Five Factors that Drive Revenue GrowthHigh Growth does not require high cost of sales and maketing, but rather the intelligent use of five key drivers.
A study by Bain and Company shows an alarming trend: The cost of sales and marketing is growing faster than revenues. Bain & Co analyzed income statements for some 200 companies for the years 2003 – 2011. In over half the companies, it found that sales and marketing costs were rising faster than revenues. Ironically, when companies achieved high growth, their cost of sales and marketing, as a percentage of sales remained flat or even declined.
This study, along with others, proves a fundamental shift in the B2B world: Buyers have dramatically changed how they buy, while sellers continue to sell as they always have. And this shift significantly favors buyers to the detriment of sellers.
The root causes for this shift while few, are profound. Some came about out of necessity, and others because of enabling technologies.
- The Internet changed a lot. Information has always been a determining factor in the bargaining power between buyers and sellers. The one that had better information always had the advantage. The Internet (and more specifically search engines) has made it possible for buyers to get the information they need without having to rely on sellers. But it doesn’t end there. Buyers are looking to cut costs and want information digitally, while many sellers continue to rely on analog means (such as tradeshows and conferences) to share information.
- Procurement is now a Strategic Function. What the Internet started, the Great Recession of 2008 finished off. All organizations had to significantly cut down spending, which means they had to get very good at doing more with less. Enter Procurement as a Strategic Function. Professional negotiators now sit next to heads of business to define the evaluation and selection criteria for all vendors. Demonstrable value is the goal and price is only one trait in that.
- Global Competition cinched it. It is not just the Seller that has to compete globally. Buyers also face relentless and ever changing competition at a global scale. To get on the short list, sellers have to really know their buyers’ businesses or they wont be able to help their customers stave off competition.
In short, buyers are demanding more from sellers. They want a real partner that can ceaselessly add value to their own offering, enabling them to renew non-stop their own competitive advantage. In other words, they want to work with a top tier provider. This is no easy demand—which is why, for most B2B companies, the cost of marketing and selling is growing faster than revenues.
So how can Sellers reverse this trend and get revenues to grow faster than cost of selling and marketing?
We believe the answer lies in optimally managing the Five Factors that Drive High Growth.
High Growth Factor 1: Market Focus
Of all five factors, this one probably drives high growth more than any other.
Geoffrey Moore defines a B2B market segment as the intersection of an industry, a role in that industry, and geography – for example, hospital administrators in the US. It appears that the tighter the definition of the market segment, the greater the performance of a seller in that segment.
Therefore, all things being equal, a company that sells to “Hospital Administrators in the US” will see a higher growth rate and profitability than one that sells to “Health Care Professionals in the US.” Even better, the company that sells to “Hospital Administrators in California” will see the fastest growth.
What happens, however, is that sellers keep widening their definition of the market they serve thinking that by doing so, they will get more business. The reality is often the opposite. To demonstrate that, we will need to analyze these three different markets.
Let’s assume that XYZ Corp is a $100million provider of software products for the Health Care industry. The question is where it would realize faster growth and profitability: Hospital Administrators in CA, Hospital Administrators in the US, or Health Care Professionals in the US.
|Segment||A. Hospital Administrators in California||B. Hospital Administrators in US||C. Health Care Professionals in US|
|Key competitors||4-6||70-120||200 – 300|
|Message||Managing value-based reimbursement||Managing value-based reimbursement||Regulations in healthcare|
The prospect of selling to 128,000 Health Care Professionals in North America as compared to only 400 Hospital Administrators may seem more appealing. However, the perspective of the buyer is what matters. Does XYZ offer the best value?
Imagine what XYZ Corp will have to do to demonstrate such evidence of value to 128,000 Health Care Professionals in the US.
First, it has to reach them in some way. You can imagine what it takes to reach such a widely diverse audience? Does it attend 211 conferences? Does it run TV or Print Ads? Does it try to buy email lists? What would be the subject line? What would its compelling message be for a wide assortment of professionals like doctors and nurses, Therapists and hospital administrators? How would it organize its sales force, by geography or by profession?
Whichever road it takes, XYZ Corp’s choices remain the same — either go shallow and wide or spend enormous sums of money to build the necessary expertise in each of these professions.
