Why How Much You Sell is Less Important Than How Much You Keep

 By Scott Gordon, The Chief Revenue Officer

Robert Kiyosaki, the author of Rich Dad Poor Dad , once famously wrote: “It’s not how much money you make, but how much you keep, how hard it works for you, and how many generations you keep it for.”

Many businesses I work with understand this concept well and are highly optimized to capture every penny of margin from every sale, every time. In fact, they can be so good, that they often ‘find margin’ in places where others seldom look. For these clients, I tend to focus less on streamlining process and more on top of the funnel activities like lead generation, sales training, and marketing initiatives. After all, these companies are poised for growth since their engines are properly calibrated and have horse power to spare. My job is to help them drive more business through those beautiful engines they’ve built.

Then there are the others. They often have the sales and marketing angles figured out, but their back office is a disorganized agglomeration of tribal knowledge flying by the seat of its pants. Unlike the first group of clients who prioritized process over growth, this is the flip side of the coin – growth at any cost.

For this second type of organization, growth often comes at a very high price.

The role of a Chief Revenue Officer isn’t just to wake up every morning thinking of ways to grow revenue faster, but also to maximize the profitability of every dollar that comes into the enterprise. That’s one of the reasons a recent article in Forbes Magazine called the chief revenue officer “The CEO’s New Secret Weapon”.

A CRO is responsible for creating the overarching strategy that generates predictable AND profitable revenue over time. To do so successfully requires everything from correctly pricing product offerings (what are the margins required to cover overhead costs by business segment? - otherwise known as ‘putting water over the rocks’) to overseeing the marketing initiatives that attract customers in the first place, and implementing sales compensation plans to both attract top talent and keeping a lid on customer acquisition costs. A chief revenue officer’s jurisdiction crosses every department, process, and database where revenue lives – sales, marketing, back office support & processing, customer service, installation, etc.

The CRO is all about creating a company culture where all stakeholders are focused on generating sustainable and profitable business over time. The keys here are sustainable & profitable. Which brings us back to the point of this article.

Companies that have high octane growth engines but lack the backend systems, processes, and accountability to deliver a seamless customer experience will eventually sell themselves out of business. They are like sharks that must keep swimming or otherwise drown. In other words, if they don’t keep revenue coming in at an ever-increasing pace, working capital requirements will overwhelm their businesses.

Worse, sales driven businesses that lack defined strategy and brand identity often turn into squirrel chasers – chasing anything that looks like a dollar. This is dangerous because squirrel chasers don’t have a true understanding of the profitability of the segments they’re chasing. They just see dollars and, for them, any dollar will do.

While process driven companies subscribe to the motto: “build it and they will come”, sales driven companies often take a different approach: “build it after they get here”. Therein, lies the crux of the problem.

Lack of systems and formalized processes usually manifest themselves in the following ways:

• Lack of customer communication leading to lower overall satisfaction and sales (particularly more profitable repeat sales)
• Dropped balls and miscues
• Double work (e.g. double cost) where the left and right hand don’t know what the other is up to
• Unqualified deals that are taken too far in the process at the expense of ‘real’ business
• A self-inflicted ceiling on growth – they just can’t seem to grow any more beyond a certain point
• Contract cancellations & refunds
• Poor sales and back-office morale
• Interdepartmental “finger pointing”
• Drop off in word of mouth and referral business (the most profitable of all business)
• Higher employee turnover
• Longer ramp times for new employees (leading to frustration and turnover)
• Inability to forecast resource allocation (whether to hire or lay-off)
• Inconsistent processes across multiple locations/branches
• And a host of other problems

As you can see, each one of these inefficiencies leads to margin bleed and has the tendency to create negative feedback loops within the business. Let me take you through an example to illustrate my point.

A salesperson turns in a contract. She is excited that she closed a deal and, in her mind, is already spending her commission. Two weeks later, her customer calls frustrated that he hasn’t heard from anyone since he signed the agreement.

The salesperson, lacking visibility into the process, can’t answer her client’s questions and proceeds to launch a bevy of calls and emails into the back office to get a status report. Unfortunately, the person who can answer her question is on vacation this week and the folks ‘filling in’ don’t know where to find that information. Other business related fires spring up and this salesperson’s email inquiries get buried under a tsunami of emails of a similar nature sent by other salespeople and customers.

The resource in question returns from vacation and begins working on their inbox from newest to oldest (LIFO – last in, first out), only he never makes it all the way down to the salesperson’s week old emails because the avalanche of new email prevents it. Worse, the other support folks who were involved previously are buried under their own pile of work, and the customer of last week is forgotten.

Two more weeks pass, and now the customer is livid. He calls the salesperson and chews her out, with thinly veiled threats that if things don’t start happening soon, he’ll cancel his order.

The salesperson drops everything (prospecting, networking, new sales, etc) in an attempt to turn this deteriorating situation around. She soon discovers that the contract has been sitting under a growing pile of paperwork on the very same desk she placed it on four weeks ago. Now she is fit to be tied. She decides to escalate the issue to her manager, who in turn involves in peer in operations, who drops everything to make this order a priority (cost is now piling on top of cost).

The operations manager ‘writes up’ the offending back office resource, excoriating their work ethic, and insisting the order now be fast-tracked at the expense of everything else in the workflow. With the workflow now thoroughly disrupted, other orders begin to suffer the same fate. Additional customers begin to call the salesperson with similar complaints. She again escalates to her manager, who involves his peer, and so the negative feedback loop begins (cost, cost, cost).

The result of all of this wasted motion is double work (paying twice for the same thing), more dropped balls and confusion, inevitable customer cancellations & refunds, demoralized salespeople who question the efficacy of your business, inevitable personnel turnover with its requisite recruiting, training, and ramping costs, drop in word of mouth business (requiring ever increasing marketing spend to attract a steady stream new lower margin customers), negative online reviews (driving additional marketing costs), and relentlessly increasing overhead that will eventually overwhelm the stream of declining gross margin dollars.

Thus, the shark that must keep swimming...
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A better scenario would obviously be one where more profitable revenue allows for increased investment in profitable customer acquisition to drive organic growth over the long haul. This can only be accomplished when an organization is focused not only on revenue acquisition but on the profitability of every dollar acquired.

It is a discipline many organizations lack. They never stop to, as Stephen Covey prescribes, “sharpen the saw”. They instead waste their valuable time fighting fires and figuring out how to make payroll every two weeks wondering why they can never get ahead.

It’s not about the dollars you make, it’s about the dollars you keep and subsequently reinvest in your people, systems, and brand.

Low margin and money losing businesses never have the money to reinvest. Therefore, they are outclassed and outperformed by their competitors who do. The haves (have defined business systems) will always clobber the have-nots (have no defined business systems).

These seat-flying firms mistakenly believe that if they can bring in new investors, they can ‘bridge the gap’ to profitability. Of course, smart investors run kicking and screaming away from such “opportunities” when presented with ugly EBITA numbers and hollow promises of future profitability. Yet less sophisticated investors, like family and friends, often swallow their pitch hook, line, and sinker. Sadly, the proprietors of these firms often swallow their own bait because they don't understand their numbers well enough to see the cracks forming in the dam.

Where is your business bleeding margin? Would you know where to look? Do you know your numbers? For example, do you know how much money each step in your process costs, how much work each resource can reasonably handle before you need to hire additional ones, what the aggregate cost to process an order is throughout your company, and how to optimize process to drive increased system wide profitability?

If not, you may need a CRO to drive the cross departmental discipline to make it so.

​Of course, you can always keep swimming...