Think Globally, Act Locally: How the Account Lifecycle Changes Everything
Recurring revenue businesses are unnecessarily limiting growth by relying on local, department-level improvements to drive business at a global, company-wide level. Embracing Account LIfecycle Management ensures that the entire business is focused on the same goals, simplifying go-to-market models and accelerating growth of account lifetime value (LTV).
Your business is made up of many components that drive revenue, each of which can be explored individually, with unique metrics that make it easy to monitor performance and make improvements. These include the conversion rate of website visitors to leads, leads to opportunities, opportunities to closed won deals, and so on.
The traditional approach to evaluate these metrics is to look at the customer’s purchasing process as a pipeline, and assign responsibility to an executive and a team for all the metrics in a given phase of that pipeline. Each team tracks and reports on the conversion rates under its own purview, and is likely compensated for improving them. It’s an approach that drives results. But although each phase of the pipeline will most likely yield some incremental improvements, this simply results in a new local maximum of efficiency for just that phase of the pipeline.
Consider a new approach. What if, instead of tasking each team with driving efficiency within the specific metrics in the one phase of the pipeline they manage, you gave them responsibility for improving your business as a whole? And what if you managed the customer’s purchasing process not as a pipeline, but as an account lifecycle? You might ask why you’d need to make such a change. If each department works independently to improve its own metrics, won’t their combined efforts result in a lift in the metrics for the business as a whole? They might. But if your current approach results in slow, incremental changes driven by achieving local maximums in individual phases of your pipeline, consider the potential impact of finding the global maximum for LTV, the one metric with the greatest impact across the entire business.
Bursting the Bubble
With each department working in its own bubble, activities performed in one department can have unintended consequences in others. This is why lead scoring has become so important. Marketing teams used to focus mostly on volume, generating as many leads as possible and passing them directly to sales. With the job done, they’d begin the next lead generation campaign and repeat the process. At some point, marketing and sales leaders realized it would be better to receive fewer, higher quality leads from marketing than a mix of good and bad leads.
Advances in marketing automation enabled automated lead scoring, allowing companies to hold marketing teams accountable for quality, instead of just volume. That quality was determined by a downstream metric, usually the conversion rate of leads to opportunities or to closed won deals. The ability to score leads represents a giant step forward, but it’s still only driving a local maximum — improving a department-specific metric — and doesn’t do enough to optimize the business as a whole.
To challenge your team to think differently, it helps to give them a new visual framework around which to find opportunities for improvement. As I’ve noted, most companies use a pipeline model to think about how they go to market, typically illustrated as a left-to-right continuum with teams and their data systems identified based on their role. The pipeline represents the go-to-market model in its simplest form: marketing generates, scores and qualifies the lead; sales engages with the prospect, identifies the opportunity and closes the business; and then customer success and support teams are available for onboarding and ongoing assistance. As a result of working in these silo’d segments of the pipeline, their needs are different, as illustrated below.
The linear pipeline model breaks down when it’s paired with recurring revenue businesses, because:
- It doesn’t clearly depict how renewals are managed.
- It doesn’t vary based on your company’s land-and-expand model.
- It doesn’t showcase how marketing, sales and account management teams collaborate in an increasingly account-based world.
- And it doesn’t reflect how most enterprise buyers engage with your business long before a formal selling process is underway.
As illustrated above, the continued use of the pipeline as a model forces teams to optimize for local maximums. It keeps the focus on accomplishing the next thing as measured by their department, not on finding, winning and building customer relationships that benefit the entire business.
The Account Lifecycle reframes your business by putting the account at the center. The customer’s needs and activities become the focus, as opposed to your company’s go-to-market process. Embracing account lifecycle management means that cross-functional teams can more readily collaborate on ways each can help to increase account lifetime value (LTV) and reduce customer acquisition cost (CAC) at the account level, then replicate lessons learned to improve metrics across the board — and across the company.
- Connect data describing activities from all phases of the account lifecycle.
- Segment accounts by shared criteria to identify those with the greatest potential. Conversion rates and efficiency may differ wildly across segments, and so looking at the overall average can be misleading.
Segmentation Opportunities: Marketing’s Perspective
In this example, let’s imagine a software company that sells to 3 major industry segments. The three segments are Tech, Telecom, and Consulting. We’ll learn more about the characteristics of each segment, but let’s start with the demand generation phase of the account lifecycle.
Here we see that the Tech segment is great for lead generation: the cost per lead is low, and if the same amount of spend is applied to each segment, we’ll generate the most leads in Tech. Without any other information, the head of marketing may want to invest the entire budget on this segment because it’ll produce the most leads. Spending all $150k of the marketing budget on the Tech segment would drive 6,000 leads per month instead of the current 3,500. That would be a 71% increase in lead gen — what marketing exec wouldn’t want to be able to claim that victory?
Segmentation Opportunities: Sales’ Perspective
Let’s expand our view from the local perspective of just marketing to include sales conversion metrics.
Tech continues to hold up because it has good conversion rates from lead to opportunity, and a good close rate from opportunity to deal. The ASP is not very high, but given the $50k marketing investment, it still produces the most total bookings of all 3 segments. And spending the full $150k marketing budget on this segment, the result would potentially be $162k in bookings, a 12% increase over the current $144.3k level from all three segments. But let’s consider this from the sales manager’s perspective.
