Revenue operations is quickly becoming a key competitive advantage within high growth B2B companies.
This article will describe the rise of revenue operations and what it means for companies today.
The Rise of the Chief Revenue Officer
Just a few years ago, the chief revenue officer (CRO) was the hottest thing since sliced bread. Don’t believe me? Just check out Google Trends:
So why all the hype for the CRO?
The CRO solved a problem that had plagued B2B companies since the dawn of time: sales & marketing alignment.
The short version of the story goes like this:
– Marketer Mark generates leads for Salesperson Sally
– Salesperson Sally closes leads provided by Marketer Mark
– Salesperson Sally thinks Marketer Mark’s leads are garbage & not well qualified
– Marketer Mark thinks Salesperson Sally is being doing a bad job following up on leads that are hot
A lot of the bitterness between marketing & sales came down to a lack of agreement on what was a good lead and how to follow up on them appropriately.
With a CRO in place, companies had an individual who made sure that sales & marketing were on the same page and both sides were being held accountable (typically through a service level agreement, or SLA).
What’s more, the CRO got the entire organization focused on revenue (it’s in the job title, after all). That means getting marketing to think beyond just leads generated. In some cases, marketing had sales sales pipeline or even revenue quotas to hit as well.
More Technology, More Problems
But the rise of the CRO was followed by another big trend: the SaaS explosion. Over the past decade, new tools have made it easier to automate & accelerate processes across the organization.
And that’s not just limited to sales & marketing. Customer success, finance, and product teams also have purpose-built software to make their lives easier.
This explosion of technology has led to new challenges.
Making sure all of the tools play nicely with each other is a massive challenge. For many, integration into Salesforce is a must, as that becomes the primary database for the revenue side of the business.
This problem is so great that there is there is now software whose sole purpose is to connect other pieces of software (see Splunk & MuleSoft). These connections are vital for orchestrating activities across different teams. They also are critical for making getting all the data where it needs to be.
Yet for most teams, using information from all these different systems is a logistical nightmare. Rather than confront the problem head on, it is easier to stay siloed. Let marketing worry about marketing, customer success do its own thing, etc.
Our abundance of technology has created a scarcity of insight. Even though there is more data to analyze & act on than ever before.
Enter Revenue Operations
And just as the CRO addressed the issue of sales & marketing alignment, a new hero has arisen to tackle the challenge of improving revenue generation across the entire organization: revenue operations.
The revenue operations role is unique for a number of reasons
1. No siloes
Nothing is off limits when it comes to helping the organization make more money (and spend less). Marketing, sales, customer success, product, and finance data all have a story to tell about what is working and what is not.
Great revenue operations teams can connect all of these dots to identify opportunities for big wins, no matter where they hide.
2. Mix of tactical & strategic value creation
At a minimum, revenue operations should ensure dashboards and KPI trackers are in place to enable leadership can monitor performance & course correct when needed. This resembles the traditional responsibilities of sales & marketing operations professionals, as well as business intelligence (BI) analysts.
But that’s just table stakes.
The real value add of revenue operations is exploratory analysis. That means digging into all the data at hand to identify opportunities to create meaningful improvements across the organization.
This means RevOps needs to think like scientists, generating and testing new hypotheses on what is creating value and what can be done better. That requires creativity and curiosity, as well analytical chops.
3. Proactive Prioritization
Yet the biggest value revenue operations brings to the table is helping a company prioritize what to do next.
Because RevOps can see the big picture, they are best positioned to spot problems early and help decide where an organization should devote resources in order to hit its big picture goals.
Revenue Operations Making the Tough Decisions
Here’s a simple example to drive these points home.
Let’s say SaaSCo is in the middle of Q3 and it looks they’ll be $1M short of the annual revenue target. Q4 will be tight as well, so the CRO tells RevOps Ralph to figure out the best way to generate an additional $1 million to meet the revenue target.
Ralph talks with marketing, sales, and customer success leaders who suggest the following:
Marketer Mark: “Let’s buy a fresh list and then run it through some qualifying email campaigns so we can hand sales some fresh leads.”
Salesperson Sally: “I can’t push the sales team any harder than they’re working already. We would need to hire 4 new reps right now to plug the gap by year end.”
Customer Success Carol: “I think our churn is pretty high. If we could improve our account retention, that would do the trick.”
Looking at the numbers, Ralph determines that each of the proposals could generate an additional $1M of revenue in Q4. But the costs of each proposal vary a lot:
Cost of lead list: one-time cost of $20,000
Cost of 4 additional sales reps: $50,000 per month
Cost of improving account retention: $10,000 per month (hiring a dedicated renewal manager)
Based on cost alone, he determines that hiring new sales reps is the wrong move (too expensive to solve a one-time problem). So Ralph focuses on buying the lead list or hiring a renewal manager.
At first glance, the lead list looks really attractive, since it is a one-time cost. But then Ralph considers the time-to-revenue for those leads:
Since SaaSCo is in the middle of Q3, the average lead-to-revenue lifecycle of 4.5 months is a doable timeline. But it doesn’t leave room for error. However, the median lifecycle is 6 months. That suggests there is a very real possibility of not getting $1 million before year end.
In contrast, it would take about 1 month to hire a renewal manager, leaving several months to improve customer retention.
Now Ralph is leaning towards the renewal option, and is looking to confirm the decision.
Carol tells him that they would need to reduce monthly revenue churn by 0.5% by end of year in order to generate the required $1 million in revenue.
Ralph calculates the historical monthly churn and sees the following:
Reducing the churn by 0.5% (from 2.3% to 1.8%) seems doable, since that is still above where churn was at the beginning of the year. Additionally, when Ralph conducts research on industry benchmarks, he discovers that competing SaaS companies usually have monthly revenue churn below 0.5%.
This worries Ralph, as it suggests SaaSCo has a massive retention problem that is forcing the marketing and sales teams to work extra hard to plug a leaky funnel with new business.
Based on all this information, Ralph recommends that SaaSCo hire a renewal manager to improve the retention in the near term. He and Carol also begin to review the entire customer success & account management process to identify new tactics for long term improvements in customer retention.
First What, Next Why
This post was an introduction to where revenue operations came from and what it does. In the next post, I’ll take a deeper dive into WHY the revenue operations role is vital for the modern B2B organization.