Growing revenues is a challenge for all product managers. The further along a product is in the Technology Adoption Life Cycle, the harder it gets. A company’s valuation, whether they are a public company or are privately held, is driven by the scale of total revenues and the revenue growth rate. We will discuss six techniques product managers can use to drive revenue growth.
Optimize Current Revenue Streams
These tactics may bring some short-term benefit but probably won’t drive so much improvement that you’ll make your bonus targets this year. The math of subscription revenue recognition is tough. You can’t make up for poor performance early in the year by a blitz at the end of the year. But you can lay the foundation for next year’s success. Here are three tactics you can consider.
1. Optimize Demand Generation Programs
Armed with the knowledge gained from Tiering, Money Wheel and Win-Loss Analysis re-examine your current demand generation programs. Look at the segments of the market where you are succeeding and double down on the investments you are making to target them. Add more ad spend, more webinars, more events/conferences, more thought leadership blog pieces. Conversely, look at areas where you are not succeeding. Experiment with eliminating investments in demand generation that target those segments. The risk is not too high – those segments are not producing significant revenues for you anyways.
2. Re-evaluate Pricing & Packaging
In a mature business, a significant part of MoneyWheel transactions will involve Expansion and Add-on sales. Pricing and packaging can have a major impact on sales in these areas. Win-Loss Analysis can help confirm customers’ acceptance or rejection of your pricing and packaging policies.
An interesting story from a Win-Loss Analysis project helps confirm this. A SaaS company that offered a solution for marketing automation was concerned that customers were not upgrading from their entry-level package to the standard enterprise package. Pricing was based on what feature set the customer selected and the volume of transactions processed by the platform every month. In the entry-level offering, customers were allowed 10,000 transactions a month for a flat fee. Anything over 10,000/month resulted in an overage fee. The enterprise edition offered more features and more transaction tiers/prices based on usage. The company had a built-in lead generation system – when an entry-level customer exceeded their 10,000 transactions/month usage for more than two months, it triggered an alert to the sales. The rep to reach out to the customer and offer an upgrade to the enterprise package. On the surface it makes sense, the customer obviously saw value in the solution and the enterprise package should give them a bigger bang for the buck. Unfortunately, the customers strongly resisted upgrading.
Win-Loss Interviews revealed why. When customers have presented the enterprise package the cost was anywhere from five to ten times more than they were spending today. The enterprise package also included eight new premium features that were not available in the standard package. Customers had two problems with the enterprise upgrade proposals. First, almost all of them did not find significant value in the newly available features. Second, the volume tiers in the enterprise package were so huge even the largest users of the standard package could never consume them, even if they tripled their current volume. Customers simply did not see the benefit from spending five to ten times what they were spending today. Instead what most customers did was ration the use of the product so they would not incur significant overage fees. The company’s pricing and packaging strategy actually encouraged customers to use and spend less. It opened the door for competitors to come in and offer commoditized pricing and steal-away customers.
3. Focus on Repeatable, Scalable Sales Transactions
Money Wheel Analysis when combined with sales region and sales rep quota performance can give you insights into why the most successful reps are winning and why the lowest-performing reps are struggling. Sales management and sales rep performance are complicated topics. Most sales teams have top performers, average performers, and low performers. Performance can vary across territories and countries. Some sales reps are innately more talented than others. You can use the information you developed in your baseline analysis in two ways. First, you can understand why specific reps are having significantly more success in selling certain types of transactions than others. Is their territory richer in prospects that respond to these types of sales transactions? Or do they have an approach and process that resonates especially well? Understanding how to replicate the success of the best sales reps across the entire sales force. This is one of the most productive investments you can make.
You can also look at sales reps that are struggling. While some reps just are not good at sales, most performance problems can be traced to gaps in knowledge and experience. For example, if the Money Wheel Analysis shows that a rep has not done any financially driven deals while the best reps achieve 40% of their quota from these deals, it is usually a knowledge/experience issue versus sales incompetence. By sharing your Money Wheel Analysis with the sales force and reaching out to the underperforming reps you can help them improve their performance and results. A rising tide lifts all boats and more revenue will help you get closer to achieving your bonus.
Innovate New Revenue Streams
Optimizing existing revenue streams can only yield so much incremental revenue. It is important to start with optimization strategies since they tend to yield increased revenue sooner and at a lower risk. For mature software companies (>5 years old), the next step is to look at structural changes. These changes can include new add-on products, expanding to new geographic markets, or competitive steal-away programs based on price commoditization.
1. Add-On Products
The first strategy is to consider developing a new add-on product that complements your core product. Through the use of open-source software components and Agile development techniques the time and cost to deliver a Minimal Viable Product is a fraction of what it was five years ago. While a new product will not solve your bonus problems this year, it can lay the foundation for long-term success. New product development always is risky. Companies with a portfolio of existing products are often loathe to take the risk of new product development. Past experiences that have failed are often a barrier as well.
