Let’s examine the revenue cycle analytics in detail first by describing the three categories of revenue stages:
1) Inventory Stages – These are holding stages where prospective leads accumulate until they are released to later stages. A prospect pool is used to nurture leads until they are ready to be contacted by salespersons. There is no definitive timeline for the opportunities contained in this stage.
2) Gate Stages – Stages in which leads and accounts undergo a simple qualification check. For instance, you may only be interested in companies that have over $250 million in revenues. In a gate stage, companies that are too small are eliminated.
3) Service Level Agreement Stages – These define a time period that drives a deadline for evaluating leads in detail. Once again, leads that don’t pass muster are disqualified from further action. Typically, when Marketing qualifies a lead, Sales has a week or two to contact the lead and decide whether to pursue, hold, or disqualify it. Leads that sit in these stages for too long go “stale”, which can cause them to be reassigned to a more responsive sales representative.
There are certain best practices within the revenue stage model that are based on a few basic principles:
• Marketing resources are cheaper than sales resources. Don’t bring in the sales force until a lead is sufficiently ripe for exploitation by Sales. Interaction with Sales should occur relatively late in the lead pipeline, when leads have been well-qualified. Before this point is reached, Marketing can rely on lower-cost channels to help develop relationships.
• Never let a lead “slip through the cracks”. If you make sure you implement service level agreement stages, you are less likely to overlook a lead. Either pursue the lead or recycle it for later attention. Your marketing inventory of leads should be rather short so that prospective customers don’t suffer from neglect.
• A lead’s progress through the pipeline is not linear – backtracking and reclassification can occur before a lead becomes sales-ready. Leads that are detoured can eventually bear fruit if nurtured properly. If you establish a set of quantifiable transition rules, you can map out a path in which sidetracked leads can be recycled.
Transition rules determine when a lead advances to a new stage. For example, an inactive lead may become an active prospect by responding to a new marketing campaign. The bottom line is that each lead must be carefully evaluated and tracked on the chance the lead will eventually become a customer in the current or a future revenue cycle.
Revenue Performance Management (RPM) Metrics
RPM is a strategy that seeks to optimize interactions with potential buyers within a revenue cycle. The ultimate goal is to accelerate reliable revenue growth. RPM metrics describe how well Sales and Marketing are working together in driving revenue.
The prime RPM metric is called revenue engine effectiveness (REE), which is equal to total revenue divided by the total investment for sales and marketing. REE is an accurate measure of the efficiency of your revenue engine.
By concentrating on the RPM paradigm, you can answer a couple of important questions:
1. How is your marketing spending affecting your sales productivity?
2. How do your marketing efforts reduce the overall expense-to-revenue ratio for sales and marketing combined?
Notice that marketing is not viewed in isolation; rather, it is analyzed with regard to its impact on sales productivity and return on investment (ROI).
Other RPM metrics that are important to track include:
• Sales cycle time
• Average selling price
• Sale productivity
• Success rates
• Sales rep training time
• Total period revenue vs. quota
Identifying the important RPM metrics is a good starting point, but you will want to explore variants of each metric so that you can make better decisions in a number of different contexts. Here are the benefits of various tracking methods that can be applied to RPM metrics:
1) Time period – by maintaining a regular cadence (week, month, quarter, etc.), you are more likely to keep your operational focus sharp.
2) Trends over time – no better way to see if you are improving your results than to examine trends over time.
3) Versus goals – your management wants you to set specific goals for specific time periods so that they can measure how your results stack up against goals. Lord help you if you continually blow this one.
4) Versus benchmarks – measure your results against those of other companies in your industry, and against your historical results. For instance, if conversion rates are lagging behind those of your competitors, better start getting your resume together.
5) Sources – measuring who created lead flows and opportunities. Was it the Sales Department or was it Marketing that filled up the lead pipeline?
6) Lower granularity – get deep into the data by slicing and dicing according to product, region, channel, etc. This allows you to spot problems that may hide in larger aggregate numbers.