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Four Critical Factors to Predict Revenue with Rory Laitila · Budget Your Business

• 0:00
  Scott: Hello, and welcome to Budget Your Business, the podcast for small business owners who want to learn how to financially plan for every aspect of their business.
• 0:11
  Scott: I'm your host, Scott Geller.
• 0:13
  Scott: Today I'm joined by Rory Leidele of Sales Insights to talk about using data for revenue planning.
• 0:21
  Scott: Welcome, Rory.
• 0:22
  SPEAKER_01: Hello, Scott.
• 0:24
  Scott: Thanks for joining me today.
• 0:26
  Scott: For folks who are just meeting you for the first time, could you share a little bit about who you are and what you do?
• 0:35
  SPEAKER_01: Yeah, definitely.
• 0:36
  SPEAKER_01: We focus on a kind of unique area of sales and finance.
• 0:42
  SPEAKER_01: It's popularly called RevOps, which is a term used in startups and technology more often.
• 0:50
  SPEAKER_01: But it's kind of a focus of scaling revenue via data.
• 0:54
  SPEAKER_01: So using data metrics, transactions, business analytics to understand what's happening inside the business and scale revenue in a predictable manner.
• 1:06
  SPEAKER_01: So companies that are have product market fit, know what they're selling, who they're selling to, how they're selling it, but are in a position now to scale revenue and want to scale predictably and consistently and push up their growth rates.
• 1:21
  SPEAKER_01: That's where RevOps comes into play.
• 1:23
  SPEAKER_01: And so Sales Insights is our software platform.
• 1:26
  SPEAKER_01: And as a client service, I often serve as uh chief uh revenue officer or supply uh chief revenue officer services to other CROs in the space and help business owners essentially uh start to predictably and really accelerate their revenue growth.
• 1:43
  Scott: Interesting.
• 1:44
  Scott: And is that you you threw out their startups and tech, is that primarily the areas you focus?
• 1:51
  SPEAKER_01: Uh not particularly.
• 1:52
  SPEAKER_01: That's just kind of where the RevOps name came from or was popularized, was in those space because those are very data and tech focused.
• 2:01
  SPEAKER_01: But I would say that I I'm actually playing more in what would be called traditional companies.
• 2:07
  SPEAKER_01: So you have you have tech and SaaS, uh software as a service companies, you have e-commerce companies, you have business to consumer companies, you have marketplaces, these kinds of things that were traditionally Silicon Valley tech-driven companies.
• 2:20
  SPEAKER_01: I'm kind of moving RevOps into more of a traditional business space, so everything that's not that, essentially.
• 2:26
  SPEAKER_01: You know, all of your blue-collar businesses, all of your services businesses.
• 2:30
  SPEAKER_01: Um I think RevOps can really be applied in those spaces as well.
• 2:34
  SPEAKER_01: So if you're in a revenue scale-up situation and you go into the market, there's a lot of providers for tech companies.
• 2:40
  SPEAKER_01: I'm really trying to focus on everyone who's not being serviced by that.
• 2:44
  SPEAKER_01: People that have complex sales processes, complex businesses, complex product catalogs, complex sales teams.
• 2:50
  SPEAKER_01: I want to kind of bring the data-based revenue growth processes to them.
• 2:56
  Scott: Okay.
• 2:58
  Scott: So revenue, well, I like to think that if you don't have cash, you don't have a company.
• 3:02
  Scott: But a lot of people think if you don't have revenue, you don't have a company.
• 3:05
  Scott: To me, that they both go hand in hand.
• 3:07
  Scott: And and revenue is important to any business.
• 3:16
  Scott: One way or another.
• 3:18
  Scott: Maybe could you just kind of talk to us about what are some of the different ways that you can predict revenue?
• 3:26
  Scott: Because that's it's always, always key.
• 3:29
  Scott: And if if to me, if you're not thinking about what the future is looking like, and and that first piece is kind of that sales pipeline and then revenue.
• 3:37
  Scott: So maybe could you talk or walk walk us through a couple ways of how to think about predicting revenue?
• 3:44
  SPEAKER_01: Yeah, so it's a great question because the traditional way of predicting revenue, and business owners would be familiar familiar with this if they've ever gotten bank financing or if they've ever gotten uh debt financing, a lot of those companies and instruments are going to use the PL and look over past history and do a kind of linear extrapolation on the revenue growth that they see within the financial statements.
• 4:12
  SPEAKER_01: And if they're a financing firm that is industry specific, they might use some industry metrics to further refine the growth forecast.
