Good morning,
Cost management is a high priority for CFOs this year. But some companies may be missing an opportunity to get more bang for their buck in sales and marketing.
“We see winning companies using times of disruption not only to cut costs, but prepare for the inevitable pivot to growth,” Jason McDannold, a managing director in the private equity and investors practice at AlixPartners, tells me.
McDannold is the coauthor of a Harvard Business Review report, "How to grow your top line in a down market." "You can’t cut your way to prosperity," the authors write. "Our experience shows that a recession toolkit needs more than sharp knives."
Why are some companies overlooking opportunities?
“With inflationary pressures and uncertain market conditions, we see many of our clients hesitating to take any definitive action in sales or marketing," McDannold says. "It's often rooted in the fear of disrupting whatever revenues are coming in. Often we encounter sales leaders saying, 'Hands off my sales organization.'"
But there are tactical moves companies can make to enhance top-line performance without fear of disruption, according to the report:
1) Improving commercial effectiveness. This includes modernizing systems, implementing A.I. and big data solutions. Also, cleaning up sales coverage and account management to bring them better into line with changing market conditions. For example, a client that is a top media company (not named) reconfigured its global revenue organization to focus its resources on the biggest and most profitable customer segments in each market, according to the authors.
2) Increasing marketing ROI. "Given shifting conditions on the ground, should you be emphasizing brand awareness, product launches, or targeted campaigns?" the authors write. "We’ve seen organizations take a 'clean sheet' approach to marketing campaign spend and build the strategy from the bottom up in under four weeks to generate 15 to 20% cost improvements."
3) Enhancing customer success, defending the existing customer base, and improving loyalty. For example, focus on retention and reduce churn.
Opportunities to grow the top line are also hindered by a fixation on the wrong metrics of success, McDannold says.
“Many companies in this environment remained fixated on anemic customer acquisition when they have an incredible opportunity with their existing customer base to enhance customer lifetime value (CLV), wallet share, cross-sell/up-sell, retention, and renewal sales,” he tells me. “These ‘customer success’ type opportunities are often overlooked, and yet are a compelling option, especially in down markets.”
Don't be 'Dr. No'
The report points to a critical part of “turning insight into action” which is ensuring sales and marketing leadership view themselves as allies with the financial team. I asked McDannold what can CFOs do to make these functions feel less leery of finance. It’s about transparency, he says.
“We see winning companies establishing a centralized ‘Revenue Win Room’ that ties together key metrics on lead management, marketing effectiveness, and sales performance with financial outcomes (net retention revenue, CLV, customer acquisition ratio, etc.),” he explains. “Essentially, the Revenue Win Room integrates finance with sales and marketing as partners as the dialog focuses on answering key questions related to top-line growth. This effort can be led by the CFO in collaboration with the CRO.”
Finance chiefs shouldn’t be “Dr. No,” he says. “One way CFOs can build a bridge to the commercial teams is to look for ways to use their skills to help them actually solve problems, working as enablers rather than roadblocks.”
“Winning company CFOs act as the strongest advocates for real change, and if that change enables sales and marketing effectiveness (versus just doing spans and layers and cutting costs), CROs and CFOs quickly align for growth,” McDannold says. In light of market disruption, he suggests assigning finance business partners to the sales and marketing teams.
What can marketing and sales do to shoulder their share of the burden of recession readiness? McDannold offered a few examples: Pivoting marketing campaigns to focus on existing customers to protect the base and maximize CLV; switching up the sales team to “carve out a special ‘customer success’ function;" and making tough decisions like removing the bottom-performing sales team members, and reallocate accounts to the high performers.
“We often counsel companies to be judicious in their cost-cutting and to avoid overreacting in the face of uncertainty,” McDannold says. “Now is precisely the time for companies to make forward-looking investments in effectiveness.”
See you tomorrow.
Sheryl Estrada
sheryl.estrada@fortune.com
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