to Unlock More Profitable Growth from Your Existing Revenue Teams, Operations and Systems
Revenue operations is a management model for aligning sales, marketing, and customer success teams around the customer and creating more leverage with the systems, operations and processes that support them. Moving to a Revenue Operations model can help any business grow more consistently. This is true whether you run a Fortune 1000 enterprise, a fast growing SaaS business, or are attempting business transformation to a recurring revenue model. In our experience, organizations that move to a Revenue Operations Model are generating five to ten points of bottom line profit contribution in the short term. If those savings are reinvested or redeployed they can improve their long term growth prospects significantly.
Why is better aligning sales, marketing, and customer support teams and the operations and systems that support them such a big opportunity? The answer is simple. Sales has become more capital intensive as digital technology and selling infrastructure make up a bigger part of the selling system. Selling involves what we call “4D” selling networks of revenue teams that are distributed geographically, digitally enabled, data-driven and dynamically deployed. Most organizations are still trying to use management systems developed in the 20th century to manage a far more advanced and digitally enabled commercial model in the 21st Century. This has led to some severe financial consequences:
- Companies manage valuable growth assets like customer data and enablement technology in as many as a dozen different functional silos. Thisresults in waste, redundancy and much lower than acceptable returns on the technology, data and digital infrastructure assets that underpin firm value and future revenue streams.
- The fractured management of the enterprise commercial process across traditional marketing, sales, services, and customer success functions causes revenue and margin to leak through “air gaps” and handoffs in the customer journey. Companies can lose 10 points or more of EBITDA margin and countless opportunities this way. And the customer experience suffers without better management control over the entire revenue cycle.
- The uncoordinated leadership of customer facing revenue teams leads to coverage gaps, suboptimal resource allocation, higher selling costs, customer churn, and missed opportunity.
On a practical level, a poorly managed commercial model is like an expensive racing car that does not drive very fast or far because it is only firing on two cylinders, gets terrible gas mileage, and needs a wheel alignment and a tune up.
Management models evolve. And modern selling requires levels of speed, accountability, visibility, and teamwork that are unmanageable in a traditional functional stovepipe organization model.
So a new management system is needed. One that does a better job of generating more consistent and scalable growth from commercial selling teams, processes, systems, and operations.
This management system is most commonly described as a Revenue Operations model. There is general agreement that Revenue Operations is important, but little clarity on how to define and describe it because it is a nascent discipline. The executives and managers we interviewed in our analysis were struggling to squeeze more growth from their revenue teams in the face of these secular selling trends. They were looking for a better way to generate more consistent growth in the new market reality. In the absence of established management theory and precedent, there are plenty of analysts, experts, and point solutions ready to present a quick cure. This creates mostly noise and confusion and little sound executive guidance.
To help business owners and leaders define a best in class Revenue Operations model, we worked with leading academics and experts in the science of revenue growth to interview hundreds of business leaders. Based on that research, we determined Revenue Operations is best described as a management model or system. One that does a better job of generating greater returns from commercial selling teams, processes, systems, and operations. The goal of a Revenue Operations model is to better align your sales, marketing and services teams around a coherent set of customer and company goals to accelerate revenue, profit, and value growth.
We identified the six specific elements that make up a revenue operations model. Growth leaders should consider deploying these if they want to better align their revenue teams, commercial assets, systems, and processes to deliver more consistent revenue growth and account expansion. To help executives understand what Revenue Operations is and how it can impact their business, we published a blueprint for deploying a Revenue Operations model with the Revenue Enablement Institute entitled Revenue Operations in a 21st Century Model.
Any executive looking to generate more growth from modern “4D” (digital, data-driven, distributed, and dynamic) selling systems should understand this blueprint. It will guide them as they make their future growth plans. Managers that are under pressure to get results in the next sales quarter will find immediate opportunities to apply these principles to unlock more growth in the next quarter.
Four practical and profitable steps any organization can take today to unlock more revenue growth with Revenue Operations
Based on our experience leading dozens of Revenue Operations transformations, there are several practical, common sense, and profitable ways any organization can start to deploy revenue operations to unlock more growth from existing resources right now.
