In the software industry you often hear about sales and marketing being compared to machines or factories. Executives like this analogy because it suggests that sales and marketing is able to consistently produce outputs in a predictable, repeatable way – like a machine or factory would. Executives and investors want to remove the uncertainty that often accompanies sales and marketing.
No one wants to be reliant on the heroic efforts of your top sales representative who was 300% above quota last year. Great sales reps are hard to find. You cannot rely on your recruiting and development processes to mass produce these over-achievers. Therefore “the hero model” is not a scaleable way to grow revenue.
Similarly, no one wants to be dependent upon “getting lucky” as you did with last quarter’s marketing campaign that brought in your three biggest deals. Luck is not repeatable. CEOs have been saying for decades “I know that half of my advertising is working. I just don’t know which half.” If you don’t know what works and why then you cannot consistently produce results from your marketing campaigns.
Executives and investors want predictable revenue – not luck or heroes. Executives want to know if they put X dollars into their marketing factory that they know they will get Y number of leads out. They want to know that if they hire N number of quota bearing representatives that they will grow bookings by P dollars next year. This makes the process easy for the CEO and CFO who are tasked with the big question:
If we need to grow revenues by 50% next year what is the best mix of sales and marketing investment to confidently get to the result?
When lead generation operates like a machine then marketing executives begin to know the cost (input) and leads (output) from any given type of marketing program. For example, if we spend $10,000 to host a webinar we expect to get 300 registrants. Of those 300 registrants 150 will attend the live webinar. Of those 150 attendees, our Lead Development Representatives will be able to reach 30 for a qualification discussion. From those 30 discussions, 10 will convert into sales opportunities. From the 10 opportunities, 3 will convert into wins at an average Annual Contract Value of $250K.
As the marketing team gets experience running the factory over a period of time they will learn the inputs and outputs for not only webinars, but for all marketing programs (content syndication, online advertising, research studies and in-person seminars).
Similarly, when sales operates like a machine then leadership begins to know the number of quota bearing reps (inputs) to hit a bookings target (output). For example, we hire 10 new sales representatives which take an average of six months to become productive. Each sales rep has a $1M bookings quota. In the first year after being productive the new reps will average 60% of their quota targets resulting in $6M in new sales.
Of course, getting sales and marketing to operate like a factory is a significant challenge. Few SaaS companies reach this level of maturity without first undertaking years of persistence.
More thoughts on the Marketing side of the machine in my next post.