By now, you know your revenue target for 2014. Let’s cut to the chase: will you make it?
If you’re feeling uncertain, you’re not alone. Risks are swirling everywhere, some known, some not. When revenue risks are identified, they’re often labeled pipeline or funnel problems, and shunted off to Sales and Marketing, where they can be managed.
In truth, once revenue risks reach the high-energy, caffeinated world of business development, they’re often handled differently from other risks. Instead of getting managed, revenue risks are just re-distributed. Sales executives accomplish this feat by embedding them into quotas and productivity targets. Then, those are plopped onto the waiting shoulders of the sales and marketing team members. “Risk flows downhill,” to paraphrase a more popular adage.
When actual revenue doesn’t meet goal, management ratchets up the numerical targets for lead generation, “customer touches,” outbound sales calls, and booked appointments. This tactic works until it doesn’t. The many causes for failure can be consolidated into a single term: burn out – a state reached when an employee experiences an epiphany like, “Gee. I could work just as hard somewhere else for way more coin.”
For many companies, dealing with revenue risk channels bucket-loads of corporate spending into bleeding-edge marketing automation, new sales methodologies, and myriad other short-term projects that contain the words social, collaborative, and content. The benefits of all this spending has always been a little mysterious. “Where’s the ROI?”, people love to ask.
When there’s vague understanding of risk, the outcome is a hodge-podge of loosely-joined marketing assets, promotional campaigns, customer data, and software applications. “We’ve got social media pretty much covered!”, some executives tell me. Sorry, but without comprehensive revenue risk management, a company’s online presence appears more like a biz-dev Maginot line.
More marketing leads won’t help achieve goal if the sales staff is not competent in getting a first meeting with a prospective client. Investing in marketing automation is useless when there’s dysfunctional sales leadership. Honing a lucrative sales compensation plan doesn’t matter if the company can’t get a quality product out the door. Award-winning loyalty programs and creative marketing content won’t excite any COO if customers can’t pay their invoices. And fancy webinars won’t convert prospects if current customers hate the company’s service.
You can see the evidence of disjointed risk management in the revenue results for almost any organization. The fallacy is in not viewing revenue risk as a strategic business challenge, one that involves every department—not just sales and marketing. A revenue risk audit enables risk management by exposing all risks that are consequential in disrupting sales. It’s a planning tool for deciding which projects to undertake and determining how to invest in them. At the end of the audit, you can expect to have a clearer view of the risk potholes you’re likely to encounter, along with knowing which ones are cavernous. Here are some tips:
1. Include the whole company. Don’t limit the audit to sales and marketing.
2. Don’t confuse risk management with risk avoidance. They are not the same.
3. Embed risk analysis into all of your operational planning. In addition, use it for sales coaching and account reviews.
4. Expect that some risks will be common across departments. Not all risks fit neatly into a single category.
5. Link every significant risk to one or more specific internal controls.
For audit and planning purposes, revenue risks can be separated into categories. (Note: though I have used Sales throughout the many of the audit questions, they apply equally to marketing and other business development functions.)
1. Has the sales strategy in place been proven successful at the company, or elsewhere?
2. Are customer needs and buying habits known?
3. Are customer needs and buying habits volatile?
4. Do the company’s revenue generation channels (direct/indirect/online/bricks-and-mortar) enable strategic and tactical flexibility?
5. Does the company’s management clearly understand the steps its customers use in making buying decisions?
6. Does marketing and sales management monitor future industry trends?
7. Does the company maintain a multi-layer sales organization (e.g. territory/district/region)?
8. Do sales compensation policies conflict with any of the company’s strategic objectives?
Marketing alignment risk.
1. Do the company’s brands have a positive reputation?
2. Does the company’s pricing strategy support its cash flow requirements?
3. Are the company’s social media assets fully integrated into its marketing automation and sales systems?
4. Do Marketing and Sales operate using the same business definitions and taxonomies?
5. Do the company’s marketing automation tools use a single data repository, shared by all departments?
6. Do the marketing and sales teams view each other as mutually valuable and supportive?
7. Are the company’s goals for marketing sales congruent with each other?
Sales enablement risk.
