Predictable revenue means increasing revenue consistently year after year. In his book, Aaron Ross, brings strategies to help organizations develop a sales machine that makes this possible.
What is Predictable Revenue
Several companies, mainly startups, seek to grow their revenue year after year significantly. However, it is not necessarily good to increase revenue by 300% in one year if it is not possible to replicate that growth in subsequent years.
Growing up without having the clarity of reasons and not knowing how to replicate can give us a false impression of improvement.
For this reason, it has been a major challenge for companies to develop a vending machine that, in addition to significantly increasing revenue in one year, can increase it consistently in subsequent years. Aaron Ross's term for this revenue generation is predictable revenue.
Book Predictable Revenue - Aaron Ross
This methodology, detailed in the book Predictable Revenue, written by Aaron Ross and Marylou Tyler, has helped several companies to have sustainable growth, such as Rock Content, Febracis, Ramper and Take. Check out the statement given by the CEO of Rock Content, Diego Gomes:
"Predictable Revenue is a perennial, essential work and probably the main reference material for those who are starting their journey in the world of B2B sales (business-to-business). It can generate value for you and your team, immediately. And if you already have a sales machine "running", this book will still bring you valuable ideas and insights that will increase your performance." - Diego Gomes CEO of Rock Content
In this post, we will bring you, in a simple and direct way, the main concepts of predictable revenue for the development of a vending machine.
Predictable revenue fundamentals
For complete revenue predictability, the following factors must be understood:
Funnel predictability;
Price Predictability;
Time Predictability.
1. Funnel predictability
It is the predictability of lead volume and conversion rates. Having actions that bring a high confidence of these indicators is fundamental. This is precisely the function of Cold Call 2.0.
Old Cold Call x Cold Call 2.0
If you don't know the term leads, we recommend reading another post of ours that talks in more detail about what leads are and why they are important.
Anyway, the following concepts are the most fundamental to understand Cold Call 2.0.
There are basically two ways to generate leads: Inbound Leads and Outbound Leads.
Leads Inbound
Inbound leads are those that arrive through attraction marketing. Like when a visitor gives their email in exchange for a material.
The examples below are listed in descending order according to their ability to generate inbound leads that generate good conversion rates:
Indications and references;
Features and free trial versions;
Organic search on the internet/SEO;
Blogs;
Newsletters sent by email;
Webinars;
PPC type ads (pay-per-click);
Partnerships with bloggers and companies.
Leads Outbound
Outbound leads are those raised by the company itself. It occurs when the company makes direct contact with people who have not shown a clear interest in the business through emails, messages or calls.
Emails and phone calls to outbound leads without any context were called cold calls back in the day.
In short, a cold call is a phone call you make to someone who doesn't know you and doesn't wait for your contact.
Old Cold Call
The old cold calls had very poor results for generating sales opportunities mainly due to the following reasons:
The leads contacted did not have profile filters. Companies were contacted regardless of whether the characteristics were close or far from the usual buyer.
The call was largely not expected by the lead, so it had no prior context.
If the lead had been contacted beforehand via email, the emails were likely to be generic and extensive, not generating a first interest in the business on the part of the lead.
The first conversation was with the wrong person. No questions were asked beforehand in order to understand the best person to have a first conversation with. As strange as it may seem, talking first with the person who makes the decision is not always better, sometimes it is necessary to talk with employees who have influence over the choice.
The first conversation previously had the direct intention of selling the product, without first understanding the potential customer's business and whether the product or service makes sense for them.
The team that contacted the leads was not specialized in this first type of contact. The skills needed for a call to understand the customer's situation and for closing a sale are quite different.
Cold Call 2.0
However, in the Predictable Revenue Book, a reference is made to Cold Call 2.0, a process with much greater effectiveness than this old cold call.
Solutions raised for the implementation of Cold Call 2.0 and that solve the problems mentioned above are:
Raise outbound leads with expected customer profile. Here, aspects such as the segment/sector, company size and departments that are most likely to use the solution can be used.
Sending simple, personalized bulk emails to top executives and asking who is the best person to have a first conversation with on a given topic;
Implement a specialist team for the first contact with the potential customer. Aaron Ross called this group the Sales Development Reps (SDRs). We bring more details about this expert team in the next section.
In the contact made by the SDR, the potential customer's need for their solution must be evaluated. If there is such a need for the established lead profile, great! We have a business opportunity generated that we can pass on to the sales team.
In the Predictable Revenue Book, in addition to these main aspects of change, practical tips on how to send emails, follow up and correctly prioritize leads are described.
In this post we seek to bring the main aspects of the methodology, but we strongly recommend reading it if you want to understand more directly how to apply it to your team.
Sales Development Team
One of the main aspects of predictable revenue is the specialization of the sales team for the first contact with the customer.
In addition to this specialization regarding part of the sales process, another suggestion from Aaron Ross is the separation of teams that work with inbound leads, Market Response Reps (MRRs), and those with outbound leads, Sales Development Reps (SDRs).
Inbound leads are much more voluminous than outbound leads and require different approach actions from pre-sellers.
This makes it very difficult for pre-sellers to alternate their routines so that they serve both types of leads, justifying the need to have two different teams (MRRs and SDRs).
From this implementation of the pre-sales team, the sales team, also known as account executives or closers, will focus exclusively on closing sales from opportunities raised by the MRRs or SDRs team. Account Executives should not spend time prospecting for leads.
After closing the sale, the customer will go through the customer success team, responsible for ensuring the proper use of the product and generating the expected results for the buyer.
In summary, the division of the structure follows the scheme as shown in the image below:
A very important point to have predictability of the efficiency of conversion rates along the funnel is the ramp-up time of pre-sales and salespeople.
When a new employee joins the team, it takes a while to reach the expected productivity of the role, both because they have little experience in the job market (intern) and because of the time needed to learn about the product and company.
For this reason, it is essential that the employee undergoes a strong period of training in order to increase his/her productivity more quickly.
2. Price predictability
It refers to the understanding of the average selling price. It is important to historically evaluate the average sales price, preferably breaking it down by type and lead profile.
The way the potential customer comes to the company and the characteristics of their profile can give clearer signals if the sale price will be a little higher or lower.
3. Time predictability
It refers to knowledge of the average cycle along the funnel. If a sales opportunity takes longer than 1 month to close, an opportunity generated in that month can only count towards the revenue increment in the following month.
Regarding the predictability of the average funnel cycle, it is essential to understand:
Average time to convert a lead into an opportunity;
Average time to convert an opportunity into a sale;
Establishing these averages will only be approximations, but will provide a strong basis for predicting revenue.
These two metrics can be different for lead type and profile type variations. It is worth evaluating which groups are more distinct from the others to have even greater predictability.
Sources: Ross, Aaron; Tyler, Marylou. Predictable Revenue: How to implement the revolutionary outbound sales methodology that can triple your company's results (2nd edition, revised and expanded).