The paradigm of Minimal Viable Products is a potential game-changer for mature organizations. It can also provide a boost of energy for marketing, sales, and development teams. Given the relatively low cost of developing an MVP that can be cross-sold into your existing customer base, it is a risk worth taking.
2. New Geographic Markets
International expansion is critical for every software company. International expansion is almost always required for a company to scale beyond $50 million in revenue. As noted in American Product Managers Should Live Overseas for a While
A Senior Vice President who ran my company’s international operations had a famous quote “We have more in common than what divides us.” In general, you will find that international customer business processes have similar challenges and opportunities as their American counterparts. The process to sell and deliver just-in-time bumpers for Mercedes cars in Germany is similar to the process they use in Tuscaloosa, Alabama. A master purchase order is negotiated, a purchase order release is sent with that day’s quantity requirements, the vendor confirms the shipment with an advanced shipping notice, the truck shows up at the right dock at the right time with the bumpers, a shipment receipt is generated, the vendor generates an invoice, Mercedes checks the shipment receipt and the purchase order release and sends an electronic funds transfer to pay for the bumpers. The only material difference is that in Germany the documents are exchanged using the EDIFACT EDI standard, in Alabama they use the X12 EDI standard.
American Product Managers Should Live Overseas for a While
Beginning international expansion or moving into new geographies is not a short-term proposition. While it is easier today to internationalize a SaaS application in comparison to the old days of on-premise software, there is a lot more that is required to be successful. Your company needs to build marketing, sales, enablement, and support infrastructure to serve international customers. In certain geographies like the U.K., India, and Australia/New Zealand you can get away with an American English version of your product and English-speaking marketing, sales, and support personnel. In other geographies like Germany, France, Spain, Italy, and Russia you will eventually have to take the plunge and build a business infrastructure with people that can speak the local language. Again, international expansion is important, but it is a long-term strategy.
3. Competitive Steal-Away
A third strategy is to focus on competitive steal away. In most mature markets (Early/Late Majority in the TALC) there are multiple competitors chasing the same customer opportunities. Your competitor’s customer bases are prime opportunities for you. These customers have already seen the value of investing in solutions like yours to address their business needs. If they saw value in a competitor’s solution, they should see value in your solution as well. A radical strategy is to consider commoditizing the price of your offering to steal away your competitor’s customers.
In most mature markets price eventually becomes an issue. Solutions that address the same business problem usually end up with prices that are at least in the same order of magnitude as each other. Assuming that the cost of migrating from a competitor’s solution to yours is not too cost-prohibitive, you can use price as a tool to steal away your competitors’ customers. Almost all markets commoditize eventually. Some examples are the cost of long-distance telephone calls or mobile phone minutes. CPU processing power is another example. The impact of Netflix on cable TV subscriptions is a third example.
For SaaS companies, you need to understand the unit economics of delivering revenue on your platform. Most companies have a lot of surplus capacity in their infrastructure. The costs of adding another ten, twenty, or hundred customers are minimal. You can use the same infrastructure and same enablement, support, and operations personnel that you use to service your existing customers. Therefore, adding incremental revenue is almost cost-free. You can continue to do this until you hit an inflection point where you need to add material amounts of new costs to service the revenue.
While you are in this zone the price you charge for the service is almost irrelevant. This gives you an opportunity to commoditize and decimate your competition. You can lower your price by 50% and steal your competitors’ business. Customers that use a solution only switch to a competitive solution for a few reasons. One reason is that there has been a serious performance issue such as frequent and prolonged outages. Another reason is cost. If the cost of a comparable competitive solution is a fraction of the current solution, there can be a compelling economic reason to make a change. The risk of making the change, however, has to be minimal. There can be no hiccups or surprises during the migration.
This is a radical solution to your stalled revenue growth challenges. Changing the price economics carries both significant risks but opportunities as well. This strategy works best when your agreements with customers are not month-to-month but have some fixed term, like 12 or 24 months. In this type of situation, your existing customers are locked into their contracts and pricing. You can pillage your competitor’s customer base while not risking too much damage to your own customer base. Eventually, your existing customers will come up for renewal and they will expect to get price concessions similar to what you offered the ‘steal away customers. But you will have enjoyed the benefit of the incremental revenue in the interim which was the goal of the exercise.
Price commoditization eventually comes to all competitive software markets. History has shown that the first market player to commoditize pricing can enjoy outsized benefits.
Summary
Growing revenues is a challenge for all product managers. The further along a product is in the Technology Adoption Life Cycle, the harder it gets. A company’s valuation, whether they are a public company or are privately held, is driven by the scale of total revenues and the revenue growth rate. Tactics like Optimizing Demand Generation Programs, Re-evaluating Pricing & Packaging, Focusing on Repeatable, Scalable Sales Transactions, Introducing Add-on Products, Entering New Geographic Markets, and Competitive Steal-Aways have proven to drive significant revenue growth.
Also published on Medium.