The Mathematics of Revenue Cycle Strategy

The Mathematics of Revenue Cycle Strategy image mathThe Mathematics of Revenue Cycle Strategy

Change of focus

Once clients of mine get their marketing automation platform in place their entire focus changes. Up to this point, their lives were dominated by focusing on what the new technology is and how can they get it up and running.

Now, let’s say you are the client. You are capable (obviously) and have setup key processes including lifecycle, scoring, marketing activities, and analytics. It is all working, the leads are coming in and moving through the lifecycle and you have visibility.

At the same time you are getting pressure from above to produce more results.

So you turn to me (your friendly Marketo Consultant) and ask what additional functionality does marketing automation offer to help me create more revenue/profit?

This is the exact moment where your approach needs to change!

You need to move past “what the platform can offer you” and start asking yourself “what are the critical variables that drive revenue?”

So what are the variables?

What I like to do at this point is encourage my clients to think of their revenue mathematically. I usually think of the revenue cycle like a factory line. Raw materials come in (“names”). They are processed (“revenue cycle stages”). And then the product comes out (“revenue”). If you think of it that way there are clear variables that will impact the product being produced.

The key revenue variables are the following:

  • Number of names in Engaged status = A
  • Number of names added to Engaged status = B
  • Quantity of Engagement = C
  • Quality of Engagement = D
  • Product quality = E

If you want more revenue you will need to significantly increase some combination of these variables.

Number of leads in Engaged status = A

The number of names in Engaged status is a good representation of the size of a key marketing asset. This number will impact revenue. Many of your marketing activities will touch these people including email blasts, webinars, and lead nurturing for example. The more names in Engaged status the more interactions, marketing qualified leads, and deals won. The important point here is that we are ignoring names that are not interacting. If you purchase and upload a third-party list, that list will not count (purchasing lists is a no-no anyway)!

Number of names added to Engaged status = B

Bringing in more Engaged names will drive revenue. You will be able to interact with more people.

Quantity of Engagement = C

Your engagement will drive revenue. One way you can measure this is to use the gross score for a time period as a measure of the engagement you drove. See my post on interaction analysis for how you can do this.

Quality of Engagement = D

Quality of engagement can be impacted in many ways. Better segmentation will increase quality. Better timing will increase quality. A well designed lead nurture program can help you improve the quality of engagement by better controlling segmentation and timing among other things.

“Product” quality = E

“Product” is in quotes because my definition of product is broad. My definition of product quality is how much people would miss your product or service if it went away. It includes the actual product/service quality, includes price, and includes other options in the market. If your execution is constant and product quality declines, you will have less revenue. At some level of the organization you will want to look at this but at a demand generation level you will likely want to assume this variable is constant.

What is the formula you might ask?

((A*weight 1) + (B*weight 2) + (C*weight 3) + (D*weight 4) + (E*weight)) = P*

Notes:

  • P = your revenue cycle momentum
  • If P increases you will generate more revenue
  • Each variable has a weighting adjustment to equalize their impact on your final number – therefore any variable change will impact P at the right magnitude

How do you execute on this?

If you took these variables, your data, and a mathematician, you could create a formula that outlines the relationships of these variables. Getting complicated with this formula is not necessary though. All you need to know is that you have to measure and improve these variables to drive revenue.

So what this means is you need to figure out a way to measure these five variables. Benchmark these measurements and drive them to improve. If they improve significantly you will have more revenue!

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