The revenue cycle is the lead to customer conversion cycle. For most companies it is disjointed, lacks discipline, and delivers imprecise visibility and unreliable predictability.
Marketers generally manage Top of the Funnel leads which begin with newly sourced leads and end with the lead transfer to sales. Sales then manages the Middle of the Funnel 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 approach. The funnels are seldom connected leaving gaps which result in lead leakage and miss the capability to methodically improve lead to customer conversions that is otherwise available from a closed loop cycle. Lost sales leads and inefficient conversions have a negative impact on sales win rates and top line revenues: a lethal combination to any company.
There are other setbacks as well.
- Marketing investments lack measurability and definitive ROI (and are often seen as a black hole by the C-suite).
- The disjointed process leaves marketing and sales operating largely independently of each other, many times with different goals and incentives.
- There’s no revenue visibility beyond this month’s, or maybe this quarter’s, sales forecast.
- Sales productivity dramatically falls when sales staff spend their time searching for, qualifying and nurturing leads, one at a time. As much as 50 percent of sales time can be spent on unproductive prospecting, leaving precious little time for actual selling and advancing the most qualified prospects through the pipeline.
The Business Solution — A Revenue Cycle
More progressive leaders are joining the marketing and sales funnels into a single revenue cycle. With an end-to-end integrated process, marketing and sales become better aligned, leads get improved visibility and treatments, and business development leaders can better understand, model and manipulate any step in the cycle with a predictable result to conversions, customer additions and changes to top line revenue. In fact, only with an integrated revenue cycle can managers truly understand how making a change anywhere in the marketing or customer acquisition process will impact revenue performance.
Recommended for YouWebcast: The Art of Growth Hacking: Gaining Early Traction by Doing Things that Don't Scale
How To Get There | A Revenue Cycle Framework
Creating an integrated revenue cycle requires new alignment, processes, and sometimes new culture. Here’s one approach to consider.
- First get the right people on the team. This cannot be performed by just marketing OR sales. It’s a multi-departmental project that requires executive sponsorship and active participation from both marketing AND sales leaders. And because financial incentives and culture adjustments may be needed for both marketing and sales staff, it’s a good idea to get a neutral executive on on the team to act as an intermediary or even an arbiter if necessary.
- 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 marketing and sales people and processes. In my opinion, the first three lead cycle processes to be formalized should be the clear establishment of the revenue cycle stages, the objective definition of a sales-ready lead and the lead recycling process.
Start by creating 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 shown an interest in something which you sell, but is not yet qualified. The Prospect is qualified according to agreed upon qualification criteria used to measure buying intent. It’s usually at this point the baton is passed from marketing to sales. A lead becomes a Customer after making a purchase from the company, which then triggers a new cycle to achieve different objectives such as up-sell, cross-sell and growing customer share.
You’ll want to define the measurable criterion of a sales-ready lead so that both marketing and sales agree when the lead should be transferred to sales. Also, 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 staff, but for whatever reason, stalled or went cold, and therefore need to be returned to marketing for continued nurturing until they again demonstrate buying signals and reestablish a sales-ready lead score. Lead recycling is the most effective process in reducing lead leakage and ensuring that no lead gets left behind.
- Create accountability with a lead management Service Level Agreement (SLA). An SLA is a contract that states expectations for the quality, and possibly the quantity, of leads that marketing will deliver to sales, and identifies the specific steps sales will take to pursue those leads. For example, marketing should agree to transfer only sales-ready leads that reach a designated qualification score, and sales staff should agree to follow-up on those leads within specified timeframes. Further, sales staff should agree that if a lead stalls or fails to advance, that lead will be recycled back to marketing for more nurturing. SLAs should get updated at least monthly in the beginning, and possibly less frequently thereafter. The goal is to prevent lead leakage and ensure no lead is left behind by implementing procedures which signal stalled leads at any of the sales cycle stages. SLAs ensure that leads either flow forward within designated periods or are recycled back to marketing. Also, recognize in advance that implementing an SLA will very likely reduce the volume of leads passed to sales. A more thorough qualification process results in fewer sales-ready leads however the higher quality leads which are transferred put sales into a more focused selling role. The result of fewer but higher quality leads for most organizations is increased sales.
- Create the right metrics. The key in creating the right metrics is to identify the performance measures that most impact top company objectives, which inevitably includes revenues. Too many managers focus on tactical measures that align with individual goals rather than the most strategic needs of the company. Common lead to customer metrics reflect the progression of leads through the previously referenced revenue cycle stages.
