100% of organizations are over invested in the production of revenue! The over investment is the result of the “Cost of Chaos” to produce revenue. The production of revenue is a TOTAL organizational effort, and while every organization earns revenue in their own way, the goal is to measure and manage all the Revenue Resources Required to create the most earned revenue with the highest return on Revenue Resources Required.
Removing the “Cost of Chaos” is required to get control of revenue growth and to manage the Revenue Resources Required. Controlling the Revenue Resources Required must involve the CEO, product development, customer service, billing, and of course the normal suspects of Marketing and Sales. A major area often forgotten is the effort to deliver the product or service to the buyer, which is where the revenue is earned.
Most organizations only think about Marketing and Sales resources, which clearly have major roles in finding and closing contracts resulting in earned revenue. Those are the same organizations that decrease the marketing budget at the first downturn and push sales for more contracts based on less leads and little or no support from the rest of the organization while wondering what is wrong.
If you only measure Marketing and Sales without a revenue strategy it is like building a fire with only heat and fuel (you must have oxygen) and wondering where is the heat.
However, if you measure Marketing, Sales, Delivery, and the support from the rest of the organization, you will be in a HOT market because you will get the greatest leverage for the resources invested.
Leverage is when Marketing brings the right amount of the right deals at the right time for sales to move to a contract. With the right leads, there are shortened sales cycles, increased win rates, and so on. If the contracts that sales presents to be delivered are in your sweet spot, the delivery team executes delivery on time, on budget, within the estimated margins, while up selling, cross selling, and generating referrals.
In each of the areas, you have key metrics that predict the success of the other parts of the organization. Great lead generation by Marketing results in a decrease in the “Cost Per Sale Hour,” shorter sales cycles, and more margin per deal. Great contracts for delivery result in faster, more profitable revenue and referrals from the delivery team fill the lead generation pipeline with great leads that have a “lower cost per lead” and are more profitable.
Once the TOTAL organizational effort is measured, the new Income Statement metrics are:
- What is the percent of Revenue Resources Required compared to the top line
- What is the percent of Revenue Resources Required compared to the bottom-line
- As you remove the “Cost of Chaos” to produce revenue (less Revenue Resources Required) what is the rate of growth for the top line
- As you remove the “Cost of Chaos” to produce revenue (less Revenue Resources Required) what is the rate of growth for the bottom-line
- Based on last year’s model and the organization wide process, where are the choke points that if removed, increase the growth of profitable revenue
- Based on last year’s model and the organization wide process, where are the over-funded points that have additional capacity, which can be reduced
- Based on last year’s model and the organization wide process, where are the over-funded points that can move funding to under-funded points to increase the growth of profitable revenue
- Every point in the TOTAL organizational model can be measured for leverage. Positive leverage is where additional investment increases growth measured as a percent of the top and bottom line. Negative is where the leverage from additional investment is not justified as measured by the small or negative impact on top and bottom line change in growth.
By measuring each point across the organization and tracking the expected and actual leverage when making decisions, the system is continually getting closer to the highest possible leverage of Revenue Resources Required. Today’s metrics and understandings allow us to invest accurately for tomorrow, ensuring the right demand with the optimal Revenue Resources Required investment.
Start today. The goal is to know today’s numbers, remove the “Cost of Chaos,” and balance the Revenue Resources Required investment to the process points that create the most total organization leverage for tomorrow.