Each quarter, business headlines are dominated by whether or not companies met, beat, or missed their revenue projections. In fact, just last month, Alphabet reported it had missed revenue projections by 7%, its weakest period of growth since 2013. But the implications of revenue miss can go much further than a company’s stock price. It can affect employee headcount, bonuses, tax revenue, and loss of charitable giving. Extrapolated even further, it means families put off buying their first home, saving for the kids’ college tuition, or completing home renovations. The loss of tax revenue can mean townships are unable to fund new parks, schools, and other infrastructure.
Globally, about 20% of CEOs at large public companies miss their revenue guidance every quarter. Consider the 6,000 largest companies in the world, which account for an $86 trillion market cap. If 20% of those companies miss their guidance with an average drop in market cap of 10%, then about $1.7 trillion of global value is lost each year. Despite the impact, there’s a disconnect between the guidance missed, the global impact, and how it ties back to every rep in the field.
Looking at the macro issue of revenue miss, it becomes clear the issue goes beyond splashy headlines and demands an immediate solution.
The secret to eliminating revenue miss is understanding that revenue is a process, not an outcome.
Up to 50% of employees are revenue-critical, but their systems are outdated and often don’t provide enough visibility. What’s more, they’re not purpose-built to run revenue like a process. The result is revenue leak: revenue lost due to breakdowns in the end-to-end revenue process — and it’s everywhere. Some examples of leak include, that big deal that the company was counting on slips to the next quarter, or a large customer that churned or downgraded without warning.
Think of the revenue process as a series of pipes moving money around an organization to different departments, campaigns, and initiatives. As a business grows, it becomes more complex, and so does the piping. If all these streams aren’t flowing in unison, cracks and breaks appear, and the result is revenue leak.
The good news is that revenue leak is largely avoidable. Executives control both the pipes and the flow of resources through them, but CEOs need visibility into the performance of each section to control the entire system. By solving revenue leak, companies can achieve revenue precision — operations that enable full capture of potential revenue and thus revenue predictability.
Avoiding Revenue Leak: Gain Revenue Precision
Revenue precision provides complete visibility and control over the flow of revenue. While it might not be possible to know revenue totals in the quarters or years ahead, business leaders can gain control with clean data visibility from stable processes, which leads to accurate revenue forecasting.. This visibility enables leaders to prevent revenue leak or minimize their impact before it becomes a major issue. Think fixing a pin-sized hole in a pipe versus waiting until it breaks and floods your basement.
Revenue precision is the operating standard that results in capturing revenue predictably and repeatedly. When done right, teams gain full visibility into the revenue process, controlling key workflows and executing with constant collaboration.
Here’s how to avoid revenue leak and gain revenue precision:
1. Control the system
To extend the pipes analogy, valves control the flow of water — or people, or resources in business. Knowing when to open and close a valve to maximize the flow rate reduces leaks, in the kitchen or in the corporate world. In other words, you must have central control over the way the entire system operates.
2. Generate connectivity
The junctions between different streams need to be water-tight. The more complex the system, the more junctions exist. In the context of a revenue team, this means ensuring seamless collaboration between all functions and lines of business, even as the company grows.
3. Ensure visibility
Leaks are inevitable. Gravity always sneaks in. The key to preventing catastrophic failure relies on systemic visibility, so fixes are applied to pinholes, not gaping chasms. The same goes for revenue — leaders need to see the leaks before they drain off profits.
These three principles must be applied at all levels of the organization, from the front line to the C-suite. They also apply across the entire extended sales process, from generating demand, through closing business and retaining customers, and expanding the customer base.
Enter Revenue Collaboration & Governance
If gaining revenue precision is the opposite of revenue leak, then Revenue Collaboration & Governance is the process of gaining precision. Revenue collaboration and governance takes the guesswork out of the question of “are we going to meet, beat, or miss revenue.”
Everyone in the organization who touches revenue must work together to improve it — this is what revenue collaboration is all about. For example, customer success and sales significantly impact revenue, the former managing churn and upgrades, while the latter brings in new business. They should collaborate and share revenue totals and forecasts.
Collaboration is built through revenue governance — gaining control over all revenue-driving activities by unifying internal metrics, definitions, and processes. This means creating a high standard of data accuracy so there’s a common understanding of real-time business data and insights.
Collectively, Revenue Collaboration & Governance unite the entire organization around the same goal and metrics, operationalizing strategy and scaling growth. They create a shared playbook, empowering everyone – from the front-line sales rep to the CEO – to make educated and aligned business decisions that prevent revenue leaks and achieve revenue precision.
With Revenue Collaboration & Governance, which means revenue leak has been eliminated and revenue precision has been gained, revenue leaders can predictably achieve success, avoid revenue miss, and avoid the far-reaching negative implications that go with it.
As Joe McNeill, CRO at Influ2, noted, “Running revenue like a process means that you have a structure in place where you can teach it, you can repeat it, and then ultimately – you can predict it.”