When companies have to make that choice, most seem to make the wide and shallow decision, rather than scale back to go narrow and deep in one vertical. And companies that go narrow and deep always beat those that go shallow and wide — hence the cost of sales and marketing rising faster than revenues.
In reality, there is a third choice—one that is actually better than either of these. And that is to go narrow and deep in only one segment at a time.
On the other hand, if XYZ Corp decides to go narrow and deep and chooses to focus on Hospital Administrators in California, it will face a totally different scenario. It can now focus its product, messaging, and services to just that market. It only has to compete with 4 to 6 other providers. And if it chose to attend conferences, it only needs to attend the top 3. Both are doable tasks.
Finally, its sales reps only have to focus on Hospital Administrators in CA — it is not hard to imagine that these sales reps can be experts on the issues that their customers face.
In which segment would you say that XYZ Corp has a better chance of closing more deals faster and at better prices: segment A, B, or C?
It is worth repeating that focus (narrow and deep) is the most important of all the factors driving revenue growth.
High Growth Factor 2: Sales Process is Buyer Process
Research by McKinsey & Company, Bain &Company, and the sales force training firm The Rain Group all show the same thing: Buyers now prefer to work with sellers who align their process with the buyers’ process. A seller that does not comply is one that complains about non-returned phone calls and emails — hence increased marketing and sales costs.
The New Buying Process
What the studies show is that buyers prefer to conduct their own research and determine who to invite to work with them to further refine a possible solution.
The buying process starts internally, typically when some pain becomes no longer acceptable and drives a new initiative to address it. The head of the business or functional unit (the business driver) who is responsible for the resolution of the issue now heads this new initiative. She typically assigns someone on her team to conduct some preliminary research and come back to her with findings and recommendations.
This is the beginning of the “buying” process. At this point, no seller is aware the buying process has started.
The team member assigned to this task begins the research by entering key words into her favorite search engine, reviews what the search returns, and begins tagging the promising ones.
Later, she will go deeper into each to see which make her final cut. At no point has she called any company — this is all digital content review.
A few days later, she returns to her boss to report and make her recommendations. The business driver then makes the decision of who they will review — who makes the short list. She then tells her researcher to contact the short list and schedule meetings with the vendors’ representatives.
The New Selling Process
Since the buying process starts with research, the first thing a seller must do is make sure its website has deep and relevant content that addresses the issues that its market typically faces.
If the seller has a focused market as described in Factor 1 above, then not only can it stay abreast with changes in its chosen market, but it can actually be ahead of them with thought leadership. It can anticipate trajectories in regulations, changes in norms, shortages of key supplies, etc.
And because it focused on a single market, and because it has depth, its content will be among many that the researcher on the buyer’s team will look at. The seller’s chances of making the short list will be pretty high and it will likely get invited to present
If in addition to having highly search optimized content that drives inbound leads, the seller also has outbound lead generation campaigns, then it is virtually guaranteed to make the short list of vendors that get invited. Its emails are likely to be opened as its message is directly relevant and it is always refreshing its subject matter. Its voice mails are right on and are likely to elicit call-backs.
When invited to come in and meet the business driver the seller knows that this is a collaborative event and will invite the buyer to fully participate in defining the problem as well as the solution.
This is exactly what buyers today are looking for since their needs are complex and nuanced and will not have ready-made solutions, but will need to be customized. They want sellers who are willing to work towards customizing a solution that works perfectly for them.
The Problem with the Old Selling Process
Let’s compare the new selling process with the old. The old selling process is about “blasting” a huge list with irrelevant emails and “dialing for dollars” in the hopes someone picks up. If through sheer persistence, the sales rep gets an appointment, the chances it will get canceled are high.
And if the rep actually gets the meeting, the rep typically will blow it off by forcing a process the buyer does not find useful — First I am going to tell you about me. Then I am going to ask you about you. Then I will show you my product. Then I will send you my proposal.
The old seller-driven, seller-biased way no longer works. Sellers must understand that buyers are looking for committed partners.
High Growth Factor 3: Sales & Marketing—a single Continuum
Factors 1 and 2 by now should have shown the central role of marketing in the new B2B paradigm. Marketing is too important and too expensive to just “have” if it doesn’t impact sales in a measurable way. For Marketing to impact sales in a measurable way, it must be numerically aligned with Sales.