• 4:22
  SPEAKER_01: So, for example, if they are a um uh e-commerce focused uh banking institution, they might look at your existing customer base and your repeat customer rate to incorporate that growth into the revenue forecast.
• 4:41
  SPEAKER_01: But aside from that, the traditional way is to just look at the PL and basically draw a straight line on whatever the growth rate is out into the future.
• 4:49
  SPEAKER_01: And um that works, but it's highly inaccurate because as most or as time the further in the future you draw that out, it the more inaccurate it becomes because as business owners know, the top line revenue is driven by many factors inside your market, your particular customer growth rate, your particular marketing channels that you have.
• 5:08
  SPEAKER_01: Um your business is almost certainly unique compared to every other business because when people go into a market, they don't copy their competitors exactly.
• 5:18
  SPEAKER_01: Everyone has a unique market position in some way.
• 5:21
  SPEAKER_01: And so for that reason, uh your revenue forecasts are unique in some way.
• 5:26
  SPEAKER_01: You can't totally just build them off of uh historical financial statements.
• 5:31
  SPEAKER_01: You know, the phrase uh, you know, past performance is does is no guarantee of future results is absolutely true in forecasting.
• 5:39
  SPEAKER_01: So uh that's kind of where you can start with revenue forecasting.
• 5:44
  SPEAKER_01: And then the next level in, or in the next more advanced, is to forecast based on the factors that drive revenue itself.
• 5:52
  SPEAKER_01: And then it gets more advanced after that, but we probably won't get into that in this call.
• 5:57
  SPEAKER_01: But the next level in is there's basically four factors that drive revenue that are universal to every business.
• 6:03
  SPEAKER_01: And it's deal flow, which is the sales coming in, the potential sales coming into your business, your average sale price, your conversion rate or your win rate, or your checkout rate if you're e-commerce, um, and then your time to close, how long it takes you to close your sales.
• 6:19
  SPEAKER_01: And uh those four factors you can predict individually, and then you can add them up to predict your future revenue, and you get more accurate that way.
• 6:27
  SPEAKER_01: Um, most businesses, well, not every business has the PLs and the historical financials.
• 6:32
  SPEAKER_01: That's the first step.
• 6:33
  SPEAKER_01: You always start there.
• 6:34
  SPEAKER_01: Once you have that in place, then you start to analyze your deal flow, your average sale price, your conversion rate, and you get more accurate uh revenue predictions that way.
• 6:46
  Scott: I'm with you.
• 6:46
  Scott: That traditionally you you take the last year's sales and you say, Well, I did four million in sales, I'm gonna do five million in sales this year, or I'm gonna do four and a half million in sales this year.
• 6:57
  Scott: However, not really taking into the fact what that next level of detail to see your point is the four factors were that were the deal flow, the average sales price, the win rate, and in the time to close.
• 7:09
  SPEAKER_01: Yeah.
• 7:10
  SPEAKER_01: Now yeah, go ahead.
• 7:12
  SPEAKER_01: Well, I would say a really important thing here, and uh we should always caveat this because there's a difference between sales and revenue, though, when we're talking about it um just casually, we'll often interchange the terms.
• 7:25
  SPEAKER_01: But sales and revenue are not actually the same number in many businesses.
• 7:30
  SPEAKER_01: If you have a six-month sales cycle, what you sell today does not, or what you start selling today does not hit revenue until six months from now.
• 7:39
  SPEAKER_01: And then in many businesses, depending on how they're booking the revenue, they might realize the contract in six months, but they have an onboarding and then there's a payment, and then there's terms.
• 7:49
  SPEAKER_01: And so they they depending on how they book that, they'll realize that revenue at a different term, and then and then the cash will actually come in at a different time, also.
• 7:59
  SPEAKER_01: So usually when we're forecasting, when we say we're forecasting revenue, sometimes we might be forecasting sales performance, and then revenue is delayed from that.
• 8:08
  SPEAKER_01: Um, or sometimes if it's a really short sales cycle, the sales and revenue will be very similar.
• 8:13
  SPEAKER_01: But I just point that out because sometimes uh people are talking about different things when they're when they're forecasting these different metrics.
• 8:20
  Scott: That's a good point, Rory.
• 8:21
  Scott: And actually you did a great job leading in my next question here.
• 8:25
  Scott: So if I have some of these factors, and let's say I have a a rough idea of of what they look like, what do I do with them, right?
• 8:34
  Scott: Like, like how do I model the revenue?
• 8:36
  Scott: How do I go from the sales or the pipeline?
• 8:39
  Scott: And if I have these factors, how do I model the revenue then?
• 8:42
  SPEAKER_01: Yep.
