If you don’t know your Revenue Resources Required and manage accordingly, you are sure to be “OVER PAYING & UNDER ACHIEVING.”
From my experience with over 10,000 companies, everyone is “Over Paying” for the amount of revenue they are currently getting, and they are “Over Paying” by a LOT!
One way to think about “Over Paying” for revenue is what we call the “Cost of Chaos” for producing revenue. The “Cost of Chaos” is between 10 and 30% of a company’s topline. If you own a $20,000,000 dollar company you are both “Over Paying” between $2,000,000 and $6,000,000 each and every year, but in addition, those dollars you over pay are anchors that hold down the revenue growth that should be yours. So maybe you should be a $24,000,000 company, not a $20,000,000 company.
Nobody who runs a company gets up every morning and says I think I will increase my “Cost of Chaos,” decrease my EBITDA and hold down my revenue growth, but that is EXACTLY what they do.
Since this increased cost, decreased EBITDA and reduced growth happens every time it must be we don’t know we are doing it or we don’t know we have a choice or we don’t know what to do to be in control of growing more profitable revenue without spending more money.
As a matter of fact, the way you will grow more, profitable revenue faster requires you to SPEND LESS MONEY to get more predictable revenue.
Exactly how do you SPEND LESS MONEY to get more?
Get your “Revenue Generation” team (sales, marketing, customer service, proposal development, product development) and the leadership team (CEO, CFO, COO, etc.) in a room with lots of flip charts and pens. Now reintroduce them to the Revenue RoadMap https://tinyurl.com/3sy35z5).
You will notice that this is the Revenue RoadMap version with operating metrics. These operating metrics will open your eyes and close your wallet (at least for expenses going out).
The meeting goal for your revenue and leadership teams is to figure out who works on accomplishing these goals and what are the true costs the company pays to get the results required at each stage of the metrics (gold, blue and red).
The team will spend most of the day listing everyone, everything and every dollar that goes into accomplishing the Revenue RoadMap outcomes. In a perfect world, the teams will break out the cost in categories as similar to your Profit and Loss statement (we need the CFO as part of this effort) as possible.
Some of the costs will be based on time such as how much time does the CEO spend in the marketing function networking to find deals? Also how much time does the CEO spend in sales (coaching, selling, proposing, etc.) and lastly in delivery, customer support, firefighting and making sure current customers give us referrals? To do this (or each function), we also need the detail for hard costs including trade shows, training, equipment, software, and so on.
Set aside one hour to identify all of the current activities and resources that did not show up in the previous exercise. In other words – what things are you doing that do not create outcomes that drive revenue? Now consider stopping those activities and focusing on outcomes that drive profitable revenue.
In one day, you will not get it perfect, and you sure won’t get it all. You are creating a first draft of the measurement of the Revenue Resources Required to get the amount of revenue and profit you are achieving today.
Whoever functions as your CRO (Chief Revenue Officer) becomes the keeper of this draft and will be responsible for making it more complete and more accurate every week forever. In 3 years, you will be very accurate about your real Revenue Resources Required to achieve your specific levels of revenue and profit.
Near the end of the day it is time to focus on positive revenue leverage. Once you have a good feel for your current Revenue Resources Required, it is time to establish plans to remove at least some of the cost of the revenue chaos while continually producing more profitable revenue. This process will get you positive leverage on your Revenue Resources Required, similar to what manufacturing got from implementing Six Sigma and Lean.
Discard the notion that the Revenue Resources Required is a bunch of “fixed” costs. The VAST majority of revenue resources are variable, and as your business, your offers to the market (products or services), your market and the world changes, your go-to-market model MUST change along with your Revenue Resources Required to effectively execute the go-to-market model.
Now that you have draft numbers for the current Revenue Resources Required (that are creating today’s top and bottom line), start to develop some critical operating rations. In year one if you do nothing else, measure your Revenue Resources Required (RRR) as a percent of both top and bottom line.
You probably also want total Revenue Resources Required for critical functions (Gold, Blue and Red) as a percent of top and bottom line. Over time, these will change to drive growth and profits.
Once you have these rations measured, assign a small team with members from Gold, Blue, Red, and finance to take two weeks to make recommendations to reduce the % of total Revenue Resources Required by at least 5% with no negative impact on top or bottom line.
Then ask them to do the same thing but looking for a 10% reduction with no negative impact on top or bottom line.
Next bring the original large team together to review results, listen to recommendations, brainstorm options and to decide the best place to start the process of decreasing the total Revenue Resources Required with no negative impact on top or bottom line.
These groups need to meet at least every other week to track progress, present other costs that were not found before, make other suggestions for reducing the cost of Revenue Resources Required.
Finally, create another small team to continually review Revenue Science for points of chaos and leverage opportunities that will both reduce cost and increase the growth of profitable revenue. Also look for those predictable changes in the market that you should be considering to both take advantage of opportunities and avoid predictable problems.
So form your team and start to manage your Revenue Resources Required and STOP “Over Paying” and start SPENDING LESS to get more?
What do you think?
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