You are probably reading this title thinking, “Dave has finally flipped out. We knew he was headed that direction, but he’s gone!”
Let me explain myself, revenue is important. But it’s important to look at the composition of that revenue to understand not only how it meets your current goals/objectives, but how it positions your organization/company for future growth.
Let’s dissect what good and bad revenue looks like:
First, it’s sales responsibility to execute the company strategy in the face of the customer. Stated differently, sales has to sell the entire product portfolio, not just their favorite products.
Let’s imagine a company that’s looking to grow. It introduces new product, services, perhaps goes after new markets. Gaining traction in those areas is important to the future growth plans. But if sales people continue to focus their favorite products to their favorite customers, they won’t be executing the company growth strategy—even if they are making their numbers. Those new product group or the growth initiatives will fail, the company will miss it’s strategic growth targets.
For example, let’s imagine a company that has two product lines, A and B. Let’s also manage two sales people. Sales person 1 has a quota of $10M, she makes it by selling a balance of products A and B. Sales person 2 has the same quota but makes it just by selling his favorite product, product line A.
Which sales person has done a better job? Many of you would say, “They both did great! They hit their goals of $10M each!”
But I would submit sales person 1 did a better job. She hit her goals with balanced performance of selling the entire company portfolio. I would, also, say that even though sales person 2 hit his goal, he underperformed the potential. Surely there were product line B possibilities in his territory, he just didn’t bother to chase them. In reality, had he looked for all the opportunity in his territory, he might have sold much more than $10M.
As we look at sales performance, we have to make sure the sales people are balancing their performance across the entire product line they have responsibility for selling. If they aren’t they aren’t maximizing the potential of their territory, or executing the strategy the company expects to be executed.
Let’s look at another more challenging issue. Let’s say our company has 80% of it’s revenue coming from an increasingly mature market. The market has passed it’s peak and is in decline. In this market, pricing becomes a challenge. As the company and it’s competitors are facing declining revenues, to win business, they will have to discount more and more. And, over time, the margins become unacceptable–even though you may be hitting your revenue goals.
Unless the company does something, it’s on a death spiral. It needs to find a way to shift to products/markets that drive growth. But too on, particularly if these products are the “family jewels,” they continue to invest in their slow death.
It takes an astute management team to recognize this, protecting as much of the base as they can, yet recognizing if they don’t make the shift to new offerings/markets, the company fails. It’s a delicate balancing act–there are lots of different tactics/strategies to do this. Sometimes in means consciously taking a short term revenue hit, to make the transition from bad revenue to good revenue.
Revenue is important, but we want to focus on revenue that enables us to continue to grow and expand–we want to focus on good revenue.