It is no exaggeration to say that a least 75% of all sales should come from leads generated by Marketing.
We cover this topic extensively in The Four Funnels Framework, which shows that all revenues start in Marketing and end in Sales. However, the planning starts from Sales. Whatever the revenue targets are, the numbers must be worked backward to determine how many inbound and outbound leads will be required.
In the past, the relationship between Marketing and Sales was akin to two neighbors who know each other, try to accommodate each other, and occasionally complain about the others’ lack of fairness or reasonableness.
Today, however, the relationship between Marketing and Sales is more like one of a married couple working closely together to raise a family. Each is equally responsible for achieving the overall revenue goals.
High Growth Factor 4: Intelligent Data
Salespeople often complain about the amount of data they are given and wonder when and how they are supposed to use this data.
Overloading people with data can be just as useless as giving them too little. Not only does it waste time, but it focuses the work on the data rather than what the data was supposed to enable — getting more business.
By intelligent data, we mean data that enables a sales rep to be more relevant and useful to a prospective buyer to increase her desire to work with this sales rep. First of all, it should help the sales rep be more prepared to have a discussion with the buyer and give the buyer the confidence that the sales rep has done his homework. Secondly, if the buyer is an actual customer, the sales rep should have data about the buyer-customer’s usage and advise the customer how best to user the seller’s products and services to obtain more value.
It is clear that the design of intelligent data should be well thought out and arrived at through dialogue with the sales team as well as Marketing.
Intelligent Data must always be laser-focused on the target market. If this is regarding a new prospect, it should provide a sales rep with sufficient insight into what the prospect is interested in as demonstrated by the prospect’s marketing activities (emails clicked/forward, pages visited, content downloaded, etc.). Clearly, no prospect should be sent to Sales without knowing what the prospect is really interested in; that can happen only after spending a few weeks or months to gather information about the prospect.
As we have shown in the Four Quadrants of High Growth, existing customers are a great source of new revenue. Therefore, Intelligent Data should incorporate their past sales patterns — what they bought, how much, and when.
Intelligent Data is created when the right information from some tools (Marketing Automation, Sales Automation, and Accounting Automation) are integrated into a complete picture of the prospective buyer. However, it is very important that the picture has just enough detail and no more. Overwhelming sales reps with more data than they can use only forces them to ignore the data.
High Growth Factor 5: Manage by Metrics
In his book, The End of Marketing as We Know It, Sergio Zyman, then Chief Marketing Officer of Coca-Cola, spells out his success in driving Coca Cola to be the number one beverage company in the world. At a time before cloud based services, Sergio tracked numbers daily. He would run an ad, then see how many cases of Coca-Cola products that ad moved. If it met his metrics, the ad continued to run. If it didn’t, it was cut.
Among B2C companies, Zyman is not alone in his obsession with running Marketing by the numbers. Jim Kiltz, ex CEO of the Gillett Company and author of Doing What Matters also ran his company by the numbers. In fact, he advocated the ZOG (Zero Overhead Growth) and NOG (Negative Overhead Growth) principles that basically said companies should grow their sales with no change in selling and marketing costs — a far cry from the situation in B2B companies where selling costs are growing faster than revenues. Amazon.com tracks over 700 metrics which are used to measure and reward performance.
We have not been able to find any examples of B2B companies that run Marketing by the numbers.
Yes, nearly all B2B companies measure and track sales results, but that’s about it. And even in Sales, most of what is tracked is at the tail end in closed wins. Few if any track sales cycles, closing ratios, average deal sizes, lost deals, etc. by rep. Even fewer track how early reps cut loose opportunities that go nowhere.
If B2B companies managed their Marketing as do B2C companies, then they would hold Marketing just as responsible for generating revenue as they do Sales. Think about that. Because that is what is required to grow revenues faster than cost of sales and marketing.
Managing by Metrics is how companies move from Good to Great. It is a lot of work, but it pays a lot of dividends in the long run.
It is our belief that each of these five factors can significantly improve a company’s ability to grow sales. Working on all five can really make things happen for a company that is seeing flat sales.
Our recommendation is to always start with Factor 1. Nail that, and the others will be a lot easier.
Please contact us with any questions or thoughts. We are here to help.