Tuesday, August 08, 2006

Marketing - Avoid Revenue Roller coaster Trap

As a marketing professional at a small startup, I have seen the danger of fluctuating revenue - For few months the company is raking in revenue - and for next few months there is no cash coming in. This revenue roller coaster ride can wreak financial planning thus making difficult - if not impossible to make long term investments. The problem becomes even more acute in small consulting /services/Technology companies - particularly in firms with less than 50 people.

I have worked in Fortune-20 size firms and also at a startup and at a IT consulting company. The revenue roller coaster is particularly devastating on small firms than big firms. So I decided to write on how marketing department can prevent a revenue roller coaster ride. ( The CEO of the startup where I once worked used to laughingly call this phenomenon as "Dolphin-in-the-water & Dolphin-out-of-water)

Root Cause

Having studied the marketing activities of the companies doing this roller coaster ride, analyzed the root cause and fount that the main reason for this is that:

There is no dedicated marketing department or marketing department is also involved in other activities - Business negotiations, contract negotiations, billing & delivering.

This implies that when there are no customers (dry phase), marketing department is heavily in lead generation, qualification and sales closure. But once the company receives the contract, the marketing department gets involved in delivery or other activities. And they forget to carry forward the momentum which was built by their previous marketing efforts. As a result the sales funnel, has a vacuum in-between. My observation is that many of the small time consulting companies do not even track their future orders - and have no sales funnel to talk about.

This types of swings in revenue makes it difficult for financial planning and investments - Therefore companies do not make long term investment commitments and that results in a growth trap - i.e., the company cannot grow without the necessary investments.

Avoiding the Trap

The main role of the marketing department in consulting companies (or startups) is to generate a healthy flow of leads, build & support a steady sales funnel, and work towards closure of these leads. This will generate a sustainable flow of revenue. ( For more details on the sales funnel and the marketing functions associated with it read: Marketing & Sales Funnel)

Avoiding this revenue roller coaster ride is possible if one were to follow certain guidelines:

  1. Choose to Avoid the revenue roller coaster:

    The first step is to acknowledge that the revenue roller coaster exists and overtly declare it as a danger. "We are going to maintain a steadily increasing revenue and maintain the marketing momentum in lead generation. We will avoid the pitfalls of revenue roller coaster".This open statement by the leaders of the firm will energize the rest of the organization to look at this problem and take adequate steps within their abilities to avoid the revenue roller coaster.

  2. Build a balance between Billable and Non-Billable Resources

    The pressure to increase the revenue during good times forces small consulting companies to deploy all its resources on a project - this includes marketing folks too. In many cases, engineers & other technical people who are not full time marketers are given additional marketing responsibility during a project - and once the project is over, these people concentrate on marketing activities: Lead generation, qualification, closure etc.

    In both cases, there are no dedicated marketing teams who are looking at new business opportunities. The idea of dual role for engineers/consultants sounds too tempting for a small firm. The temptation for having the highest billable ratios is not easy to resist, but this is not viable on the long run. A dedicated marketing team, which is a non-billable resource is essential for a healthy sales growth and revenue flows. Few members in the engineering/consulting teams may still have dual roles - but their role must be limited to technical pre-sales or providing pre-sales support to marketing teams. Senior consultants can co-define the sales strategy - but should not be involved in sales strategy implementation.

  3. Marketing must be lead by person who understands Marketing

    The person who leads the organization’s marketing efforts need not be the industry expert, but he needs to understand marketing. For example, the marketing head of a CPA consulting company need not be a CPA - but he needs to know all about marketing: CRM, Branding, Lead generation, Customer negotiations, customer retention etc.

  4. Senior Management must support Marketing efforts

    This may sound too banal, but often times top management at startups or at small firms are technical people who do not understand marketing. As a result the marketing efforts lack direction and ends up being limited to doing some advertisements, maintaining a web site, develop brochures and sending some emails.

    Senior Management or the Marketing head must make revenue growth as the cental focus of the organization and then drive all marketing efforts towards achieving revenue growth. Revenue growth also depends on the level of involvement on senior consultants or managers in marketing activities. These are top billable resources - but their contribution in sales, pre-sales and maintaining customer relationships are of vital importance. Without this support there will be no revenue growth.

  5. Reward Business Development Success

    To get a senior consultant or other billable resource involved in marketing activity, they must be adequately rewarded. The compensation structure for these dual-role employees must be based on business development success and the % billability time. This dual incentive will help them balance their dual roles - generating and delivering business simultaneously. This balance between these two roles is essential to smooth out the revenue roller coaster.

    A good example of using billable resources to support marketing can be seen in Indian IT companies. The business development manager has to work in tandem with a delivery manager. The delivery manager is a senior billable resource - whose time & energy is distributed between two activities: Pre-sales support and project delivery. The compensation structure for delivery manager includes business development success.

  6. Maintain Customer Satisfaction

    Customer satisfaction and loyalty is essential for repeat business. In case of small firms, majority of business is derived from repeat customers. This implies that the marketing efforts must be aimed at improving customer relationships. ( In an earlier article I had written about Levels of Customer Relationships and its Impact on Sales) Even a small increase - say 5% in customer loyalty can increase profits from 25% to 80%. (See Customer Life Time Value) Maintaining a high level of customer loyalty will ensure a steady repeat business and smoothen the revenue roller coaster.

Customer satisfaction drives customer loyalty. To enable this, marketing department must train all employees to think in terms of customer satisfaction. This is called as Internal Marketing

Closing Thoughts

For continuous revenue growth and to avoid revenue roller coaster, a healthy sales funnel is necessary. Building a healthy sales funnel takes time, focus, energy, funding and (most importantly) organizational change.

Once a healthy sales funnel is built, it will not only eliminate the wild swings in revenue, but also become an engine of growth for the company. A sustained marketing efforts tend to build a momentum needed for success. And that success breeds greater success - and that success is measured in terms of consistency of leads and growth in revenue and profits for the firm.

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