The head of the sales team may have a very different take from the head of marketing. The head of sales sees high-value leads coming from Telecom companies and a high volume of bad leads coming from Tech. Also, it’s expensive to do business with Tech companies because the deal volume requires more sales resources. Sales is doing five times as many deals in Tech as it is in Telecom, and 3 times as many in Tech as it is in Consulting, and it’s very likely that the cost structure follows suit. Given this, sales will want as many Telecom leads as possible in order to maximize productivity in terms of bookings per sales spend.
Segmentation Opportunities: Company-wide Perspective
But what if we look at sales and marketing as a whole, from a global account-based perspective outside of the local objectives of each team?
If we factor in both sales and marketing spend, a new optimal segment emerges; Consulting. This segment has the best return on our investment, and if the entire marketing and sales budget were applied to this segment, we could stay within budget and still increase bookings from $144.3k to $192k, a 33% increase.
This example demonstrates that the traditional pipeline model, where each team is responsible for optimizing a specific phase, is broken. Left to their own devices, both sales and marketing will optimize for a different, sub-optimal segment.
The example above becomes even more powerful when upsell and retention are layered in. What if the annual customer churn rates are 8%, 15% and 20% respectively for Tech, Telecom and Consulting?
Armed with this important information, we can see that Tech and Telecom outperform Consulting in terms of LTV / CAC, even though Consulting is still strongest on the annual contract value to CAC (ACV / CAC) metric. If your business has this information, it can now make better decisions based on evolving priorities. For example, if the business wants to prioritize short-term growth, i.e., year-over-year bookings growth rate, it should invest sales and marketing resources into selling to Consulting firms since the short-term return on that investment is highest. The drawback is that Consulting firms churn out quickly, meaning eventually this will stymie revenue growth when the customer base is large. If you want to build a business that has the best capital efficiency over the long term, even though it will grow more slowly, you should invest in Tech. Or, for a balance, you could invest in Telecom or a mix of all 3 segments.
The Answer is Account Lifecycle Management
Without this level of visibility throughout the entire account lifecycle, the leadership team is making key investment decisions with incomplete information. In order for marketing, sales and customer retention teams to generate the greatest return for the business, they need to have a shared view of the performance of individual accounts and across strategic segments, reflecting current lifecycle stage and next steps for the appropriate team members. Without this shared understanding and collaboration, the business is at risk of making less than optimal investments.
Though it can be tempting, spending more on marketing and sales in the hopes of increasing lead and deal volume is not the answer. When you do that, the efficiency of the business actually declines over time in terms of LTV/CAC. Bringing in deals based on velocity of bookings can take management’s eye off churn. The only solution for building a valuable recurring revenue model business is to maximize LTV and thereby increase revenues in the most efficient manner.
Efficient growth of LTV is all about knowing your accounts and understanding which accounts in which segments drive LTV. By conducting an LTV-based segmentation analysis, it becomes possible to understand (a) which accounts have high LTV potential in high total addressable market (TAM) segments, and (b) which activities should be prioritized by the sales, marketing and support teams to generate the results you need.
BizOps Competence is Key to Account Lifecycle Management
In the example above, what’s missing is Account Lifecycle Management: using data about account behavior gathered by marketing, sales, customer success and customer support teams so you can drive account LTV. Some businesses manage account lifecycle data with a combination of smart business analysts and spreadsheets. Others try to put data from different go-to-market systems into a data warehouse and hire a team of SQL analysts to run queries.
This is where business operations, or BizOps, teams play a critical role. BizOps teams look at the entire business from a neutral perspective to understand what’s happening in each segment throughout the account lifecycle. At the same time, BizOps teams help sales and marketing teams operationalize the results of their analysis with the goal of improving the business as a whole.
I believe that BizOps should manage your Account LIfecycle Management efforts. BizOps has become a critically important role in recent years, particularly among recurring revenue businesses, with three critical responsibilities:
- Implementing and managing the tools and teams that provide visibility into what’s happening all the way throughout the account lifecycle
- Capturing the data generated to objectively assess overall business performance and provide a broad perspective to the leadership team for more informed decision-making
- Operationalizing that learning in a way that enables sales, marketing and retention teams to focus their energy where the business needs it most.
I’ve illustrated above how companies that rely on local, department-driven change may be jeopardizing growth. By investing in a strong centralized and strategic BizOps function, recurring revenue businesses are better able to leverage account data gathered by every team to objectively inform growth strategies. In the recurring revenue era, winning is defined by the ability to drive account lifetime value (LTV), and BizOps competence at managing the account lifecycle will be as critical to business success as traditional sales and marketing skills.
Rekener Account Control Center
Based on the extensive domain experience of the Rekener founding team, we’ve created Account Lifecycle Management software. The Rekener Account Control Center automates these functions and helps align the entire team — BizOps, marketing, sales, customer success and customer support — around driving account LTV. When everyone is focused on the same global metric versus individual local metrics, it’s amazing what you can achieve.
Updated May 5, 2017
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Greg is COO and Co-Founder at Rekener. Greg’s career has been focused on using data to grow recurring revenue businesses. Before joining Rekener, he served as VP of Operations at ZeroTurnaround, where he built its strategy and operations practice, ran customer success and renewals, helped to grow and coach its high-velocity sales organization, and optimize its marketing efforts. Prior to that, he ran the BizOps and marketing functions for the AVOKE call center analytics business, a SaaS company within BBN Technologies. He got his start using data to improve sales and marketing efforts while at AppNeta. Greg is also a member of the Revenue Collective.
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