May 15 by Fady Stephanos
Growth is hard. When it does occur, it is often fleeting. Sustained growth is even harder to come by. Now, layer in profitability and the stakes are even higher. Sustained profitable growth is the holy grail for any business. It’s no coincidence then, that profitable growth is a primary driver of Enterprise Value (EV). Too often businesses focus almost exclusively on growth strategies developed at executive off-sites and with the help of retained management consultants. All that is well and good, and in fact, absolutely necessary. But the resulting strategic growth initiatives are generally longer-term plays: where to play and how to win, market entry decisions, M&A and joint venture transactions, and new product introductions. In the medium-term, companies can focus on salesforce effectiveness and revamped go-to-market strategies. Often overlooked as not the most exciting of initiatives, businesses can look for ways to optimize revenue yield in the short-term to extract more EBITDA from the current flow of business.
However—and this is key—focusing on revenue yield in the short-term can generate meaningful returns that can be used to fund the strategic, long-term growth initiatives required to achieve the sustained profitable growth that companies are striving for.
What is Revenue Yield?
The idea of revenue yield is that there’s a theoretical full potential value that a business can drive to, and revenue yield is how much of that economic value is captured. There are actions that a business can take to limit the erosion in revenue and margin over time in the revenue process. In addition, there are actions businesses can take, to further drive up the final revenue that is captured. This is what is meant by Revenue Yield: the concept that there is an eventual and ultimate yield that the company can book as revenue through optimizing the revenue process.
Corresponding to the revenue generated along the revenue process, are the costs incurred to realize the yielded revenue. All throughout the revenue process there are supporting roles, activities, and expenses incurred to generate that revenue. Whether it’s maintaining multiple systems that support revenue operations, the human glue and swivel chair processes for pushing approvals and quotes through the system, or an army of paralegals and contract admins supporting sales negotiations and contractual agreements, there are real costs to achieve that revenue. At each of these inflection points in the revenue process that dictate a company’s eventual margin, there are opportunities to improve top line growth while reducing cost simultaneously – profitable growth.
Across the end-to-end revenue process and the individual teams that manage that process – from Sales to Legal to Revenue Operations – business leaders can flex levers to maximize Revenue Yield (the numerator that drives overall revenue potential) while minimizing the cost of acquiring, servicing, and maintaining that revenue. It’s important to note that Revenue Yield effects are cumulative, that every step erodes the full potential for the subsequent steps, while growth in one step only adds to the full potential that the next step can achieve. Following the tactics of Revenue Maximization and Cost Reduction at each step in the process can lead anywhere from 7-25% increase in sales and 5-15% margin uplift. The great news is that this overlooked concept does not require major investments to make this happen – the short-term tactics can be executed with minimal costs (relative to new product development and other long-term strategies) and will unlock funds for future growth.
Here are a few simple tactics to start to unlock Revenue Yield from your current flow of business.
• Apply intelligent pricing and an offer recommendation engine
• Institute a world class deal desk to reduce discounting and accelerate approvals
• Standardize contractual obligations and favorable terms
• Drive billing accuracy initiatives
• Institutionalize customer renewals and expansion focused team.
There are rich middle office tools to help you launch and manage these initiatives—from ensuring that both new and veteran sales reps are able to efficiently and effectively sell your products and services and turning their deals into readily-enforced contracts to achieving maximum revenue realization through accurate and timely billing and driving recurring revenue through renewals, automated re-orders, and subscription offerings.