You have now been the CEO for eighteen months. You were brought in to right the ship. You have gone through the playbook and introduced new vision, values and objectives for the 3-5 year plan. You have trimmed some of the expense fat to get EBITDA more in-line with expectations. But you now know that you will not be able to cut your way to the aggressive EBITDA and growth expectations from the board.
If the growth isn’t where you want or need it to be, you are likely asking yourself self some or all the following questions:
- Is my go-to-market model as effective and efficient as it needs to be?
- Do I have the right coverage models?
- Do I have the right commercial leaders (Sales and Marketing)?
The above questions are the right ones to ask. They are rooted in the alignment, or lack thereof, of your commercial strategies. Use the guidance given in this blog to help you achieve said alignment. This will vastly increase your chances of making your number.
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Is my go-to-market model as effective and efficient as it needs to be?
The best way to determine this would be to measure the capital efficiency of your GTM (go-to-market) dollars. You do this by determining your revenue acquisition costs (CAC) relative to the lifetime value you are extracting from you clients (LTV).
As a general rule, if the ratio of LTV to CAC is in the 3:1 – 5:1 range you are doing well. But what the metric is telling you is that for every dollar you spend on acquiring revenue, you are extracting $3 – $5 in LTV, which will likely be EBITDA accretive. If your yield is <3:1 than you likely need to find more efficient routes to markets OR improve the overall productivity of the selling team. If your yield is >5:1 then you may be potentially leaving money on the table.
If you allocated more dollars to your commercial motions, you could be accelerating growth. Commercial dollar allocation should be about reducing CAC and/or increasing LTV. To have a more efficient organization, focus on reducing CAC. To be more effective, focus on increasing LTV.
Do I have the right coverage models?
This is the most critical thing to get right. It’s also one of the hardest things to get right.
Your coverage model influences so many things from internal productivity, cost efficiency, and the overall customer experience. There are multiple ways to think about coverage. Think about all the different markets you serve and the multiple channels to reach prospects and customers. You may choose to have marketing dollars cover certain segments of the market. You may choose to leverage indirect selling motions in some segments/geographies.
Even within your direct selling motions there are multiple coverage models; such as, outside, inside, key accounts, etc. Point being, the allocation of selling dollars manifests itself in your coverage model(s). It is best practice to start with segmentation, understand where the opportunity lies. Choose which accounts you want to serve and not serve. Then think about the most efficient and effective ways to cover said accounts, which should be governed by the LTV to CAC ratio.
Do I have the right commercial leaders (Sales and Marketing)?
Instinctively you want to gravitate to this lever first. You are thinking, “If I just have the right leadership in place, he/she will right the revenue ship.”
You wouldn’t be wrong per se, but multiple factors – i.e., performance conditions, strategy – contribute to a commercial leaders’ success. But you are right in the sense that the talent of the leaders is the other half of the equation. So how do you know if you have the right leaders? I would think about it like this:
The talent needed is relative to the situation. You first need to define what the right competencies and accountabilities are for said leader(s). Once that’s complete, you can assess your current talent in the roles to see if they align accordingly. If not, then you likely need new leaders. The beauty about starting with the role competencies and accountabilities, is that they serve as the foundation for the hiring criteria as well.
The net is, start with strategic alignment across all your GTM functions; Product, Pricing, Marketing and Sales. Once you have those strategies in place, you can then understand how efficient your commercial dollars are being spent via calculating LTV:CAC by segment and selling channel.
Your strategy and LTV:CAC will then help determine what the right coverage models are for you to employ. Lastly, you can assess your talent relative to your strategies and coverage models. Your strategy will determine whether you need a builder or a runner. All of this is easier said than done. But again, getting them right will increase your chances of making your number.
For help with identifying key areas of investment, evaluating expected return, and avoiding mistakes in sales budgeting, download the CEO Sales Budget Tool.