By Rick McPartlin
The science of “Revenue Generation” has uncovered a formula for CEOs to use to take control over the growth of profitable revenue.
This formula has five variables that determine revenue outcome. The five variables aren’t optional! The only question is: Are they managed intentionally or unintentionally? Choosing to manage them intentionally creates control over the revenue outcomes — and that includes control over the growth and profitability of the business.
The CEOs who personally or through their CRO (Chief Revenue Officer) decide to apply the discipline of this formula will not only grow their profitable revenue but will do it at the same time they lower their “Cost of Chaos.” The Cost of Chaos for producing profitable revenue for a B2B business is normally in the range of 20 percent of the topline, and for a B2C business, it’s in the area of 10 percent of the topline. Every dollar of chaos removed goes directly to EBITDA — a result well worth the time.
The result will be increased profits on current business and the predictable growth of profitable revenue in the future, while rapidly growing the company’s valuation.
Let’s take a look at the revenue formula and the discipline required to manage it.
The CEO’s Revenue Formula:
Alignment (Revenue Strategy + Execution) x (Leverage x Structure)
The formula has five variables, and the order in which you apply them does make a difference. Everyone knows that an aligned business performs better than a chaotic business. So alignment is good — right?
When it comes to producing profitable revenue, the challenge is “Alignment to WHAT?”
That’s why the first order of managing the formula is to create a Revenue Strategy, because that’s what you’ll be aligning with. Without the Revenue Strategy, there is no alignment, and all execution is anyone’s guess as to what is the best thing to do is right now. The investments you make in the supporting structures like training, CRM and marketing programs are also anyone’s guess as to what’s the right thing at the right time, based on anyone’s interpretation of “the right thing to do.”
Starting with a Revenue Strategy allows the whole organization, the partners as well as all of the supporting structure, to align with the same mission and metrics. Results are no longer driven by the right guess or being at the right place and the right time, as they are when there is no strategic direction.
Having this discipline creates repeatability, and, regardless of the result, there is now a way to learn from the results and make measurable improvements.
Lastly, the quality of the Revenue Strategy determines the Maximum Margin the market will pay. The strategy declares the value based on the Customer Problem being solved and the Niche being dominated. Without a single Revenue Strategy, the values and, hence, the margins are negotiated by each individual salesperson with each individual prospect, and your result is anything but predictable. Your brand and your margin are random as a result of each individual’s daily interpretation.
The launching point of successfully managing this formula is the Revenue Strategy. Let’s take a look at exactly what makes up a complete Revenue Strategy.
Variable 1: Revenue Strategy
Everyone understands that winning The Revenue Game is about success in the market. Revenue leaders need clarity about what needs to be accomplished and the value that accomplishing it brings to the market. Clearly telling the story to the leadership team, partners and customers is critical.
The Revenue Strategy variable, and the clarity it creates, is a key way to advance the execution of corporate goals. When there’s no clarity, each situation is treated as “one of a kind,” to be differently interpreted by each player in the game each time they engage in the market.
The quality of the strategy determines the maximum value of the offer. The strategy determines what can be charged and ultimately the profitability of the offer and the whole business. If the strategy has no value, the seller can’t ask for a lot of money from the buyer, and the seller will receive less from each transaction because the buyer perceives a risk.
Intentionally developing value and clarity make the engagement safer for the buyer and more profitable for both the buyer and the seller. To have a strategy that delivers high value requires answering these five questions:
- What is the brand promise (the experience the customer, partners and staff can count on every time)?
- What’s the customer “problem” that is solved — that no one else solves?
- What niches are dominated or will be dominated in the near term?
- How is the ideal customer defined?
- What are the key offer(s) to dominate the niche?
These five questions must be answered for the sake of the organization’s brand. Then, the same questions must be answered for each niche to be dominated. When these questions are successfully answered for both the organization and for the niches, the result is a framework that links all the variables in the formula. So, without the right answers, all market results are unintentional.
There’s more! Read Part 2 to learn the other four variables to creating a successful Revenue Generation.
Rick McPartlin is the CEO of The Revenue Game and is a revenue generation consultant and Vistage speaker. McPartlin was a Vistage member development chair from 2002 to 2009.
Originally published: Feb 6, 2012