1. Focus your Commercial Operations on Recruiting, Ramping, and Retaining Top Sales Talent
2. Update Your Commercial Architecture To Reflect The New Dynamics Of Selling
3. Leverage Commercial Insights To Dramatically Sharpen Your Targeting And Focus Your Selling Resources
4. Re-Evaluate Your Commercial Enablement Technology Investments With An Eye For Reducing Administrative Costs And Improving The Seller Experience.
Individually these actions will generate short term savings and lay the foundation for more consistent and scalable growth. Collectively, the offer the potential to dramatically boost revenues and improve the customer experience while lowering costs. These steps are outlined briefly below with links to deeper resources if you choose to explore them more.
1. Focus your Commercial Operations on Recruiting, Ramping, and Retaining Top Sales Talent: This is an immediate opportunity to improve revenue growth and sales quota attainment while reducing cost to sell. 90% of the executives we work with agree that their sales reps are their biggest growth asset. But in our experience few manage their sales reps as valuable assets. Most don’t realize how poorly those assets are performing on a financial basis or the true cost of attrition on sales, margins and costs. If the average CFO evaluated their salespeople as financial assets, they would conclude sales reps are expensive (between 10-40% of firm spending), require significant maintenance and upkeep (training and management), yet underperform (most fail to achieve quotas), and have a useful life of less than 2 years. This is because of the fragmented way most organizations recruit, develop, measure, manage and motivate their reps. In most cases, no single person is responsible for measuring, managing, or improving the performance of the talent pipeline. The booming economy has only compounded the problem by increasing sales rep attrition rates in every industry to all-time highs. The financial consequences of these disconnects on your revenue goals, selling costs, and margins can be severe. A five percent increase in sales rep attrition across your sales team can increase selling costs 4-6% and reduce total revenue attainment by 2-3% overall. This doesn’t have to be the case. There are a dozen common sense steps any organization can take to improve the process of attracting, recruiting, developing, and retaining top sales talent if they managed it as one enterprise process. These include establishing a clear career path, connecting training and development systems into a closed loop process, using AI to enable one-to-one coaching at scale, and taking steps to measure and improve the seller experience. An effective first step is to assign an executive to manage and measure the performance of the process of recruiting, ramping, and retaining sales talent across the company. Improving seller attribution, seller satisfaction and the cycle time to ramp new sales reps even a few percentage points can lead to large improvements in margins, costs, and revenue attainment. You can learn more about these best practices here.
2. Update Your Commercial Architecture To Reflect The New Dynamics Of Selling: The dramatic shift to what we call “4D” selling networks has likely made the assumptions underlying your territories, quotas, coverage, and roles obsolete. In our experience, most organizations can dramatically increase the engagement, speed, and productivity of their revenue teams while reducing the associated cost of sales by adjusting the parameters in their commercial architecture. A properly designed and optimized commercial architecture can contribute five to ten points of profit contribution to the bottom line in the short term and improve individual rep productivity by over 50% over a few sales periods. Taking the time to quantify the potential to increase rep engagement, productivity, and speed by adjusting your coverage, roles, account priorities, incentives, and seller emphasis will yield good returns. This can be done with no incremental investment. Realizing these gains involves spending 60-90 days redesigning and optimizing elements of the commercial architecture. These changes include redefining roles on the revenue team, increasing the cadence of engagement, changing the mix of interactions, and refocusing your territories and quota assignments on better opportunity.
