Revenue Cycle Improvement Best Practices
Shift from a Sales Pipeline to an Integrated Revenue Cycle
The revenue cycle is the lead to customer conversion cycle. For most businesses it’s disjointed, lacks discipline, and delivers imprecise visibility and unreliable predictability.
Marketers normally manage Top of the Funnel (TOFU) leads which begin with newly sourced leads and conclude with the lead transfer to sales. Sales normally manages the Middle of the Funnel (MOFU) in a pipeline which begins with sale opportunities and ends with sales wins or losses.
The Business Problem
Here’s the business problem with this disjointed approach. The funnels are seldom connected leaving gaps which produce lead leakage and miss the critical capability to systematically improve lead to customer conversions that is otherwise available from a closed loop cycle. Lost sales leads and inefficient conversions negatively impact sales win rates and top line revenues—a lethal combination to any business.
There are other symptoms and setbacks as well.
- Marketing spend lacks measurability and definitive ROI (and is often seen as a black hole by the C-suite).
- The disjointed process results in marketing and sales operating largely independently of each other, oftentimes with different goals and incentives.
- There’s no revenue visibility beyond this month’s, or maybe this quarter’s, sales forecast.
- Sales staff productivity dramatically drops when sales professionals spend their time searching for, qualifying and nurturing leads, one at a time. Research clearly shows that as much as 50% of sales time is spent on unproductive prospecting, leaving little time for actual selling and advancing the most qualified leads through the pipeline.
The Business Solution — An Integrated Revenue Cycle
More progressive business leaders are morphing the marketing and sales funnels into a single revenue cycle. With an end to end integrated process, sales and marketing become better aligned, leads get improved visibility and treatments, and sales and marketing leaders can better understand, model and manipulate any factor in the cycle with a predictable result to conversions, new customer additions and changes to top line revenue. In fact, only when an integrated revenue cycle is in place, can managers truly understand how making a change anywhere in the marketing or customer acquisition process will impact revenue performance.
How To Get There | A Revenue Cycle Framework
Creating an integrated revenue cycle requires new thinking, alignment, processes, and sometimes new culture. Here is a revenue cycle improvement approach to consider.
- First get the right people on the team. This cannot be led or performed by just sales OR marketing. It's a joint project that requires executive sponsorship and active participation from both sales AND marketing leaders. And because financial incentives and culture adjustments may be necessary for both sales and marketing staff, it's a good idea to get a neutral executive on board to act as an intermediary or even an arbiter.
- Then model your revenue cycle. The goals are to detect process gaps in the lead to customer conversion cycle, identify the most salient performance measures to achieve desired outcomes and develop a baseline that you can then measure and trend.
- Then align sales and marketing people and processes. IMHO, the first three lead cycle processes to be put into play should be the clear establishment of the revenue cycle lead progression stages, the objective definition of a sales-ready lead and the lead recycling process. Begin by creating shared definitions of lead status' through the revenue cycle stages. A common scheme for first time adopters is to use lead progression terms such as Inquiry, Suspect, Prospect and Customer. The Inquiry is your proverbial hand-raiser whose buying intention is unknown. The Suspect has expressed an interest in a product or service which you sell, but is not yet qualified. The Prospect is qualified according to whatever qualification criteria the company uses to measure buying intent. It’s usually at this point the baton is passed from marketing to sales. To achieve Customer status, the lead has made a purchase from the company and begins a new cycle to achieve different goals such as up-sell, cross-sell and an increase in customer share. You’ll want to define the specific criteria of a sales-ready lead so that both marketing and sales agree when the lead should be transferred to sales. And recognize that this definition gets better with learning and maturation. The definition will periodically change as you learn from your results. Another process that is helpful in reducing lead leakage is lead recycling. This is the return of leads that were transferred to sales, but for whatever reasons, stall or go cold, and therefore need to be returned to marketing for continued nurturing until they demonstrate buying signals and reestablish a sales-ready lead score. Lead recycling is the single most effective process in reducing lead leakage and ensuring that no lead gets left behind.
- Create accountability with a lead cycle Service Level Agreement (SLA). An SLA is a contract that sets expectations for the quality, and possibly the quantity, of leads that marketing will deliver to sales, and prescribes the steps sales will take to pursue those leads. For example, marketing agrees to transfer only sales-ready leads that reach a prescribed qualification score, and sales agrees to follow-up on those leads within a specified timeframe. Further, sales agrees that if any lead stalls or fails to advance, those leads will be recycled back to marketing for continued nurturing. SLAs generally get updated at least monthly in the beginning, and less frequently thereafter. The end result is to prevent lead leakage and ensure no lead is left behind by implementing thresholds or other criteria which signal stalled leads at sales cycle stages. SLAs make sure that leads either flow forward within designated periods or are recycled back to marketing. Also, it’s important to recognize in advance that implementing an SLA will very likely significantly reduce the volume of leads passed to sales. A more extensive qualification process results in fewer sales-ready leads however the higher quality leads which are transferred put sales into a more focused and full time selling role. The net effect of fewer but higher quality leads for most organizations is increased sales.
