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How long is your revenue runway?
Many business managers I speak with don’t have an accurate view of how long their revenue runway is; or to put the metaphor aside for a moment, they are unclear about how much time is required for the marketing and sales team to create enough customers to achieve a revenue target. Almost without exception the estimated time to revenue is perceived as being much shorter than it is in reality. The misperception is dangerous. It leads to wildly inaccurate forecasts, wasted budgets, and unnecessary management turnover.
Ask any pilot and they’ll tell you with a high degree of accuracy the length of runway their plane needs for takeoff depending on weight of the aircraft and environmental factors. They can also tell you at what ground speed their plane achieves the necessary lift for takeoff. If their plane is a G5 it needs 5, 150 feet of runway to take off. If it is a 777-200 there better be at least 8, 300 feet of black top in front of it.
If knowing when a given level of revenue can be achieved is so critical, why do companies get it so wrong? It’s because they are only looking at the late stages of their funnel and ignoring the time necessary to find and nurture prospective buyers (the mid and early stages) to the point where Sales should engage. They’ve been trapped in the “Sales Cycle” mentality rather than adopt the “Buying Cycle” perspective.
Recently while creating an integrated Sales and Marketing plan for a client, I asked the management team to tell me the length of their sales cycle. They estimated it was 8-12 weeks. They had historical data to show that once a prospect was talking with them about the problem they hoped to solve it took 8-12 weeks to advance to a point where a purchase decision was made.
Unfortunately, if they had built their business plan and cash flow projection based on that information they would have crashed and burned just like a G5 with only 2,000 feet of runway.
What hadn’t been taken into consideration was the amount of time Marketing required to attract and nurture buyers. In the case of my client, once all the stages of the buyer’s journey were identified, they estimated that the early and middle stages of the funnel took 38 weeks. So the time it will take to find, nurture, and close a prospect actually will be 50 weeks–nearly one year–not 8-12 weeks.
This knowledge enabled us to build a realistic demand generation plan to support short term and long term revenue objectives.
The other factor impacting time to revenue is internal bureaucracy. For some companies the amount of time it takes for Marketing to plan and implement a program or campaign is ridiculous. Companies who want to be more nimble and aggressive must take a critical look at the approval processes for marketing budgets and content. Does an email campaign really need five managers to sign off on it? Why make Marketing jump through another set of hoops to get approval for a specific program budget if it has an approved budget for the quarter? Worse yet, why is that the president or the Board have to sign off on a $10,000 program? Tight fiscal restraints can choke the life out of Marketing momentum and extend the time to revenue. It’s far better to hire good managers, approve budgets well in advance, and let them manage to the budget.
Don’t let expectations be set that your revenue cycle is shorter (or longer) than it really is. Marketing and Sales have to collaborate in the planning process in order to create the right model for the company.