The point of a business is to make money.
Many people and organizations may take offense at this or be confused by it – yet it is the foundation of business. Making money drives you and your employees to get out of bed in the morning. Hopefully the leaders of the organization are truly trying to help solve real needs or meet desired outcomes, ethically. Still, financial interests are what allow the company to survive and thrive.
What Metrics Matter?
Once an entrepreneur understands at a molecular level that Cash Flow is everything, that is the moment they are truly running a business. While it is obvious that a company needs to measure profits, margins, loss leaders and breaking into new markets, tracking customers and purchases for cash flow is not always as obvious. If companies didn’t focus on it previously, the pandemic highlighted to many organizations the centrality of cash flow. Without it, their business simply grinds to a halt.
Not every product or service will be a good fit with every persona. Just because a potential customer could benefit from your solution doesn’t mean it will be cost-effective for either your company or the customer. Implementing ways to measure and capture data around costs, usage, lead source, number of touches to complete a sale, upsells, and more will be invaluable for companies who wish to manage their profitability and cash flow. Marketing, sales, production, distribution, and logistics will each have their own part to play in this process.
For example, a SaaS company may require a certain amount of configuration, onboarding time, and customer support for a client to get the full benefit of the technology. Depending on the pricing model, the company may not be able to break even or see required margins if the size of the customer is too small (e.g., too few seats or licenses). Thus, marketing, sales, training, and development teams will need to take into consideration their processes and associated costs to account for whom the company targets as potential customers and whom they do not.
Departments require clarity on what information to track to make these determinations, as well as the metrics that indicate the need for a change. Plans should be made for how often these considerations will be revisited, such as changes:
- in business processes,
- in development tools,
- in delivery of training,
- In market expectations,
- In larger expansion targets, and
- In overhead costs.
These areas and more should be evaluated on a regular basis (minimum annually, depending on your business, perhaps quarterly). As part of that evaluation, review what data helps capture the costs, margins, cash flow and profitability of a product or service, and which fields are currently being used to capture and report on that data.
Everyone knows with data: garbage in, garbage out.
It is imperative to have good data governance practices. Are all the parties agreed on what is being captured, how, where and by whom? Is the data going into the CRM? Is everyone trained so there is consistency? Is documentation updated as these areas evolve?
No business is static, and so how data is captured and reported must evolve, too. Be sure, though, to have a path for transition and measurement across time, so that reporting over time can be appropriately understood and interpreted.
Among the key areas that marketing and sales need to focus on are the areas of profitability and cash flow.
Marketing frequently gets blamed in the terms of “poor leads,” but without information about what products, services or combinations are needed for profitability, that blame is misdirected.
Which products and services make the company money? When all costs are considered, are they truly profitable? Are they one-time purchases or do they only start making a profit once repeat purchases are made, or year 3 of a multi-year subscription? When development and maintenance costs are factored in, do those solutions remain as profitable as they seemed? Do products or services count as loss leaders, that is, they get someone in the door, but the break even or profitability point only comes after an additional purchase, such as inks for a consumer printer?
All parts of the organization need to understand which products and services are profitable, and when they become profitable. Too often, marketing isn’t provided this information. When this information is withheld, they may add to costs by developing a promotion around a product or service without knowing that it doesn’t generate profits for the company. Marketing frequently gets blamed in the terms of “poor leads,” but without information about what products, services or combinations are needed for profitability, that blame is misdirected.
The other critical part of this story is Cash Flow, something that can make or break a company. Is there enough money coming in to pay salaries, rent, utilities, supplies? While gaining traction in a market, is there enough business to cover costs during the time for that flame to ignite?
As noted, during the pandemic, cash flow was more critical than ever. Most companies did not want to lose their employees, so prioritizing cash flow was key to keeping those employees on board. With the Great Resignation, the focus on retaining good employees has proven a wise investment.
How to Get This Data?
By developing a strategic content plan and tracking the buying journey, actual purchases, upsells, cross-sells and repeat purchases, combined with calculations in the background of what is a profitable vs a cash flow driven purchase – marketers and the CRM can provide the critical information needed for a company to have visibility into this difference.
When using a marketing automation tool like HubSpot, and with some savvy marketing strategies, companies can understand which types of prospects will likely become customers who will be profitable or those which support cash flow.
Where to Focus?
While it seems that most companies would want to focus on more profitable customers, there most likely needs to be a mix. The more profitable purchases may have a longer lead cycle. If a purchase is less profitable, it is imperative that there be as little human handholding in the process as possible. Make the selling, sale and servicing of the product of service as automated as possible.
If a company wisely focuses on fostering a healthy mix of profitable and cash flow focused business, and has a means of measuring it, then marketing will be able to steer budget and efforts towards one or the other as leadership advises.
Again, during the pandemic, those companies which knew what drove cash flow were able to pivot their efforts toward survival without as much risk. They knew which channels of marketing and which products or services drove what type of business, they had a sense of lead times to close, and could even use the additional market penetration to set the foundation for future, profitable growth.
While increased profits are the goal of every company, cash flow is critical to survival. Developing a means of automatically capturing which prospects become which types of leads which convert into which type of sale can make the difference between survival and extinction.
Marketing automation tools like HubSpot, plus a well-structured CRM with data shared among different departments, will allow the various parts of a company to understand the financial impact of different types of sales and to focus on the right mix of product development and promotion to ensure the viability of their company for years to come.