New Wheels: The Revenue Cycle
There's always been a lot of drama around how marketing can best contribute to and improve the sales cycle. In fact, one common way to measure the effectiveness of a new marketing initiative is by looking for improvements in the sales cycle. Businesses have always focused on the sales cycle, so that's the way to go, right? Wrong!
Companies need to stop thinking only about the sales cycle and instead focus on what I call the "Revenue Cycle," which starts from the day you first meet a prospect and continues through the sale and beyond to the customer relationship. The old model of a linear handoff from marketing to sales must give way to an intertwined model where both organizations jointly own prospect relationships and coordinate their activities. To use an analogy, imagine a fighter jet that first ran with just the left engine, then turned that engine off and lit up the right engine. That's pretty inefficient compared to lighting both engines and going full speed.
Before defining the revenue cycle in more depth, it's worth first examining why the traditional "sales cycle" is a dysfunctional model for businesses to follow. The primary reason is that the sales cycle looks at only a portion of the complete revenue process, and this presents two main problems:
- Looking at sales alone as the predictor of revenue is misleading. With sales only, companies can't manage and guide growth beyond the current or subsequent quarter. The Sales cycle can usually predict revenue in the short term, but because the sales forecast is based on what a specific account will do at a specific time, it becomes increasingly inaccurate for predicting future revenue. Asking the sales organization -- which by definition is focused on revenue in the near term -- to predict revenue in future quarters is typically highly misleading. For this, a company should look to the function that is inherently focused on the long term: the marketing organization.
- Inefficiencies are killing productivity and marketing budgets. Without the right processes in place, sales is less effective and companies are wasting marketing budgets. The traditional model of a sales cycle that begins when sales accepts a marketing lead or contacts a prospect directly results in waste and inefficiency. It means as much as 50 percent of sales time is spent on unproductive prospecting, while reps simultaneously ignore 80 percent of marketing leads. We've estimated that the resulting lost sales productivity and wasted marketing budget costs companies at least $1 trillion a year. The sales cycle mentality also ignores the fact that throughout the customer life cycle (before, during, and after sales interacts with a prospect or customer), marketing has been and will continue to touch the prospect with marketing messages via the Web site, campaigns, advertising, and PR.
So how do you start driving your business by managing the Revenue Cycle? The Revenue Cycle requires coordinating marketing and sales activities throughout the entire cycle to generate maximum impact. The key is to realize that marketing and sales bring different strengths to the process. Marketing brings a long-term view, sales brings an action-oriented view. Marketing is good at one-to-many communications, automated processes, and dealing with lots of data; sales is good at building personal relationships and leveraging the human touch.
The Revenue Cycle must start from the day a company first meets a prospect and continue through the sale and beyond to the customer relationship. As marketing and sales coordinate their activities as part of a unified Revenue Cycle, companies will get better at properly identifying and prioritizing opportunities. That creates better quality leads that result in easier and better quality sales cycles, with more wins and ultimately more revenue. While there will still be a time when primary ownership of a lead shifts, the Revenue Cycle eliminates the "handoff" from marketing to sales. Instead, both functions should be engaged in the right way throughout the entire Revenue Cycle: marketing campaigns can come on behalf of the sales rep, marketing messages and the Web site can continue to support the sales process once sales does engage, and sales leads that go cold can be recycled back to marketing. With marketing and sales acting as equally important drivers of revenue, companies can gain a picture of the complete revenue process, ensuring that leads are properly nurtured and do not fall out of the cycle midway and get lost.
Of course, truly replacing the sales cycle with a coordinated Revenue Cycle is easier said than done, but the benefits are clear: increased sales productivity, greater return on marketing spend, and better visibility into the long-term performance and health of the business. What company doesn't want to be able to better predict revenue and grow their business? The shift won't happen overnight, but the first step is changing our thinking and embracing the new model: the Revenue Cycle.
About the author
Phil Fernandez is president and chief executive officer of Marketo (www.marketo.com), a provider of B2B marketing automation software that helps marketing and sales departments work together to drive revenue and improve marketing accountability.
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