• 8:43
  SPEAKER_01: So the next step in uh modeling, and of course, the whole purpose of modeling is to scale, is to start scaling the revenue, right?
• 8:50
  SPEAKER_01: To understand where you want to be, uh what the gap to get there is, and then how you're gonna close that gap.
• 8:57
  SPEAKER_01: So the first step is uh to look at where you've been at with your revenue, and then let's say identify in the next 12 months where we want to be with the revenue.
• 9:07
  SPEAKER_01: So that's number one.
• 9:09
  SPEAKER_01: Then you're gonna have that gap.
• 9:11
  SPEAKER_01: And all sales, all or all revenue growth comes from the multiplication of the number of deals that your business is taking times your average sale price times your conversion rate equals your revenue.
• 9:23
  SPEAKER_01: Okay.
• 9:24
  SPEAKER_01: And so if you want revenue to increase, you need to increase one or more of these factors.
• 9:30
  SPEAKER_01: And ideally, we want your sales, your average sale price, and your conversion rate to be increasing every month.
• 9:37
  SPEAKER_01: Uh, because if one is decreasing while the others are increasing, they will eat themselves or cannibalize themselves, and they'll have to make up for it.
• 9:43
  SPEAKER_01: So ideally, we have all three growing every month, and they're growing at a rate necessary to hit what we'd like to see happen.
• 9:51
  SPEAKER_01: So that's the first step is to break that down.
• 9:54
  SPEAKER_01: Uh, most business owners, when we start the process, if I ask them, you know, how many deals do you work per month?
• 10:00
  SPEAKER_01: They have a maybe rough idea of what that is.
• 10:02
  SPEAKER_01: You know, we work, you know, if you're a business to business, that might be 20 deals a month.
• 10:06
  SPEAKER_01: If you're a business to consumer, that could be thousands of uh potential deals a month.
• 10:10
  SPEAKER_01: They have a rough sense of that.
• 10:12
  SPEAKER_01: But you want to know exactly what that is.
• 10:14
  SPEAKER_01: What exactly how many months, how many deals have you been working every month for the last 12 months?
• 10:20
  SPEAKER_01: What's the growth rate of that?
• 10:21
  SPEAKER_01: You know, what's the high and the low over the last 12 months?
• 10:25
  SPEAKER_01: Uh the second factor is the average sale price.
• 10:28
  SPEAKER_01: So across all of our sales, uh, what is our average sale price or average order value or average cart value?
• 10:35
  SPEAKER_01: Uh, different businesses will use a different terminology.
• 10:38
  SPEAKER_01: But it's just basically the average uh purchase price of a transaction that you make within the business.
• 10:45
  SPEAKER_01: And you want that average uh sale price to be going up every month as well, at least not going down.
• 10:52
  SPEAKER_01: Because if your average sale price is going down, you're going to need to make up for it with more uh deal flow into the pipeline.
• 10:59
  SPEAKER_01: And then the third is conversion rate.
• 11:01
  SPEAKER_01: So uh you have deals coming into the pipeline every month.
• 11:05
  SPEAKER_01: Um, how many of those do you actually turn into sales?
• 11:08
  SPEAKER_01: So 20 new potential customers come into the pipeline and 10 leave as customers.
• 11:14
  SPEAKER_01: So you have a 50% conversion rate.
• 11:16
  SPEAKER_01: So that conversion rate is gonna have a huge impact on the number of overall sales that you make in the year and then the revenue that you're gonna have.
• 11:23
  SPEAKER_01: So if you're able to increase conversion rate over time, um, while you keep sale price the same, while you keep uh increasing deal flow, you're gonna accelerate your revenue.
• 11:34
  SPEAKER_01: And that's basically how you get into an exponential growth curve in your uh revenue scale-up, is by growing each of these three factors simultaneously every month.
• 11:45
  SPEAKER_01: But the first step is to know what they are, know what they were in the last year, and then and then know where you can get them and then start to improve them.
• 11:54
  Scott: With in your experience, have you found one of those factors to be more, I don't know, important is the right word, but but more impactful maybe uh than uh than the others?
• 12:07
  SPEAKER_01: Um uh in so many ways.
• 12:10
  SPEAKER_01: So it's uh now we're talking about revenue here.
• 12:13
  SPEAKER_01: So from a revenue perspective, uh a 10% increase in deal flow, a 10% increase in average sale price, or a 10% increase in conversion rate, either of them increases revenue 10%.
• 12:27
  SPEAKER_01: But they don't have a uh linear relationship on profit.
• 12:33
  SPEAKER_01: So usually increasing average sale price 10% might increase your gross profit 30%, while increasing conversion rate might increase your gross profit 20%, while increasing deal flow would be linear.