- Create the right metrics. There are some interesting and potentially conflicting challenges that will have to be resolved in unifying objectives. Marketing activities are easy to measure, but marketing outcomes are hard to quantify. Paradoxically, sales activities are hard to measure but sales results (i.e. won sales opportunities) are easy to quantify. The key in creating the right metrics is to define the performance measures that most impact top company objectives, which normally includes revenues. Too many managers focus on departmental or tactical metrics that are easy to measure or support individual goals rather than align with the most strategic needs of the company. Common lead to customer metrics reflect the progression of leads through the previously referenced revenue cycle stages.
- i. Inquiry to MQL (Marketing Qualified Lead)
- ii. MQL to SAL (Sales Accepted Lead)
- iii. SAL to Opportunity
- iv. Opportunity to Forecast
- v. Forecast to Win
- vi. Inquiry to Win (total cycle)
These metrics illustrate many valuable insights, including where pipelines get stalled, how many MQLs are required to reach revenue targets, and even the health of the revenue pipe. These metrics alone shouldn’t suggest that marketers can do away with activity and campaign metrics; they can’t as those metrics are essential to improve campaign performance.
In order to optimally allocate limited marketing budget to the most effective campaigns, marketing will need to track marketing spend by channel (digital, print, mobile, etc.), campaign type (direct, indirect, inbound, outbound, nurture, etc.), target market profile (prospect size, persona, industry, geo, etc.) and account type (new prospects or existing customers) at the minimum. Closely monitoring standard measures such as the volume of MQLs, cost per MQL, marketing’s pipeline contribution, average deal size, sales cycle time, sales win rates, cross-sell revenue, up-sell revenue and especially ROMI (Return on Marketing Investment) remain important. However, do recognize that campaign metrics are a distant second to measures which more directly correlate with sales success.
- Creating common incentives will go a long way in aligning sales and marketing efforts. A symbiotic relationship is created when neither side can reach their potential without the other. Incentives drive sales and marketing behaviors, and changes to incentives impact culture which may therefore require change management planning. There’s passionate debate as to whether marketers should be incented on closed sales revenues—the ultimate company performance measure, however, one in which marketing is without direct control. This particular measure and incentive depends upon both company culture and just how influential marketing executives are in the company’s sales function. A more common example is to not compensate marketing on the volume of leads acquired, but on the number of leads sales accepts (i.e. SALs, or Sales Accepted Leads).It’s not an easy process, but when sales and marketing are aligned to the same outcomes, communication and teamwork rapidly evolve, and the volume and velocity of leads traversing the sales pipeline improves.
- Leverage technology to scale processes, manage data and deliver information insight. The key marketing technology component will be a marketing automation system. There are dozens of choices, but common names include Eloqua, HubSpot, Marketo, Pardot and Silverpop. These marketing applications automate the processes of digital lead tracking, lead acquisition, lead scoring, lead nurturing and lead transfer, and also deliver rich lead management analytics. Gartner has stated that companies which automate their lead management business processes between marketing and sales will increase their conversion rates by at least 50%, and that many companies will also see a 5 to 10% increase in revenue. From our own experience in implementing these apps with clients, we find adopters typically show revenue increases of 5 to 10% in the second year, but of course all advancements are relative to varying starting points. Also, similar to CRM failures, many marketing software implementations fail to achieve their slated objectives. The Best Practices of the Best Marketers annual report uncovered several top reported challenges and frustrations associated with marketing software systems , including implementations that took longer and cost more than expected (32 percent), higher total cost of ownership than expected (24 percent), software which required more technical skills and resources than anticipated (24 percent) and software that required more overall resourcing to operate than anticipated (21 percent).
- A closed loop reporting process is needed for continuous process improvement. And this loop needs visibility and transparency by all from top to bottom. Marketing should have real-time visibility to leads transferred to sales, and sales should have visibility to leads being nurtured or recycled by marketing. If you succeed in mapping your complete customer conversion cycle with the right metrics, the baseline performance measures will become marketing science that delivers predictive modeling and revenue visibility. You’ll gain the understanding to know how manipulating any marketing input will cascade through the revenue cycle and produce output in the form of top line revenues.
Normally, companies have little to no accurate visibility to future revenues beyond the sales forecast. But sales forecasts are limited to short term predictions as they are restricted to what specific accounts will do at specific times. However, marketers with revenue cycle visibility understand the relationship between today’s top of the funnel leads and future period’s revenues. By knowing the revenue cycle conversion metrics and lead cycle duration for each of the revenue cycle stages, they have the data to predict revenues beyond the sales forecast. This is extremely helpful in setting future period expectations, or better yet making near-term changes that will impact future period results.
When marketing applies science to link marketing investments to all downstream lead conversions and financial outcomes they are able to continuously improve their efforts and also pinpoint stalled opportunities, slippage and leakage so that immediate responses will remedy hurdles before they become problems—efforts that deliver incremental revenues.
When sales resources are used for lead validation, and not lead qualification, leads don’t fall through the cracks and sales productivity increases.
When sales and marketing orchestrate their activities around common goals, they improve communication and collaboration, and apply more resources and rigor to achieving their mutual objectives.
And when companies move beyond a standalone sales cycle and get to a complete lead to customer revenue cycle, they acquire more and better leads, more effectively advance those leads through the pipe, increase sales wins, grow customer acquisitions and earn more revenues.