The Ten Commercial Commandments, Your CROs Should Know

As sales organizations become more data-driven, we believe that installing the right revenue metrics and emphasizing their importance should be part of the agenda for every leadership team preparing for a universally critical 2021.  The CRO is the C-Suite leader ultimately held accountable for revenue growth.  Ironically, at just under 18 months, the Chief Revenue Officer has, by far, the shortest tenure of any C-Suite Executive.  Our research has clearly shown two distinct types of CROs exist, which we’ll refer to as:

• Traditional Revenue Leaders:  These are the “deal guys”.  They have long, successful careers as individual contributors, along with a series of short-tenured sales management roles.  They enjoy rolling up their sleeves and participating on large deals.
• Contemporary Revenue Leaders:  These leaders leverage data in most aspects of their go-to-market decision making choices.   Their experience allows them to quickly see through the “noise” in data, and focus on which aspects are important for commercial success.  They still successfully lead from the front, but in a scientific way.

During macro growth periods, both types of Revenue Leadership can be incredibly successful.  However, during times of uncertainty, we’ve consistently seen the Contemporary Revenue Leader outmove & outperform their traditional counterpart.  For the purposes of this article, we’ll focus on the Contemporary Revenue Leader.

 

What key characteristics should you look for in CROs of your Portfolio Companies?

Successful Revenue Leaders, who generate predictable results year-after-year typically have two key traits in common: 

• Strong Operational Capabilities & Experience: traditional “deal guys” or sales leaders who rely on their relationships, are increasingly seen as less effective than the CRO who’s run business units and had P&L responsibility.

• Complete Command and Control of Metics:  Exceptional Revenue Leaders are able to identify key leading, lagging, and behavioral indicators which directly influence revenue.  They use this to quickly identify potential revenue misses, and work to course-correct through evasive actions.  

Requisite Operational Capabilities & Experience can vary greatly from one company to another, however the following key metrics are valuable for most companies, and can be divided between Effectiveness & Efficiency.

 

Effectiveness Metrics

Do we maximize our share of wallet in a timely-manner within each customer?:

1. Key Customer Trends:  Who are your top customers?  What percent of total revenue do they represent?  How much whitespace is there?  How has spending increased/decreased over the past 3 years?  Over the past 3 months?

2. Pipeline Coverage Ratio:  Based on our close rates, what does our pipeline coverage ratio need to be?  What is this quarter’s coverage ratio?  How about next quarter?  What happens to the coverage ratio if we close the top 3 late-stage deals?

3. Customer Churn:  What percent of revenue do we lose each year?  How many customers does the churn come from?  What measures are being taken to identify and ameliorate avoidable churn?

4. Source of Revenue: How much revenue comes from following sources (expressed as percent of total & dollars)
   1. New Logo:  New customers, not previously sold to
   2. Cross-Sell: Selling additional products to existing customers
   3. Upsell:  Selling more of the same product to existing customers
   4. Retention:  Revenue from existing products from existing customers

5. Revenue Velocity Model:  Sales velocity factors in how quickly, how many, and how big are the deals we can expect.  Key components are Marketing Lead to Sales Lead Conversion Rates, Stage 1 to Closed-Won Rate, Average Deal Size, Average Sales Cycle Length. 

6. Average Sales Productivity:  What is the average revenue generated per Seller, by type (e.g. Account Manager, Hunter, Product Specialists) of seller AND tenure (e.g. new hire vs. fully-functional).              

 

Efficiency Metrics

Do we cover the market at an optimal cost structure?:

7. Customer Acquisition Costs (CAC) vs. Lifetime Value (LTV):  This ratio should be known for each segment, e.g. CAC vs. LTV in Key Accounts, Field Sales, Digital

8. Sales & Marketing Percent of Revenue:  How much is spent on labor vs. non-labor?  Has the ratio declined over time?  Can increases be justified?  How do our Sales & Marketing expenses compare to competitors?

9. Headcount Ratios:  How many quota-carrier headcount to overlay roles?  How many product specialists to account managers?  How many individual contributors per first-line sales manager?  Can anomalies in ratios be explained (e.g. “player coach” managers may have fewer direct reports)

10. Voluntary Seller Turnover:  How many quota-carrying sellers do we lose each year?  Do we have a healthy level of attrition?  Don’t assume very low turnover is good!  However, ensure plans are in place to fill vacant territories.  

While these are the key data points Revenue Leaders should be well attuned to; understanding how they are trending through user-friendly dashboards is critical to determine where to spend your time and attention.  Additionally, when trends are spotted, most-value is created through understanding which levers to pull to course-correct negative trends (or further gain advantage of positive momentum).

—

Revenue Vision Partners (RVP) blends over 75 years of REAL revenue leadership experience with hundreds of successful consulting engagements. We were founded to focus  on the commercial challenges faced by mid-market organizations in growing their top line.