Revenue Optimization, By Stage, Inside Your Funnel

Meet Host, Mary Grothe

Mary Grothe is a former #1 MidMarket B2B Sales Rep who after selling millions and breaking multiple records, formed House of Revenue®, a Denver-based firm of fractional Revenue Leaders who currently lead the marketing, sales, customer success, and RevOps departments for 10 companies nationwide. In the past year, they've helped multiple 2nd stage growth companies between $5M - $20M, on average, double their MRR within 10 months, resulting in an average ROI of 1,454% and an average annual revenue growth eclipsing $3.2 million.

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Mary Grothe: Hey everyone, this is Mary Grothe - Founder and CEO - and you're listening to the Revenue Radio® podcast brought to you by House of Revenue®. Each week, we'll talk about common revenue challenges and how to get past them, share real-world experiences, and get a glimpse into my life as a CEO scaling my own business. If you're a struggling entrepreneur, or just an entrepreneur looking to be inspired, this podcast is for you. I'll give you honest, unfiltered, and practical insights into growing your business and getting past your revenue plateau.

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Today, we have a really exciting topic all about numbers. Yay! I have repeatedly said that CEOs should know their numbers inside and out of business. It is surprising when we, as consultants at House of Revenue®, engage with our clients and there's so much discrepancy regarding how numbers are being tracked. The key metrics that have somehow bubbled to the top are important to keep an eye on. The lack of visibility into numbers that matter.

There's also seemingly frustration over year-over-year data because it's tracked one way. You might call a lead source something new this year versus last year. Then, something changes in the business, so you don't have something to compare year over year.

You may have shifted the name of a product or those earlier stage companies which were victims of this. You're changing your contract lengths, your product or service, you're changing the way you go to market, you're changing so much. Well, it's tough then to compare year over year data because your company looks different this year than the year prior. I actually think it's the best way to run your business as you're in constant iteration.

Some of that is excusable if you're growing, shifting, and changing. But it is helpful when you can provide a translation to see your numbers. There are two sides to this equation. There are the business numbers, and then there is your pipeline, or we'll call it a sales funnel or reverse funnel. That is something we'll talk about in the second half.

In the first half, let's talk about your numbers. As a CEO, since day one of our company four and a half years ago, I have managed the performance. I have known where every penny in the business has gone and balanced it to the dollar every month for four and a half years. I have a six-month forecast, where I can see it's more than six months now because we've shifted to nine-month contracts. I can look nine months into the future and see what we've contracted, the employee expenses, and overhead. It allows me to make great business decisions and forecast the future.

I also have learned about seasonality trends inside the business. Historically, we have slower summers, and we get really, really busy at the end of Q3 and Q4. Q2 can be hit or miss. I know those trends in our business. I can get ahead of the leading indicators and the lagging indicator by looking at the leading. There's a lot of power in knowing the numbers in the business from top to bottom.

I have a fractional CFO that we've been working with for the last six months, and He's exceptional. At first, he and his team were trying very hard to get accounting off of my plate and bookkeeping and management of the pro forma. I thought you were crazy. I've been doing this for four and a half years. I do not need you to manage this. I'm not paying somebody to do it because I know these numbers inside and out. It'll take me longer to teach you. It will take your team 10 times as long to do this than it does for me to just do it. Plus, if your team does it, I will need to go back and review the numbers anyway. I'm going to be double-checking work.

On that note, I've been really hesitant to get it off of my plate. We also have a simple business. We have between 12 and 15 companies per month that we're working for at any given time. It is pretty simple that there are not many invoices to generate from an accounts receivable standpoint. As far as our expenses are concerned, we've bought the big ticket once between our employees and the overhead with insurance. Then, of course, our rent for office space. It's really straightforward on our P&L.

I take that into consideration that mine might be a little bit easier than yours to manage. If yours is complex, then good. I'm glad that you have the help. You should have weekly bookkeeping weekly financial reporting to have the numbers shown to you every week and see how the business is performing. When you know your numbers as a CEO, it really sets you free and your decision-making.

I feel that I have seen it with our clients. I've seen it also tendencies inside of myself. I have heard this come up multiple times with the CEO groups I've been a part of. When cash is tight, the CEO gets crazy. Let's just call it what it is. They are extremely stressed out. They can be a real pill to be around. With that, resolving your cash issue, like revenue, isn't king. Cash is king. Topline revenue is a vanity number. Profit is a sanity number. Giving the handle, forecasting out, and making important business decisions, not overextending yourself, is critical.

I encourage you, if you could not rate yourself a 10 out of 10 on knowing your numbers, and having visibility into the pro forma into every single way you're earning money, revenue, revenue out, and your expenses. It's even getting granular into understanding a P&L on each line of business that you have, or even profitability by employee. All of that is very important.

Opinions are valuable, but data is priceless. When you give yourself an opportunity to have visibility into data, it gives you way more freedom in running your business. You'll have the confidence that you're making non-emotional and data-driven decisions. That is really important.

All right, shifting. How do you translate the love for numbers that you now have into understanding your funnel? If you do not understand your numbers at every stage of the funnel, you are missing out, and you probably have inefficiency built into your revenue funnel.

