“No pain, no gain.”
Your coach or trainer probably told you that years ago. Now, you’re mulling how to improve EBITDA performance. You’ll have to go to the “EBITDA gym,” so to speak, and slim down. But you’re worried you’ll cut too deep and jeopardize growth.
The truth is, this process doesn’t have to hurt. You can make EBITDA gains without the revenue pain. You just need to equip yourself to make good decisions. We’ll help you get started.
You can make EBITDA gains without the revenue pain.
Focus on These 4 Questions:
You’ll need to tap into every major function, and dysfunction, in your organization.
1) Underperforming EBITDA: What Are the Most Likely Culprits?
- Product. What is your product management strategy and process? How are you ensuring your product investment aligns with corporate strategy? The market? Customer needs?
- Marketing. You need to understand what each dollar of your marketing budget is generating. Use a Marketing Spend Assessment tool to quickly compare spend with results.
- Culture. Have you created a “country club” corporate culture? (Are you paying assistants, chiefs of staff, and retention bonuses to solve problems?)
- Sales. If commissions have grown faster than sales revenue, you need to understand why.
- Span of control. Maybe you have an 8:1 ratio of sales reps to managers. Or a 6:1 ratio of sales managers to VPs. If so, you’re right on target. If your ratios are lower, you’re management heavy.
- Not leveraging channel sales. If you’re doing everything direct, you’re not leveraging your inside sales model. And that’s costing you.
2) In Deciding Where to Cut, How Can We Minimize the Impact?
Determine where your growth acceleration levers are. How does your R&D spend compare to your competitors’? Are you spending more (i.e., aligned with) where market growth is occurring? You should invest in high-growth markets and divest in legacy/maintenance markets.
Baseline and compare market growth.
Then assess your revenue growth strategy. The market is growing at 6%, and you have to grow by 9%. That means you have to perform 50% better. Your investments in sales and marketing, and/or product innovation, are essential.
Zero in on underperforming salespeople.
These are reps who’ve been with you at least two Q’s. For whatever reason, they’re not performing at their full run rate. This group also includes veterans (2+ years) who keep missing quota. Are you hearing “He’s a good guy” or “She’s a good girl”? Don’t let that sway you.
Safeguard your best customers and employees.
Stack rank your customers. Identify your best, by way of Customer Lifetime Value (CLTV) and spend potential. Identify your A-Players. Make sure your actions don’t impact any of them.
3) What Actions Can We Take on the Revenue Side?
This process is about achieving balance. Inputs are as important as cuts. What are your revenue levers?
- Maximize existing accounts. Relative to customers’ potential spend, how much revenue have you captured? Has your team penetrated all buying centers inside your existing accounts?
- Find new channel partners. Can the channel introduce you to more opportunities?
- Reverse bad calls. Reps do well, get promoted to management, and prove a bad fit. It happens frequently. Time to put these people back in a territory and let them sell.
4) What Does the Team Need to Do?
CFO, Heads of sales, marketing, product, HR. All these leaders need to bring their “A Game” to this process. Here’s what you should ask of them.
- Think like owners, not employees. Don’t let emotions rule. Stay objective.
- Stick to the facts. Data is truth serum. Ask each leader to bring 2-3 assumptions about EBITDA improvements he or she can make. These should include both cuts and revenue. Assumptions should be founded on, and backed by, hard data.
- Rise to the task. Give each leader a target in their function. Challenge them to find a way to meet it.
You began this process with a high sales cost. You knew you had to act, but you dreaded the outcome. Now you have the tools, direction, and mindset you need to tackle EBITDA with confidence.