• 12:45
  SPEAKER_01: So if you increase 10% deal flow, you increase your profits 10%.
• 12:49
  SPEAKER_01: But average sale price has a much uh higher impact on margin than does conversion rate, than does deal flow.
• 12:57
  SPEAKER_01: Now, why your question's important is because almost every business that I talk to is is very focused on deal flow.
• 13:03
  SPEAKER_01: When they think about scaling revenue, they always think about adding more deals to the pipeline.
• 13:09
  SPEAKER_01: And so from a from a uh market position perspective, ultimately you can't raise your prices indefinitely.
• 13:16
  SPEAKER_01: There is some maximum to your market.
• 13:19
  SPEAKER_01: Um, you can't get greater than 100% conversion rate.
• 13:22
  SPEAKER_01: So there's some maximum to the conversion rate.
• 13:24
  SPEAKER_01: So ultimately, at a certain point, uh the deal flow is the only thing you can scale.
• 13:30
  SPEAKER_01: But it is really important to point out that from a profit perspective, your average sale price is greater than the conversion rate, is greater than the deal flow.
• 13:39
  SPEAKER_01: So you always want to make sure when you're in a scaling situation that you're not leaving anything on the table in terms of your sale price, your average sale price, and your conversion rate.
• 13:48
  SPEAKER_01: And then once that's the case, then it is all about deal flow and finding the marketing channels that's driving that.
• 13:55
  Scott: And do you, when you work with clients, do you do you just focus on their revenue or do you help them on the profit side as well?
• 14:04
  Scott: Because that's right, really.
• 14:06
  SPEAKER_01: Yeah, exactly.
• 14:07
  SPEAKER_01: Um that's an interesting thing because in RevOps, the traditional RevOps, uh, they don't really focus on profit at all.
• 14:15
  SPEAKER_01: It's all about sales and marketing and deal flow and closed one sales.
• 14:20
  SPEAKER_01: Um, I incorporate the profit aspect because that is critical to driving the scale up because we're going to use that profit in our highest performing marketing channels to drive revenue growth.
• 14:33
  SPEAKER_01: So I absolutely focus on it.
• 14:36
  SPEAKER_01: Uh, what we do is there's three components.
• 14:38
  SPEAKER_01: Uh and essentially we're focusing on the gross profit.
• 14:41
  SPEAKER_01: So the the profit um including uh after taking into account sales costs, marketing costs, and direct delivery and cost of goods sold uh on that revenue.
• 14:54
  SPEAKER_01: Um so we take marketing sales and delivery costs, uh, we look at the growth that gross profit, and that covers your overhead and your contribution margin.
• 15:03
  SPEAKER_01: So that's pretty much what I'm looking at.
• 15:05
  SPEAKER_01: Um I'm including, I'm taking a little bit more out of cogs than than you would normally see on the financial statement.
• 15:12
  SPEAKER_01: You often sales and marketing is going to be bucketed under an operational expense on a lot of PLs, but when I'm looking at profit, I'm taking sales and marketing out because changes to sales and marketing are going to affect your revenue number.
• 15:25
  SPEAKER_01: So we want to correlate those together.
• 15:27
  SPEAKER_01: Interesting.
• 15:27
  SPEAKER_01: But essentially, you know, on the revenue production, you can you can improve your deal flow, your average sale price, your conversion rate.
• 15:35
  SPEAKER_01: On your cost, you can improve your sales cost per lead, your marketing cost per lead, your delivery cost per sale.
• 15:44
  SPEAKER_01: And so you really have these six components that if you uh are basically the levers that you have to pull to improve the overall revenue and the profitability of your uh sales engine.
• 15:57
  Scott: I think this can be a little bit overwhelming for some business owners who never really think about it in this in this manner.
• 16:06
  Scott: But if they want to, what do they need to start thinking about, you know, like their data?
• 16:12
  Scott: What is their data?
• 16:13
  Scott: What kind of data?
• 16:14
  Scott: And you touched on a little bit, but what kind of data do they need, and what does it need to look like in order to accomplish some of these calculations that you've you that you've covered?
• 16:24
  SPEAKER_01: Yeah, you know, um it sounds more complicated than it is.
• 16:29
  SPEAKER_01: Once you see, once you see the data structure, or once you see the data, and once you see the reports the first time, it all it all does really kind of click um for people.
• 16:38
  SPEAKER_01: So kind of like, you know, kind of like once you know the first time you learned what a PL was, or the first time you learned double entry, you know, bookkeeping, it's this kind of like crazy world.
