The overwhelming majority of business owners are focused on increasing profits and therefore their business value. Value and profit analysis is very extensive as they can be influenced and manipulated by a huge range of factors but at a simple level it comes down to maximising revenues and minimising costs.
Some businesses will be able to maintain some sort of sustainability in a static environment by simply doing what they’ve always done but real growth won’t be achieved by continually cutting costs. Businesses need to fund that growth and therefore costs will increase with the objective of increasing margin.
So let’s look at revenue.
Revenue is another simple equation. It is the product of deals closed multiplied by price. Some businesses are fortunate that they can consistently increase price but that is fairly rare.
Trying to increase the number of deals closed is where most business owners look to increase value but this can be a process that is unclear and sophisticated. It generally involves marketing or advertising but how exactly do leads travel prior to signing a deal?
Is there a consistent process that prospects go through prior to buying the product?
The buying process for a particular product is a fascinating topic. Prospects begin unaware and then something happens to register their interest - whether it’s a marketing campaign or a conversation or something similar. In the digital world we live in most prospects are able to research and qualify potential vendors online if they have identified that they have a need for that product.
So if we assume that there was a marketing campaign launched and 10,000 were exposed to that messaging, it is interesting and important to note how many progressed to doing research about the product or the company.
That is essentially the effectiveness measure of that campaign. Again, some of the prospects that did research will progress to making a phone call or request a meeting to seek further information they couldn’t find online, some won’t progress and some may even buy the product. This is data that can be managed and has a massive impact on business value.
By defining the buying journey and understanding how those buyers progress from the top of the process to the bottom, a business owner can understand what activities are responsible for delivering the amount of deals closed. If there are 10,000 new prospects exposed to a marketing campaign, 2000 might do some research (20%), 400 might request a meeting (20%) and 200 might buy (50%). That is an overall success rate of 2%.
That figure seems depressing but it also conveys a significant opportunity. By making small incremental improvements at each stage of the buying process, the overall success can improve enormously. If the conversion rate at each stage in the example increased by just 2% (22%, 22%, 52%) the overall rate would change to 2.5%, an increase of 25%. If improvements can be sustained over several years the revenue increase will be massive.
Now looking back at business value and its’ contributing factors, the opportunity to increase deals closed by efficiency improvements is clearly the factor that can deliver real, organic growth. Cutting costs prevents growth. Increasing price is rarely sustainable. Finding more leads to throw in the top of the pipeline can also be very difficult in many business environments.
The great by-product of efficiency improvements is that margins will increase naturally due to having a better awareness of how marketing and sales activities relate to revenue.
The next challenge for business owners is how they can extract this data. Any good marketing automation and CRM will record how many leads are progressing through the pipeline and how fast they are going, and this data is the basis of any revenue model. However, to provide an explicit insight and to actually build a model, businesses need a platform that will model the entire pipeline, extracting data from MA and CRM software.
Revenue modellers allow decision makers to see at any point in time how many leads are required to hit revenue targets or they can see what revenue is possible using different lead conversion, progression and recycling rates but also how sales and marketing costs are related to revenue.
This data is the catalyst to drive efficiency improvements. By having the ability to identify weaknesses and strengths in a pipeline, resources can be accurately directed to achieve revenue growth.
The starting point for using this method to improve business value is getting a thorough understanding of the customer buying process. Once this is understood, extracting and managing the data is a simple process that can yield massive benefits.
Business growth strategy can be an overwhelming and intimidating prospect if considered using traditional methods but small incremental improvements at each stage of a pipeline are easily achievable.