CROs and Revenue Operations: a Dynamic Duo
Companies are ten years into the journey of driving revenue performance through the office of the Chief Revenue Officer (CRO). A decade ago, the challenge laid before their feet was to drive revenue growth as the world emerged from a global recession. The DJIA experienced an 11-year bull run—revenue growth, record corporate profits, and low unemployment ushered in an era of prosperity.
Until a pandemic came along.
The next decade will feature new headwinds for the CRO. Geopolitical interference in the capital markets (i.e., TikTok, Huawei), the urgency to shift to more digital channels, and reshaped norms around remote workforces, just to name a few. Navigating these troubled waters will be very different than in the 2010s. Rather than prospering in high revenue growth, CROs will be asked to drive sustainable growth. But how do you achieve that?.
Enter Revenue Operations, the CRO’s secret weapon.
Revenue Operations (RevOps) aligns both strategy and execution like peas in a pod. RevOps partners operate as the right hand or Chief of Staff to the CRO. They facilitate the following key capabilities:
When executed well, significant alignment occurs between marketing, sales, and customer success. The true potential of their revenue force is unleashed. CROs can feel more confident in achieving not only revenue growth but also sustainable growth.
Measuring a CRO’s Effectiveness
The four key areas above for RevOps are the platforms to drive the results the CRO ultimately cares about. Remember, the CRO is evaluated along a couple of key dimensions including, but not limited to:
- Revenue Growth
- Profitable Growth
- Sustainable Growth
There are important distinctions to each one of these.
Revenue Growth has long been a mantra for high technology firms. The phrase “growth at all costs” could be heard in most boardrooms. Then, down rounds (and spectacular flameouts such as WeWork) changed the conversation.
Investors shifted to Profitable Growth as a course correction from the trends of “blitz scaling” and overwhelming funding. SaaS and similar business models may offer little leeway between growth and profits—suffering in the pursuit of growth. The trade-off has not disappeared simply because the course of conversation has changed.
Sustainable Growth will become the focus in the coming decade. This will happen as the sticker shock of a pandemic driven correction and the wearing off of the whiplash effect, from the pendulum-like shift from Revenue Growth to Profitable Growth.
The CRO will increasingly rely on RevOps to be the wayfinder to sustainable growth.
Breaking Down Sustainable Growth
The idea behind sustainable growth is to deliver excellence consistently year in and year out. The revenue engine must be designed to last. How to achieve this will change from year to year. Building the machinery to do so will require transforming a high potential revenue system to one of high performance. RevOps must succeed in developing the core key performance indicators to fine-tune the revenue engine. These indicators can be broken down into 4 areas, each with associated value-based metrics:
1. Qualified Pipeline
- Cost per Qualified Pipeline
- Cost per Expected Value of Pipeline
2. Customer Value Acquired
- Customer Acquisition Cost (CAC)
3. Customer Lifetime Value
- Cost to deliver Customer Lifetime Value (CLV)
4. Great Place to Work
- Promotion Path
- Diversity and Inclusion
- Successful Alumni Rate
Let’s explore each in detail.
1: Qualified Pipeline
Marketing employs several strategies to drive both a halo effect and predictable opportunities for the sales team. Piling capital into the top of the funnel can drive pipeline, but when applied blindly, it becomes an expensive sinkhole. Marketing’s key objective is to generate qualified pipeline with high predictability, the key being qualified pipeline, not just leads.
Not all leads are equal in the eyes of sales and marketers. Some are akin to a wandering shopper who is just browsing. Some are more serious about changing what they’re doing, so they’ve begun to research options. Not all shoppers are ready to talk to sales. RevOps scrutinizes the data to determine which is which.
Additionally, two highly qualified leads will have different journeys and costs associated with them. CROs, particularly those from sales backgrounds, will need to be able to understand the difference. To illustrate this point, let’s take a look at a “Tale of Two Leads.”
Lead A is from Google Ads and Lead B is from a review site. Like the back of a baseball card, here are the stats for each lead:
RevOps would look at both of these leads to fine-tune the Return On Investment for these channels. Right away, there is ample opportunity to improve the economics for both. The scenario above only covers advertising, but driving qualified pipeline efficiently relies on many other tactics such as brand building, a rich content ecosystem, and other techniques to drive organic traffic.
CROs must be prepared to evaluate the effectiveness of their qualified pipeline pillar and listen to their team on how to improve performance.