• 16:48
  SPEAKER_01: Why is it that way?
• 16:49
  SPEAKER_01: But the second you get it, you get it, you know, and it's you you write the book.
• 16:51
  Scott: Yeah, but let's remember.
• 16:53
  Scott: Some people think accounting is like the the the the the evil part of business.
• 16:57
  Scott: So uh no, go ahead.
• 17:01
  SPEAKER_01: Uh so it's easier than double entry bookkeeping.
• 17:02
  SPEAKER_01: Oh, yeah.
• 17:03
  Scott: Okay, that that that's better.
• 17:05
  SPEAKER_01: Um so uh essentially um you have sales coming into some transaction system.
• 17:14
  SPEAKER_01: You know, if you're e-commerce, it's coming into your your e-commerce system, if you're business-to-business, you have some kind of CRM or tool that you're using to track the sales.
• 17:24
  SPEAKER_01: That is all that you're that is needed in order to do revenue prediction and scale up your revenue.
• 17:31
  SPEAKER_01: Um, all sales come from marketing channels or sales channels, as we call them.
• 17:37
  SPEAKER_01: So these might be ads that you've bought, conferences that you've gone to, people that you've cold called, people that walked into your storefront, etc.
• 17:47
  SPEAKER_01: And you track the the channel that the person came from.
• 17:50
  SPEAKER_01: So we call that a lead source in your CRM.
• 17:53
  SPEAKER_01: That's gonna often be called a lead source, or it might be called a channel.
• 17:57
  SPEAKER_01: And then you have the uh average sale price, which is the the price of each deal.
• 18:02
  SPEAKER_01: That's tracked.
• 18:03
  SPEAKER_01: Uh for the the sales you've actually made, that's clearly tracked, and for the sales that uh you haven't made yet, uh you start tracking that.
• 18:11
  SPEAKER_01: And then you track your wins and your losses.
• 18:13
  SPEAKER_01: So uh the everybody tracks the deals that they've won because those show up as transactions, you know, on your accounting system eventually.
• 18:21
  SPEAKER_01: Uh but you also want to track the deals that you've lost and where those deals came from.
• 18:26
  SPEAKER_01: And so that's important to be able to analyze uh where your deal flow is coming from from the different channels.
• 18:32
  SPEAKER_01: Because as you want to increase your deal flow, that those deals are going to come from particular channels.
• 18:38
  SPEAKER_01: And usually it's best to focus on the channels that are producing the most.
• 18:42
  SPEAKER_01: It's easiest to grow.
• 18:43
  SPEAKER_01: Um, I like the phrase uh grow where you're planted.
• 18:46
  SPEAKER_01: So if you have if you have a really good uh channel, the likelihood is you can increase the performance of that particular sales channel.
• 18:56
  Scott: I like that.
• 18:56
  Scott: I like that saying, grow where you're planted.
• 18:58
  Scott: I I might have to I might have to remember and steal that one if you don't mind.
• 19:02
  Scott: A lot of most most businesses, and not all businesses, have more than one product or more than one service or a combination of products and services.
• 19:12
  Scott: And looking at these can get somewhat complex, especially when they start adding on more and more.
• 19:18
  Scott: When you're talking about these four factors, and then you're talking about multiple products and multiple services, you kind of get this multiple multipletive effect here.
• 19:27
  Scott: What level of detail do you recommend them maybe starting or maybe maybe it's a different, you know, once they get down the road and get more comfortable with it, but where do you recommend them starting with this?
• 19:38
  SPEAKER_01: So the detail matters when you need to start optimizing sub sub-aspects of the or you know uh uh independent aspects of the business.
• 19:48
  SPEAKER_01: From a mathematical perspective, I can look at any business and look at the total deal flow, the total average, the total conversion rate, multiply them together, that equals your your revenue.
• 20:00
  SPEAKER_01: So the first thing to make sure is that the business is growing overall.
• 20:03
  SPEAKER_01: And if your deal flow is shrinking overall, your average sale price is shrinking overall, or your conversion rate is shrinking overall, then we have something to fix.
• 20:12
  SPEAKER_01: So if we have something to fix, then we're gonna go one level in.
• 20:16
  SPEAKER_01: So if you let's take the opposite example.
• 20:20
  SPEAKER_01: If you have one product that you sell for one price that you sell to uh one type of customer that you source from one type of channel, that's the easiest business to optimize.
• 20:33
  SPEAKER_01: Because exactly we can see clearly what the problem is.
• 20:37
  SPEAKER_01: Now, once you have multiple channels, we need to break it down by what is the deal flow in each channel.