3. Leverage Commercial Insights To Dramatically Sharpen Your Targeting And Focus Your Selling Resources: Every business leader understands the 80-20 rule when it comes to targeting customers, in theory at least. But In our experience, most organizations we work with tend to target too many customers and develop too few of them. There are good reasons for this – the optimism of sellers, the desire to realize more market potential, and the pressure to generate the most revenue growth from scarce selling resources. But they are also the result of some bad habits. For many businesses the “customer curve” remains too long and sellers continue to chase “tail accounts” that are unprofitable to pursue. These common problems are usually the result of human nature – Not challenging entrenched belief systems. Using “gut feel” assumptions to size opportunities. Relying too much on historical sales data instead of predictive insights when planning. The secret to getting more sales lift from existing resources is to convert the customer engagement data you already have into commercial insights that inform account priorities, resource allocation decisions, and the level of effort to apply to specific target customers. In particular, it is possible to develop highly accurate Propensity to Buy targeting models using your existing CRM and transaction data. This can be done quickly. A Propensity to Buy Model will more accurately predict which customers are going to buy from you, with the least selling effort, and which ones are not likely to buy or will require too much work to convert. When compared with the estimates of sales teams and local market leaders – these models are usually 20% more accurate at predicting who will buy, and who will not. When combined with human insights about local markets and customer relationships – they become even more predictive and accurate. And they take less time than human targeting. The targeting also gets smarter over time, starting a cycle of measurable and continuous improvement. In our experience helping dozens of businesses deploy such models, most see near term gains of 20% or more in conversion, sales quota attainment, and account development. You can learn more about propensity to buy models here.
4. Re-Evaluate Your Commercial Enablement Technology Investments With An Eye For Reducing Administrative Costs And Improving The Seller Experience: Most of the companies we work with have invested in twenty or more selling tools in an effort to automate and enhance the day-to-day selling workflow. These include the digital selling technology stack, and all the customer data, selling content, methods, and IP your team uses to sell. In most organizations these assets are severely underperforming because they are managed in too many different functional silos. Many of our clients complain they have too many tools, and the complexity of this selling stack has them “working for the tools instead of the tools working for them”. Any organization will see improvements in overall costs and the seller experience if they explore ways to simplify the day-to-day seller workflow and streamline the administration of data, technology, and content in their business. Spending the time to evaluate the sales technology portfolio and customer data assets will identify immediate ways to rationalize the technology stack to eliminate waste, redundancy, stranded or non-performing assets. It will also help you streamline the seller experience and improve adoption of productivity improving tools. You can learn how to conduct a commercial technology assessment here.
Practical steps owners, investors and CEOs can take to start generating more growth and firm value from existing assets today
There are many more ways we are seeing organizations grow revenues and margins using the Revenue Operations model. To make it easy for our clients to determine the two to three “quick wins” in their organization , we’ve developed a thorough but common sense way to quickly evaluate all the different ways your organization can improve performance through better alignment.
The business practices underlying these six elements of the Revenue Operations model are detailed in the 21st Century Commercial Model report which you can access below.
Our team can also quickly assess the potential to unlock more growth from your commercial operations using a 72-point Revenue Operations Maturity Model. With a minimum of management time and attention, our team can quickly assess the state of your commercial transformation and identify the most financially viable way to “stairstep” your organization towards greater alignment of sales, marketing and CX teams, assets, systems, and processes.
With an investment of only several hours, the faculty of the Revenue Enablement Institute can create a detailed revenue operations assessment analysis that can help your leadership team understand, visualize, agree upon and prioritize the steps they can take in the short, medium, and long term to grow faster and more profitably.
IDENTIFY THE BEST WAYS TO UNLOCK MORE GROWTH WITH REVENUE OPERATIONS
With an investment of only several hours, the Revenue Enablement Institute faculty can create a detailed revenue operations assessment analysis that can help CXOs understand and visualize the steps they can take in the short, medium, and long term to grow faster and more profitably.
LEARN HOW TO UPDATE YOUR COMMERCIAL ARCHITECTURE AND IMPROVE PERFORMANCE
Our expert faculty can audit your sales force design and go-to-market architecture to estimate the potential to unlock more revenue and margin growth by re-calibrating coverage, selling roles, account priorities, product emphasis, the mix of engagement, and deployment of your revenue teams
GET OUR NEW BOOK ON REVENUE OPERATIONS
Get an advanced copy of the upcoming book on Revenue Operations and learn a system for aligning your revenue teams and the technologies, data and operations that support them to grow faster.