Cost management is a high priority for CFOs this year. But some companies may be missing an opportunity to get more bang for their buck in sales and marketing.
“We’ve seen winning companies use periods of disruption not only to cut costs, but to prepare for the inevitable pivot to growth,” Jason McDannold, a managing director of private equity, told me. and AlixPartners investors.
McDannold is the co-author of a Harvard Business Review report,”How to grow your top line in a down market.” “You cannot cut your way to prosperity,” the authors wrote. “Our experience shows that the recession toolkit requires more than sharp knives.”
Why are some companies looking at opportunities?
“With inflationary pressures and uncertain market conditions, we are seeing many of our clients hesitate to take any specific sales or marketing action,” McDannold said. “It’s usually rooted in the fear of disrupting any revenue that’s coming in. Often we run into sales leaders who say, ‘Turn over my sales organization.'”
But there are tactical moves companies can make to improve top-line performance without fear of disruption, according to the report:
1) Improve commercial efficiency. This includes modernizing systems, implementing AI and Big Data solutions. Also, cleaning up the scope of sales and account management to bring them better in line with changing market conditions. For example, one client that is a leading media company (unnamed) is reconfiguring its global revenue organization to focus its resources on the largest and most profitable customer segments in each market, according to authors.
2) Increase marketing ROI. “Given the changing conditions on the ground, should you emphasize brand awareness, product launches, or targeted campaigns?” written by the authors. “We’ve seen organizations take a ‘clean sheet’ approach to marketing campaign spending and build strategy from bottom to bottom in four weeks to generate 15 to 20% cost improvements.”
3) Improve customer success, defend the existing customer base, and improve loyalty. For example, focus on retention and reducing churn.
Top-line growth opportunities are also hindered by a fixation on the wrong metrics of success, McDannold said.
“Many companies in this environment remain focused on acquiring anemic customers when they have a unique opportunity with their existing customer base in improve customer lifetime value (CLV), about wallet, cross-sell/up-sell, retention, and renewal sales,” he told me. “These ‘customer success’ type opportunities are often overlooked, and yet are a compelling option, especially in lower markets.”
Don’t be ‘Dr. no’
The report points to a critical area of ”turning vision into action” which is ensuring that sales and marketing leadership see themselves as allies of the financial team. I asked McDannold what CFOs can do to make these functions feel less confusing in finance. It’s about transparency, he said.
“We’ve seen winning companies build a centralized ‘Revenue Win Room’ that combines key metrics of lead management, sales effectiveness, and sales performance with financial results (net retention revenue, CLV, customer acquisition ratio, etc.),” he explained. “In fact, the Revenue Win Room joins sales finance and marketing as partners as the dialogue focuses on answering important questions related to top-line growth. This effort will be led by the CFO in collaboration in CRO.
Finance chiefs should not be “Dr. No,” he said. “One way CFOs can build bridges with commercial groups is to find ways to use their skills to help them solve the problems, which work as causes rather than obstacles.”
“Winning company CFOs act as the strongest advocates for real change, and when that change creates sales and marketing effectiveness (as opposed to just creating spans and layers and cutting the costs), CROs and CFOs are quickly aligning for growth,” McDannold said. Due to market disruption, he suggested assigning finance business partners to sales and marketing teams.
What can marketing and sales do to shoulder their share of the burden of recession readiness? McDannold offers some examples: Pivoting marketing campaigns to focus on existing customers to protect the base and maximize CLV.; moving the sales team to “carve out a special ‘customer success’ function;” and making tough decisions like firing underperforming sales team members, and reallocating accounts to high performers.
“We always advise companies to be cautious in their cost reductions and avoid overreacting in the face of uncertainty,” McDannold said. “Now is the right time for companies to make targeted efficiency investments.”
See you tomorrow.
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—Mark Cuban, the billionaire owner of the Dallas Mavericks, tweeted on January 7 in response to OpenAI founder and chairman Sam Altman’s tweet about how traditional colleges are producing a generation afraid to take risks, but things “seem to be improving” among college students today.