2: Customer Value Acquired
Getting the Sales Machine running at optimum speed as quickly as possible is paramount to a CRO and RevOps’ success. When asked to double revenue, it can be compelling to simply double the sales team’s size. But, doubling an organization’s size raises issues in recruiting, onboarding, ramping, and bringing on additional headcount in supportive functions such as management, enablement, and operations. Assessing multiple strategies first will allow the CRO to find a path to sustainable growth.
RevOps will develop a series of hypotheses on how to achieve the company’s growth targets. A few strategies could include:
- Former deal desk standards (i.e., discounts, price escalations upon renewal)
- Move upmarket and working with Product to define key features via Loss Analyses
- Pricing analysis
- Introduce self-service options
- Reduce friction in the sales process to give time back (i.e., auto-dialers, contact vendors, separate prospecting via a Sales Development function)
- Product suggestions
Any of these suggestions changing with all other variables held constant will likely be a losing strategy as well as an expensive pursuit. Much like advertising CAC increasing in isolation, sales contribution to CAC will also increase. For example, do all inbound leads need to be touched by an SDR before moving to an Account Executive? Maybe. Maybe not. That extra touch does not come free.
The CRO works with RevOps to determine which models will yield revenue growth but not at the expense of unacceptable cost. Deciding which path to choose is where trusted partnership, deep business acumen, and calculated risk-taking come together. Growth is never easy.
3: Customer Lifetime Value
The paths to CRO often debate whether they should come from marketing or sales. But what about all of the incredible customer experience professionals? Revenue comes from driving exceptional customer experiences. Without it, customers would vote with their feet and walk out the door. The longer the customer stays with a company in subscription business models, the faster the payback period against the Customer Acquisition Cost (CAC.) Even better, the Customer Lifetime Value (CLV) continues increasing the longer they remain.
To illustrate the point, let’s look at a subscription business model. The customer signed up for a $60,000 per year enterprise software with an automatic renewal. For simplicity let’s assume no price increase upon renewal. The customer came through as a site review lead. An SDR did not qualify the prospect because marketing did an excellent job identifying high-interest and it was directly routed to a sales executive. After six months of navigating multiple stakeholders and competing internal priorities, the sales rep finally landed that elusive deal. Let’s say that the CAC for this customer was $50,000.
Here is the payback equation:
Payback = (ARR x Gross Margin) / CAC
It will take ten months to pay down the CAC i (Let’s ignore gross margin as a factor in our equation.) After that, the revenue of the customer must exceed the cost to serve. Since churn is evident in every industry, let’s turn our eye to how it impacts the CLV.
In this scenario, 10% of accounts leave every year. If we used the inverse of churn, we could assume customers continue using the product for an average of ten years. We would expect this customer to pay $600,000 worth of value over that time.
That is sustainable revenue.
But that’s just the math. Keeping a customer happy is partly product, but it’s mostly about service. Driving customer value through incredible service ensures customer success. A CRO’s job and that of RevOps does not end when a customer signs up. In reality, that’s just beginning. Fostering deep partnerships can come in multiple forms, including customer value maps, appropriate service levels, exceeding SLAs, and determining the model for capturing additional value such as cross-selling and upselling.
4. Great Place to Work
Finally, a CRO and RevOps need to build a team greater than the sum of its parts. The revenue engine does not work with systems and bots; quality people are the lynchpin. A few ways to build a winning team include:
- Develop a winning culture
- Mobility paths in the form of clear defined promotion paths with measurable criteria
- Diversity and Inclusion practices
- Wide and deep enablement for all levels, including management
- Alumni testimonials
If all things go well, alumni who depart the firm will have nothing but great things to say. There aren’t spots at the top for everyone, and other offers will come along to high performers. Companies cannot always hold on to their best people, but they can focus on developing an environment where professionals become the very best version of themselves. Put together a winning formula, and performance will follow.
A customer-first approach will lead to sustainable growth.
In the era of Sustainable Growth, CROs and Revenue Operations will be counted on as the dynamic duo of this revolution. The last decade featured a few revolutionary changes. In particular, Sales Development separated prospecting duties from the Account Executive. Inbound marketing and the accompanying marketing technologies allowed sales and marketing alike to have clearer signals of interest before even having a conversation. Sales technologies captured activity at levels of depth previously unfathomable. Softwares can dissect and correlate sales motions down to the number of meetings mashed together with job titles. All of this information has converted sales to an era of unprecedented revenue prosperity.
In the coming decade, the role of customer success will take center stage. There is untapped potential in increasing the lifetime value of a customer. Sustainable growth will require marketing and sales to identify and onboard the right type of customers. RevOps, like many CROs, come up from the ranks of marketing and sales. Both will need to spend more time with the customer post-sale to truly understand how to drive increased customer value.
Revenue will be sure to follow.