Inquiry to MQL (Marketing Qualified Lead)
MQL to SAL (Sales Accepted Lead)
SAL to Opportunity
Opportunity to Forecast
Forecast to Win
Inquiry to Win (total cycle)
These measures share many valuable insights, including where pipelines get stalled, how many MQLs are needed to reach revenue targets, and even the health of the revenue pipeline. These measures alone should not suggest that marketers can do away with activity and campaign metrics; they cannot as those metrics are needed to improve campaign performance.
In order to best allocate limited marketing budget to the most productive campaigns, marketing will need to track marketing investments by channel (digital, print), campaign type (direct, indirect, inbound, outbound, nurture), target market profile (prospect size, persona, industry, geo) and account type (new prospects or existing customers) at the minimum. Closely monitoring standard metrics 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 ROMI (Return on Marketing Investment) remain important. However, do recognize that campaign metrics take a distant second to measures which more directly correlate with sales success.
- Creating common incentives goes a long way in aligning sales and marketing efforts. A symbiotic relationship is created when neither side can reach their potential without help from the other. Incentives drive marketing and sales behaviors, and changes to incentives impact culture which may therefore require change management planning.
There’s longstanding debate as to whether marketers should be compensated on closed sales revenues—the ultimate company performance metric, however, one in which marketing is without direct control. This particular incentive depends upon both company culture and just how influential marketing executives are in the company’s sales function. A more common approach is to not compensate marketing on the volume of leads acquired, but on the number of leads sales accepts.
It’s not an easy process, but when marketing and sales are aligned to the same outcomes, communication and teamwork evolve, and the volume and velocity of leads traversing the pipeline improves.
- Leverage technology to scale processes, manage leads and deliver information insight. The key marketing software component will be a marketing automation system. There are dozens of good marketing systems, but common names include Eloqua, HubSpot, Marketo and Silverpop. These marketing systems automate the processes of digital lead tracking, lead acquisition, lead scoring, nurturing marketing and lead transfer, and also deliver rich lead management analytics.
Analyst firm Gartner has stated that companies which automate their lead management business processes between sales and marketing before 2012 will increase their conversion rates by at least 50 percent, and that many companies will also see a 5 to 10 percent increase in revenue by 2015. The multiple years elapsed period suggests that the benefit is slow but steady. From my own experience in implementing these applications, I find adopters typically show revenue increases of 5 to 10 percent in the second year, but of course all progress is relative to varying starting points. Also, similar to CRM failures, many marketing software deployments fail to achieve their objectives. In my Best Practices of the Best Marketers annual report, last year’s research quantified several top reported challenges and frustrations with marketing software systems , including deployments that took longer and cost more than expected (32 percent), higher total cost of ownership (TCO) than expected (24 percent), application software which required more technical skills and resources than anticipated (24 percent) and marketing software that required more overall resourcing to operate than anticipated (21 percent).
- A closed loop reporting process is necessary for continuous process improvement. And this loop needs visibility 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 my marketing. If you succeed in mapping your customer conversion cycle with the right metrics, the baseline performance measures will become marketing science that delivers predictive modeling and revenue visibility. You will gain an understanding to know how manipulating any marketing input will cascade through the revenue cycle and produce output in the form of top line revenues.
Too often companies have no accurate visibility to future revenues beyond the sales forecast. But sales forecasts are limited to short term predictions of what specific accounts will do at specific times. However, marketers with revenue cycle visibility know the relationship between today’s top of the funnel leads and future period’s revenues. By understanding 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 even making near-term changes that will impact future period results.
When marketing applies science to link marketing spend to all downstream lead conversions and financial outcomes they are able to continuously improve their efforts and also pinpoint stalled opportunities, leakage and slippage so that quick responses will remedy obstacles before they become problems—efforts that deliver incremental revenues.
When sales staff are used for lead validation, and not lead qualification, leads don’t fall through the cracks and sales productivity increases.
When marketing and sales orchestrate their activities around common goals, they improve communication and collaboration, and apply more resources and rigor to achieving their mutual objectives.
And when organizations move beyond a standalone sales cycle and get to a complete lead to customer revenue cycle, they more effectively advance those leads through the pipe, increase sales wins, grow customer acquisitions and earn more revenues