• 20:43
  SPEAKER_01: And is is there any particular channel that's growing or shrinking?
• 20:46
  SPEAKER_01: Once you have multiple prices, then we need to break it down or multiple products that lead to multiple prices, and we want to break it down by product line and make sure that we're increasing our sales in every product line simultaneously.
• 20:59
  SPEAKER_01: Umce you have different customer uh segments, then we're gonna need to break down the different customer segments because usually different customer segments are gonna have different conversion rates naturally.
• 21:11
  SPEAKER_01: Um and if you have multiple channels, multiple products, multiple customers, we're gonna uh multiply all those segments together and look at them individu individually.
• 21:21
  SPEAKER_01: And the basic idea is that if you're if you are in a channel, if you're in a product line, if you're in a customer segment, that should be increasing all the time.
• 21:33
  SPEAKER_01: You should not have things within your business which are decreasing unless you're planning to exit you know that channel or or take it off your plate as a focus.
• 21:44
  SPEAKER_01: So if you intend for something to be growing your revenue, the whole idea is to make sure that it actually is.
• 21:50
  SPEAKER_01: And it's not a drag or a dead weight on the rest of your um sales process.
• 21:56
  SPEAKER_01: So we need to break it down um so we make sure that each of the segments that you care about.
• 22:00
  SPEAKER_01: About that you think are the future of your company are all independently growing.
• 22:03
  SPEAKER_01: And then we can add and when we add them all back up, then then we can see that the whole business will be growing, and you'll have no segments within your business that are dragging you down.
• 22:13
  Scott: That that makes sense.
• 22:14
  Scott: Now, as I'm sure we've talked about, you can tell I as a finance guy, I'm also an Excel guy.
• 22:21
  Scott: This can get pretty complicated once you start adding the different layers.
• 22:25
  Scott: When you start trying to do this in Excel or or maybe somehow on paper, it gets really complex and the different variables involved.
• 22:37
  Scott: Is that what the sales inside?
• 22:39
  Scott: Is that what that platform kind of helps you manage?
• 22:43
  Scott: Is that that kept the those that the calculations and the math with that?
• 22:48
  SPEAKER_01: Yeah, essentially, essentially the complexity of the multi-dimensional analysis and doing it over uh time so that every single month you know how everything has changed within all these what we call dimensions.
• 23:04
  SPEAKER_01: So you can do all of this uh back on you know the back of a napkin very easily.
• 23:09
  SPEAKER_01: You could just look over your sales in the last year and look at you know, look at your average sale price and total, look at and you can even break that down by all your products pretty easily as a one-time thing in Excel.
• 23:20
  SPEAKER_01: But what becomes really powerful is when you are tracking these things on a monthly basis.
• 23:25
  SPEAKER_01: And at the beginning of the month, you can see exactly how your flow, your average sale, your conversion rate changed this month over last month by every dimension in your business, and this month over last year by every dimension in your business.
• 23:37
  SPEAKER_01: And when you're doing that and you're tracking that every month, then all of a sudden changes that uh in your sales and marketing that are going to have a really negative impact on your revenue become obvious right away rather than discovering them in six months or a year later.
• 23:54
  SPEAKER_01: That's really the benefit of getting things set up in real time, and that real time monthly, every month in, every month out, having the data, that's hard to do in Excel.
• 24:05
  SPEAKER_01: That's where having um kind of more of a software-driven uh product helps.
• 24:11
  Scott: Because that's kind of like reviewing your financials every month, right?
• 24:14
  Scott: It's it's similar where you review your financials every month, and this is what's happening this is the big driver behind your financials, and then you get to the next driver.
• 24:22
  Scott: So it's giving you the information around what those drivers are.
• 24:25
  Scott: Sounds like.
• 24:26
  SPEAKER_01: Exactly.
• 24:27
  SPEAKER_01: Um, but then using uh, you know, we built our platform.
• 24:30
  SPEAKER_01: It's kind of like, you know, if you're doing if you were doing um your bookkeeping in general ledger books on paper, you know, like the effort now to sum all that up and create like you know you need a whole team of people to do that.
• 24:45
  SPEAKER_01: And so everybody uses financial software because it would just be too slow to calculate.
• 24:49
  SPEAKER_01: No business owner's got time for that.
• 24:51
  SPEAKER_01: And I think when you're in a revenue scale-up situation, that's kind of the the the same problem is that no business owner really has time to calculate these things manually over and over and over again, even doing it in Excel.
• 25:06
  SPEAKER_01: It's it's kind of a pen and paper approach to a problem that requires more computation, you know, done done more quickly.
• 25:15
  Scott: I agree.
• 25:15
  Scott: I I agree.
