It may seem paradoxical but has marketing in some businesses developed an unhealthy, even myopic obsession with revenue? Arguably in some businesses marketing has become little more than sales support, a lead generation engine, focused on driving sales, obsessed with short term campaign revenue attribution, pipeline and 'marketing ROI'. Short term economic and commercial pressures undoubtably account for some increased focus on tactical revenue, but there has been gradual shift in focus, a growing trend for marketers to fixate on revenue or more accurately, short-term revenue.
"Overly focusing on revenue ignores other factors that can mean the difference between success and failure." - Forbes
Make no mistake, revenue is important
No one in their right mind would argue that revenue is not important, of course it is, and marketing should pay attention to revenue, especiallly the quality and sustainability of it. They should support sales with well qualified and 'winnable' leads, the should understand and help manage pipeline, sales velocity and conversion with effective marketing intervensions and they should understand payback and revenue from campaigns. But is revenue the primary driver for marketing effort, is there more to marketing, a wider, more important agenda. Revenue is undoubtably one of the primary drivers for sales effort, but what about marketing?
Arguably two drivers are more important for marketing:
Opportunity management - market potential, penetration, share and growth
Maximising contribution - margin and positive free cash flow
It's not a case of one or the other, it's both, in combination, the volume of winnable or won opportunities times the margin and cash flow they will or have produced.
Good short-term and long-term reveue, are products of effective opportunity management, identifying the right business to win, and winning it. If the business is not winning or holding market share, it's shrinking, new strategies and tactics need to be found to win in current or new markets. If it's winning 'any old buisness' it may be 'buying cost', diluting resource or sacrificing margin and cash flow through discounts or excessive cost to serve. Furthermore, current revenue may still look fairly good even when the prospects and probability of future growth are diminishing.
Marketing, almost by definition, should be 'all over' opportunity management, identifying winnable, sustainable high margin opportunity 'in market'. Marketing should know where growth is comming from now, and in the future, the volume and frequency of opportunities that exist, how they can be identified, how much they are worth and how to win them and the probability of doing so. If marketing execute against this kind of agenda, sales opportunities, better conversion and revenue will follow. Revenue is a beneficial and welcome outcome of good opportunity management. But, it's maximising contribution, margin and cash flow that really matter.
Margin and cash flow matter more than revenue, so why aren't marketers focused on these factors? Margin and cash flow matter more to marketing than revenue because margin and positive cash flow analysis helps marketers understand and improve the quality of revenue and ensure the business is making money.
Maximising margin is part of brand building. Protecting margin and cash flow is part of pricing and discounting strategy. Winning business with attractive payment terms has a direct effect on cash flow. Effective management of margin and cash flow delivers to the bottom line and increases the capital value of the business. It's sustainable, superior margin and positive free cash flow that increase brand value and shareholder returns.
Again, almost by definition marketing has a direct responsibility to build superior margin, (an indicator of brand strength) to create and maintain a premium between costs and price. It has a clear mandate to ensure 'quality of revenue' and therefore good cash flow by engaging and winning business from the right customers, at the right time in the right markets.
The long and short of it
Focusing on opportunity management and maximising contribution helps marketing balance short and long term brand building and activation. It's one mechanism to help balance marketing strategy and investment in brand building and activation. Superior opportunity management and maximisation of margin has a compound effect on the capital value of the business.
By consistently finding and winning more 'margin rich' opportunities the business can build brand, invest, protect price and cash flow in the short and long term. The proverbial debate in marketing about the choice of investment in brand bulding or activation is in many ways misleading, a distraction, it's more a question of thinking about the outcomes, how to deliver sustainable margin and capital asset value.
To do this marketing needs to embrace systematic approaches and dsisciplines beyond the remit of short-term tactical marketing. It needs to focus on buisness outcomes, not marketing inputs.
Increasing iterative adaptability and speed
One thing that marketing can and probably should do is to increase the adaptability and speed of market opportunity evaluation and contribution managemnet cycle times. This isn't a short term or tactical initiative, it's simply increasing the frequency of strategy formulation and audit, a faster more frequent calibration of opportunity and commercial outcomes.
Systematic approaches, clear process, data and AI can help here, but first there has to be recognition and investment in this capability. Clearer understanding of the discrete, yet connected disciplines that drive opportunity management, margin and cash flow. More adaptive, faster market opportunity identifiction, evaluation and contribution management makes good sense, at least from a marketing and commercial point of view, especially in current challenging economic times, it's part of building resiliance in the business.
The executive agenda
There's another dimesion to this. I'm often asked why marketing doesn't have a seat at the 'top table'. The answer, is that marketing in some businesses is too focused on tactics and execution. It's a support function, a lead generation engine for sales and its strategic contribution just isn't identified, promoted or visible to executive teams.
To a large extent the executive questions and marketing contribution could be framed by marketing answering two executive questions, the why, what and impact of marketing strategy:
Where is business growth comming from now and in the future and how do we capture it? - This is a question of market opportunity, why should the business focus on one opportunity and not another, what does the opportunity look like, how much is it worth and what's the probability and actuality of the business winning 'in-market'?
If and when we capture that growth how much should it be, or is it really worth to the business? - This is a question of impact, the bottom line is, how much money is the business going to make or making from selected market opportunities in the short and long term? This isn't really a question of revenue, it's a question of sustainable, superior margin and positve free cash flow, basically, that is money in the bank.
If marketing can systematically answer these two questions with credible evidence and authority, their seat in the executive is assured. If they can only testify to campaign ROI, revenue and pipeline then they are destined to remain in tactical execution and be less relevant to strategic and executive decision making.
Revenue is imporant and every marketer should be encouraged to keep an eye on it, it is an important metric to measure. However, it's arguable that they should be more focused on growth opportunity management and marketing impact, superior, sustainable margin and cash flow. This will help deliver short term results in the form of 'good revenue' and help build longer term capital value and shareholder value in sustained profit and capital asset value. It will provide the c-suite with valuable growth insight and business impact measures that they are looking for. It sets the scene for meaningful marketing contribution and a seat at the top table.
For an introduction to the systems and approach behind the thinking in the article, adaptomyDNA a value management and growth methodology covering market opportunity identification, evaluation, strategy, marketing, sales and perfomance improvement.
For more on cash flow as a metric that matters: Metrics that matter, and those that don't, No. 2, cash flow.