Top-line revenue growth is key to generating shareholder returns. With access to data and an ROI mindset, CFOs can unlock sales and marketing value. However few CFOs have experience leading sales organizations. As a result, they often hesitate to inject themselves in sales and marketing conversations
CFOs are well versed in the metrics of the financial world. These are well defined and can be consistently measured. The same rigor does not exist for sales and marketing. But it can. If the right metrics are analyzed. Below are 4 areas where a CFO viewpoint will improve sales and marketing performance.
Revenue Growth vs. Customer Segment Growth
This metric involves investigating your revenue growth in each customer segment. Relative to the growth of the customer segment. You are looking to answer the question, is my revenue growing on pace with the customer segment?
In cases where your revenue is growing faster than the customer segment, congratulations. You beat the competition. Now ask if this is this sustainable source of growth in the years to come?
In cases where your revenue grew slower than the customer segment, what happened? You lost to the competition. Can you reverse this trend? If so, what’s required to make that happen?
Customer Acquisition Cost (CAC) vs. Customer Lifetime Value (CLTV)
This metric looks at the cost to acquire a customer relative to the value of the customer. Customer Acquisition Cost (CAC) is the Sales and Marketing expense to acquire a customer. Customer Lifetime Value (CLTV) is the amount a customer spends over the course of your relationship.
Looking at these two metrics relative to one another is very revealing. But it cannot be done at the aggregate company level. It must be done customer by customer
The best way to analyze these is to look at the ratio of CLTV:CAC. The higher the ratio, the higher the Sales and Marketing ROI. For customers that require more resources to acquire, their CLTV should be higher. If this is not the case, you should not be pursuing these customers.
For customers with a high CLTV, you can afford to invest more sales and marketing resources to acquire them. Are you missing an opportunity to unlock value with difficult to win customers?
Pricing vs. Volume
Pricing is where sales and finance intersect. Often resulting in conflict. One of the biggest frustrations for a CFO is the sales team’s willingness to discount. This discounting destroys your margins
Does the market require your current discounting practices? This is a difficult question to answer. Margin may be lost because of discounting. And volume may be lost due to prices being set too high. However, we can attempt to address this by comparing price to volume.
Plot price relative to volume for each of your customers. What price is a customer paying for 1K units? Is it consistent or is there a lot of variability across customers? If there is a lot of variability across customers, listen to the market. It may be telling you that some customers are less price sensitive than others. Also cut this data by rep. If there is a lot of variability by sales person, you may have a talent/skills issue.
Sales Rep Comp vs. Territory Growth
Sales Rep Compensation is the biggest expense in the sales budget. Therefore it, more than anything else determines your return on sales. Ask yourself if each sales rep is contributing proportionally to growth and profitability. Is their compensation in line with the value they generates?
The best way to answer this questions is to look at comp relative to territory growth. For territories that are growing, are reps being over compensated for the growth? And for territories that are shrinking are reps taking a comp hit for their underperformance?
You should not look at territories by size. Just because a territory is big, does not mean the rep deserves extra compensation for managing it. It’s the growth of a given territory that should determine their compensation
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