The answer will surprise you
The output you want from customers is revenue. And you spend time, money, and effort, to find those customers and close a deal. This is typically called marketing & sales. But they won’t pay you unless you also spend time, money, and effort to provide them with a product or service they want more than they want their money. This is typically called production or operations.
Justin Roff-Marsh has an interesting take on the difference between sales and operations in a post entitled:
Revenue Should Always Be the Responsibility of Operations: Never Sales
His thesis is that revenue comes from either existing customers or new customers and it’s important to think of them differently because the time, money and effort you spend (and the customers’ response) is significantly different for these two groups.
Revenue from existing customers is yours-to-lose. As Roff-Marsh says, “You don’t need to win these transactions; you just need to do a good job of processing them.” He goes on to explain that the things you do to process these transactions (and the resulting revenue) are entirely under the control of your operations department not your sales department.
Revenue from new customers, he calls yours-to-win, or growth. As he says “In other words, your salespeople should focus on winning business that is currently being awarded to your competitors. And, if you’re serious about growth, that’s all they should do!” (emphasis added).
This is a complete rethinking of the relationship between sales and operations and leads to some pretty radical ideas. According to Roff-Marsh, typically 70% of revenue is in the category of yours-to-lose. This means repeat customers buying products they’ve bought before and only 30% comes growth (sales to new customers OR sales of new product categories to existing customers.)
This is an important distinction because while the output (revenue) may look the same and end up in the same bank account, the systems that produce that revenue are substantially different. The meaningful selling interactions that produce growth revenue are completely different from the fulfillment of promises that result in ops revenue.
You should read the whole thing (it’s short). So rather than just reiterating what he says, I’ll mention some ways to apply this concept that are more applicable to an SMB. For one thing, I don’t think the 70/30 ratio is typical in SMBs. I think it varies considerably by industry. The first thing you need to do is figure out how those numbers break out in your company.
Then do the following.
Action Items
Have your finance department design a report that shows the breakdown of yours-to-lose revenue and yours-to-win for your company. Review it regularly.
Plot out different systems that produce revenue for each category. The steps in those systems become the stages in your sales pipeline. You’ll need at least two different pipelines.
The growth systems start with defining who your ideal customer is and developing a marketing outreach.
The ops system starts with either an inbound call from or a reminder outreach to an existing customer.
Rethink who should be responsible for revenue from each pipeline and how you want to train, manage, and compensate those people.
This is a radical revision of your organizational structure. If you don’t want to go that far, at least put as much effort into your customer support organization as you do to sales. Track the kinds of issues they deal with, how quickly they solve customer problems, and how many upsells or reorders those interactions produce.
See how the insights you gain from that analysis suggest changes you should make to your product or service offerings themselves, not just how you deliver them.
If you found this useful, here’s where you can find more like this.
My book Output Thinking
1-1 Coaching – I only work with a few clients at a time but anyone can sign up for a free session.
I tweet a lot @BetterCEO
If someone forwarded this to you, Subscribe to this Free Newsletter