1. Does management use proven, effective techniques for ensuring consistent, positive customer experiences?
2. Are there adequate administrative support resources for marketing and sales?
3. Are effective Customer Relationship Management (CRM) and Sales Force Automation (SFA) tools in place and being used?
4. Has the company successfully deployed tools to measure and manage marketing and sales productivity?
5. Has the company demonstrated repeated competency in executing effective marketing campaigns?
6. Does the sales team have adequate knowledge to hold face-to-face conversations with prospects and customers?
7. Do sales team members have adequate situational awareness for every opportunity?
8. Do sales team members use consistent, effective communications that buyers consider valuable?
Sales-force effectiveness risk.
1. Has sales leadership been proven capable?
2. Do they inspire confidence?
3. Do they instill a positive, challenging culture that includes encouraging intelligent risk taking?
4. Do they have demonstrated skills for effective coaching and mentoring?
5. Are sales team members self-motivated?
6. Are sales team members passionate about what they are selling?
7. Are sales team members strictly money-motivated?
8. Does the sales organization use a repeatable process that matches how customers buy?
9. Does the sales team have a formal process for knowledge capture, knowledge sharing, and organizational learning?
1. Is the data used for CRM/SFA, and other marketing automation, accurate and timely?
2. Can data be captured efficiently?
3. Is there significant latency between the time data is collected to the time information is made available to staff?
4. Do different departments within the company use the separate, non-integrated customer data repositories?
5. Have the causes of all past IT security breaches been mitigated?
6. Are IT security procedures in place to ensure that information is not available to unauthorized persons?
7. Does the company maintain privacy standards for customer information?
8. Does the company have strong governance over IT security?
1. Does the company know which competencies customers value in its employees?
2. Does the company use hiring practices to cull which candidates are likeliest to have those competencies?
3. Is the company unable to fill positions due to shortages in the talent pool?
4. Does the company offer employees flexible work arrangements?
5. Could the company sustain the loss of key personnel without operational interruption?
6. Does the company have an ongoing program for professional development for all customer-facing staff?
7. Does the company experience higher-than-average turnover customer-facing staff?
8. Has the company recently experienced turnover in senior management?
9. Does the company’s compensation plan enable employee income at or above market rates?
1. Are the company’s products easy to counterfeit?
2. Are the company’s products unprotected by patents and trademarks?
3. Is the company’s product line segmented into different pricing tiers?
4. Does the company have a reputation high-quality, reliable products?
5. Does the company’s competitive advantage rely on rapid product innovation?
6. Are the company’s product life cycles shortening?
7. Is it easy for customers to find substitutes for the company’s products?
8. Are there low switching costs?
9. Are the company’s products subject to sudden changes in demand?
10. Does the company maintain an adequate innovation pipeline for new product development?
1. Is the company’s supply chain subject to frequent disruptions?
2. Does the company experience frequent product quality or delivery issues?
3. Does the company consistently meet its order fulfillment targets?
4. Does the company have significant excess, obsolete, or slow-moving inventory?
5. Does the company have old, unsupportable production equipment or IT infrastructure?
6. Do the company’s profits and operating costs compare favorably with industry averages?
7. Does the company conform to industry best-practices for project management?
8. Does the company have a high number of unresolved customer complaints?
9. Are the company’s customers dependent on customer support in order to use the company’s products or services?
1. Are the company’s intellectual properties protected with enforceable contracts?
2. Does the company regularly review sales proposals and customer contracts for liability risk?
3. Does the company enforce violations of its sales agreements?
4. Does the company experience frequent legal disputes with customers or employees?
5. Are the company’s products and intellectual property protected in every country where it operates?
6. Does the company maintain and provide written guidelines for its social media policies?
7. Are the company’s sales and business development practices compliant with the Foreign Corrupt Practices Act?
1. Do senior corporate leaders consistently model ethical behavior?
2. Does the company have a reputation for unethical sales practices?
3. Is the company transparent to its stakeholders about its sales strategies and tactics?
4. Does the company have guidelines for Corporate Social Responsibility?
5. Are employees offered high financial incentives for meeting revenue goals?
6. Does the company have strong internal audit controls?
7. Does the company exercise tight internal governance over business practices, particularly in marketing, sales, and procurement?