• 25:16
  Scott: It it gets uh it's really difficult.
• 25:19
  Scott: Um wrap up our shows asking one to three immediate takeaways that our listeners could literally put into action as soon as they turn out the podcast.
• 25:31
  Scott: Might be something you've already shared with us, and that's fine.
• 25:34
  Scott: But what what what are maybe you know one or three immediate takeaways that that somebody could benefit from?
• 25:40
  SPEAKER_01: There are two uh broad things that I think every business owner needs to uh know right away.
• 25:46
  SPEAKER_01: First is what exactly was your deal flow over the last year?
• 25:50
  SPEAKER_01: What was your average sale price?
• 25:52
  SPEAKER_01: What was your conversion rate?
• 25:54
  SPEAKER_01: And how did that change year to year?
• 25:56
  SPEAKER_01: And if those factors were not all three positive, then you have something immediately to focus in on.
• 26:03
  SPEAKER_01: Why is our average sale price down?
• 26:05
  SPEAKER_01: Why is our conversion rate down and can we improve it?
• 26:08
  SPEAKER_01: Or why is our deal flow down and can we improve it?
• 26:11
  SPEAKER_01: That's number one.
• 26:13
  SPEAKER_01: Um second is uh most firms don't have a really great handle on their sales channels.
• 26:23
  SPEAKER_01: They have a kind of rough idea of where their sales come from, but making sure that all of your sales are attributed to a few channels.
• 26:33
  SPEAKER_01: Um sometimes when people do this attribution, they'll have a lot of channels.
• 26:37
  SPEAKER_01: This deal came from a cereal box, and this deal came from a mailer we sent last year, and this deal came from door-to-door, right?
• 26:43
  SPEAKER_01: Like they have a dozen different channels.
• 26:46
  SPEAKER_01: It's really only a few things.
• 26:48
  SPEAKER_01: We contacted people, we bought ads, we made content, they came in through our website.
• 26:54
  SPEAKER_01: You know, inbound, outbound, organic, email, phone calls.
• 26:59
  SPEAKER_01: You know, it's just a few channels.
• 27:00
  SPEAKER_01: You want to know, you want to know that because deals come from channels, and you need to know uh how your channels are performing and what is your strongest channel.
• 27:12
  SPEAKER_01: Usually what will happen is 50% of the revenue comes from one channel, the next 30% of the revenue comes from a second channel, and then the remaining 20% comes from three, four, five or more channels, other channels.
• 27:28
  SPEAKER_01: And a lot of times business owners are really focused on those three, four, five.
• 27:34
  SPEAKER_01: They're spending a lot of time digging in areas where there's no returns.
• 27:39
  SPEAKER_01: You really need to understand what your top two and three channels are and what you can do to improve those.
• 27:45
  SPEAKER_01: So those are the areas that I focus on first.
• 27:47
  SPEAKER_01: If if all we if that's all we did was we we had proper channel attribution, and I knew what your flow, your average sale, and your conversion rate was year over year, uh, that would be a huge improvement.
• 27:58
  Scott: You you didn't specifically say it, but you basically defined like the 80-20 rule.
• 28:03
  Scott: Yep.
• 28:03
  Scott: In in your second point.
• 28:04
  Scott: And it's amazing that I find of how many businesses when you start looking at their their sales and revenue come fall into that 80-20 rule.
• 28:14
  Scott: So focus on the 80% of the revenue that's in the and those sales channels based on what you're saying, right?
• 28:20
  SPEAKER_01: Exactly.
• 28:21
  SPEAKER_01: Um, you know, the one thing that I will say of scaling companies, companies that have have posted consistent revenue growth year over year, is they uh they are not dominated by one channel.
• 28:37
  SPEAKER_01: So what happens is when you when the business is dominated by no marketing channel lasts forever.
• 28:42
  SPEAKER_01: You know, we went from radio to TV, you know, to internet ads to social media, and now we're moving into content and and individual media production.
• 28:54
  SPEAKER_01: So the marketing tactics are always changing.
• 28:56
  SPEAKER_01: Companies that achieve consistent growth year over year have a strong mix of three, at least three channels that are driving more than 50% of the business.
• 29:08
  SPEAKER_01: This way, as the market evolves and things change, they're never caught out.
• 29:13
  SPEAKER_01: With a, you know, one channel takes over as the leader uh over time.
• 29:19
  SPEAKER_01: And so uh the main thing is basically to be investing in some new areas.
• 29:23
  SPEAKER_01: Uh make sure you're not neglecting your top channels, but be running experiments and investing in some new areas and try to not have the business too top-heavy in one channel.