Let's talk about some industry terms that you may know. You may know your Client Acquisition Costs or CAC for short. The Client Acquisition Costs, CAC, is a critically important number to understand. If you look at all of your marketing and sales expenses, just people systems, technology is subscriptions. Think about everything that goes into acquiring customers. That Client Acquisition Cost is key to understanding where to optimize your revenue and your revenue attraction or client acquisition process. Lots of terms here.

Look at your expense for marketing across all the different channels. You could have an expense for paid media organic social, an expense for networking tradeshow or events, and an expense for traditional advertising print publications. There's also an expense for your marketing automation about email campaigns. There is an idea of tracking your Client Acquisition Costs based on the route that it came through into the company by lead source.

Client Acquisition Costs by lead source will be a calculation that will allow you to determine when you build your revenue plan moving forward. If it costs $7,000 to acquire a client when you do it through paid media versus $4,500 to acquire a client through organic. Would you not want to optimize more on organic and figure out how you can rank for another keyword or strengthen your current rankings on the keywords producing inbound lead flow?

You could also look at the cost of a sales-generated lead. The costs of having a sales team, doing outbound prospecting, telemarketing, and bringing them into the funnel. That is an option and evaluating the expense down the sales line. You can get granular even on sales generated leads from self-generated or prospecting.

You could divide the salesperson's activity and lead source by telemarketing or email marketing. You could look at networking, social media, and referral partners. That's definitely a way to separate out lead sources. You have marketing-generated leads, and you have sales-generated leads. Being able to dissect the two is your first step.

Then, as you track through the funnel, my favorite way to figure out the expense is by doing a reverse funnel, flipping it upside down. If to close one deal, you need to have more proposals sent and the four proposals you send, so that means you have a 25% close rate from those four. You needed to have, let's say, eight meetings to get to four proposals and eight discovery meetings, so you have a 50% close between discovery to the proposal.

What were the activities that needed to generate those eight meetings? How many efforts did it take from an activity standpoint to get those eight discovery meetings for that week? Well, it took 200 outbound activities. Looking at the sales prospecting side, maybe it took 8000 and paid media spending to generate that many meetings. Maybe it was a combination. If you're looking more holistic at your entire marketing funnel between your paid, organic, social efforts, and potentially, email marketing, you can look at that as a whole.

If you don't have a technology, call it solution presentation, that awareness around bringing efficiency in through the stages of the funnel is critical. When you look at the reverse funnel, you can understand where your efficiencies are. Take a look at what I just shared with you with the close rates. What changes in your funnel if, instead of converting 50% of your discovery meetings to proposals, you converted 75%? Do you know you would close twice as many deals? If you look at the 75% and then 25% of those, how many more deals would you be closing just by becoming more efficient in the discovery and demo process.

What happens if you increase your close rate from 25% to 33%, closing a third of those four proposals. Now that we've shifted those numbers, if you had 75% of those eight discovery meetings and into the proposal, well, that's six proposals going out instead of four. Now, if you were going to close, 33% of those are good. You're closing two deals per week. Instead of the one deal per week, you're doubling the amount of closed revenue by improving the tiny percentage of efficiency inside those two deals stages.

It's great to have awareness. Many CEOs, especially small business CEOs, do not track their data at that granular level, so they're really missing out on their opportunity to optimize the funnel and optimize revenue.

My encouragement for you is to use a platform like HubSpot. That's what we love. It's super-efficient for small and medium-sized businesses. Of course, now, large businesses can use it with all the new enterprise features rolled out. Yes, HubSpot competes with Salesforce. It is our favorite key tool in the revenue engines that we build.

The data reporting is unbelievable. If you use the Marketing Enterprise Hub, it unlocks revenue attribution reporting. It will show you every deal in the pipeline, what activities on your revenue teams between marketing and sales, and even CS influence the revenue in that deal. The revenue attribution reporting is incredible to give you an idea of where your revenue is coming from and what activities influence getting closed revenue. You can really optimize your revenue teams when you have visibility into that data.

I would recommend getting a platform like HubSpot. Of course, you can use anything but get a platform, a CRM with the reporting that allows you to have visibility into these items. That will be number one. Number two is to set goals. Find an industry peer or Google it. Look for industry standards for optimizing your funnel. You'll be able to compare how we are performing today versus some industry standards.

If you have a peer in a different company, you can talk to you about how their funnel performs to get a couple of benchmarks instead of a goal. Set a goal for fine-tuning that optimization so you can bring in just tiny steps of efficiency. See what you can do with that and how you can continue improving it and become more efficient.

Today, we talked about knowing your numbers. As the CEO, you have to handle the business pro forma. But when we understand the revenue funnel, the expense that drives your revenue, getting into building your reverse funnel will give you that visibility to know how to optimize revenue moving forward.

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Thanks for listening to today's episode. If you're interested in being on our show or want to learn more about how we can help you scale your company, connect with us at houseofrevenue.com or with me Mary Grothe spelled G-R-O-T-H-E on LinkedIn, Twitter, or Instagram.

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