1. Does the company have adequate financial capacity for its risk exposure?
2. Does the company have adequate cash flow to provide on-time payment for suppliers and employees?
3. Does the company have sufficient liquidity to sustain its operations?
4. Does the company consider cash flow needs when making project decisions?
5. Does the company have adequate controls over cash receipts and disbursements?
6. Does Sales provide Accounting with forecasts that are valuable for planning purposes?
7. Do customers consistently pay invoices within the specified terms?
Internal/External (Mixed) risks
1. Does the company have diversified base of clients?
2. Do the company’s channel partners offer access to valuable markets that are difficult for the direct sales channel to enter?
3. Do the company’s customers face high technological or cost hurdles when switching suppliers?
4. Does the company have deep, highly collaborative ties and connections in customer accounts?
5. Does the company have higher-than-average customer churn?
6. Do customers perceive the company’s products as highly differentiated from other offerings?
7. Has the company recently experienced high attrition in its customer base?
8. Has the company recently lost one or more large customers?
1. Are the company’s sources of supply consistent and reliable?
2. Do the company’s suppliers adhere to standards for Corporate Social Responsibility?
3. Are the company’s suppliers engaged in labor or environmental practices that are banned in the developed world?
4. Does the company have a diversified base of suppliers for key components?
5. Do the company’s suppliers have a history of providing high-quality, reliable materials?
6. Are the prices of the company’s supplies or raw materials stable?
7. Does the company source critical components from countries that are undergoing trade sanctions?
1. Are the company’s operations significantly impacted by general economic conditions?
2. Are the company’s sales dependent on low interest rates and the easy availability of investment capital?
3. Does the company depend on revenue from areas of the world that are experiencing economic instability?
4. Do the company’s trading partners operate in countries that have volatile exchange rates?
5. Are the company’s customers prone to radical changes in demand based on general economic conditions?
1. Does the company operate in a highly competitive environment?
2. Are the company’s competitors considered the innovation leaders in the market?
3. Can the business development team articulate and explain the company’s competitive advantage?
4. Are competitors able to offer similar products at consistently lower prices?
5. Do competitors offer superior products?
6. Do competitors have superior financial strength or other significant advantages?
7. Does the company lack insights into competitors’ strategies, products, or pricing?
8. Does the company operate in an industry with low or few barriers to entry?
9. Are substitute products threatening the company’s core products and services?
10. Is the company unusually vulnerable to foreign competition?
Regulatory and compliance risk.
1. Does the company have significant government contracts?
2. Is the company currently under investigation for non-compliance?
3. Is the company subject to pending governmental regulation that could significantly change its daily operations?
4. Does the company fail to comply with regulatory requirements, including OSHA?
5. Does the company’s internal governance monitor regulatory compliance?
Political and social risk.
1. Is the company vulnerable to changes in demand based on political or social conditions?
2. Does the company or its management have a poor public image or receive negative publicity?
3. Does the company have significant operations in foreign countries that are experiencing social unrest?
4. Is employee safety, work/life balance, and social welfare unimportant to the company?
1. Does the company sell its products in an industry that is declining, unstable, or distressed?
2. Does the company sell its products in an industry that is prone to business cycles?
3. Does the company sell its products into an industry with a poor public image?
This list is not intended to be exhaustive. There are additional questions that need to be asked. And not every category of questions will matter equally for every company. Some best practices to follow for your company’s audit:
- Focus the purpose of the audit on planning and control.
- Structure questions to yield a “yes” or “no” answer.
- Be objective. Don’t inject bias or vendettas into the audit.
- Perform risk audits regularly to expose trends.
- Prioritize the risks that should be managed.
- Track business development costs carefully to understand how effectively risks are covered.
Know your risks, make your number. As the saying goes, if it were easy, everyone could do it.
For Part I of this series, How Menacing Is Your RAR – Revenue at Risk?, click here.
Author’s note: Most bloggers encounter writer’s block, and many of us have adopted techniques to avoid the problem. For many years, my dog, Fido, has faithfully and kindly provided me a gentle diversion to clear my mind when I’ve become entangled with too many thoughts, ideas, words, and sentences. By giving Fido a hug, a pat on the head, or a prolonged scratch behind his ears, I have been able to overcome many confounding moments when the words I wrote didn’t match what I wanted to say. Since I began posting blogs in 2007, this is the first one I have completed without him, and I dedicate it to honor his memory.