• 29:33
  SPEAKER_01: You know, everybody's seen this.
• 29:34
  SPEAKER_01: All their sales come from partners, for example, or all their sales come from one big agency or firm that they're partnered with, and then they lose that firm and then they lose all their deal flow.
• 29:44
  SPEAKER_01: That's a really bad situation for scaling in or even just maintaining the business.
• 29:49
  SPEAKER_01: But it's very, very common.
• 29:51
  Scott: Very good point.
• 29:52
  Scott: Thank you.
• 29:52
  Scott: The other item we like to wrap up with is so I enjoy a good podcast or book recommendation.
• 29:57
  Scott: What do you have for a save for a good uh podcast or book?
• 30:01
  Scott: Or both?
• 30:01
  SPEAKER_01: Um, podcast, I really like Scott Adam, Scott, Scott Adams podcast.
• 30:06
  SPEAKER_01: He's the Dobert comic.
• 30:09
  SPEAKER_01: Um, you know, he's he's doing more uh political commentary now, but you know, his business and marketing and and framings, he often has these uh interesting uh ways of looking at different systems.
• 30:23
  SPEAKER_01: He has a systems approach, which is kind of you know dovetails with what we're talking about in RevOps, which is kind of why I like that.
• 30:30
  SPEAKER_01: So I'm always just getting interesting frames from him.
• 30:33
  SPEAKER_01: Uh the one uh book that I uh really like in this is Zero to One by Peter Thiel, and that talks about uh trying to orient your business around creating a monopoly in one area.
• 30:47
  SPEAKER_01: And that this isn't a monopoly like like ATT monopoly.
• 30:52
  SPEAKER_01: Uh, this is monopoly like uh make your product so specific and so targeted that by default there's nobody in competition with you.
• 31:02
  SPEAKER_01: So in the thing that you choose to go after, you're really the only provider of that thing and make it excellent.
• 31:09
  SPEAKER_01: And get your deal flow, maximize all the deal flow and all the marketing channels, maximize your sale price, maximize your conversion rate, conversion rate in that one thing, and then uh expand out once you've hit that.
• 31:21
  SPEAKER_01: And that's uh companies that consistently and truly are scaling their revenue, that's what they've done.
• 31:27
  SPEAKER_01: They've hit something, uh, they're really the only person, they're really the top dog in that thing.
• 31:32
  SPEAKER_01: Um, and that thing can be really small from a grand market perspective.
• 31:36
  SPEAKER_01: You know, uh you don't have to be Microsoft.
• 31:38
  SPEAKER_01: Um, but your one little product is perfectly executed, and that's what uh Zero to One is about.
• 31:45
  Scott: Okay.
• 31:45
  Scott: Yeah, I've I've I don't think I've read that one, but I've listened to a lot of the principles of it and really like that as well.
• 31:53
  Scott: Thank you.
• 31:54
  Scott: Rory, this has really been great.
• 31:56
  Scott: Uh really provided some really keen insight around how businesses can can look at their revenue and project it.
• 32:04
  Scott: Where can people find out more about you online?
• 32:08
  SPEAKER_01: So salesinsights.io is our agency site, and uh we offer our software and our consulting through that.
• 32:17
  SPEAKER_01: You might also check out predictablerevops.org.
• 32:21
  SPEAKER_01: And so one of the things that we're doing is open sourcing the data models and the processes and the math and the and the queries in order to do a lot of the basic reporting.
• 32:30
  SPEAKER_01: We're kind of creating the uh you know we're creating the double entry bookkeeping, let's say, you know, of RevOps, creating something universal that everyone that apply to every business.
• 32:40
  SPEAKER_01: So predictable revops.org are universal models and universal strategies that you can apply to every business.
• 32:46
  SPEAKER_01: So I would check that out.
• 32:48
  SPEAKER_01: Um and of course, uh connect with me on LinkedIn.
• 32:51
  SPEAKER_01: That's where a lot of content and advice in scaling revenue happens.
• 32:57
  SPEAKER_01: I'm often posting and writing articles uh on there.
• 33:02
  Scott: Okay, great.
• 33:03
  Scott: And and I agree.
• 33:04
  Scott: I I I follow you on LinkedIn and enjoy some a lot of your posts that I that I see out there.
• 33:10
  Scott: Well, thank you for joining me today, Rory.
• 33:13
  SPEAKER_01: Thanks, Scott.
• 33:14
  SPEAKER_01: We appreciate it.
• 33:16
  Scott: All right, folks, that's it for today.
• 33:18
  Scott: I'm Scott Keller, and I hope you join me next time for budget your business.