In my previous role I was leading revenue operations (RevOps), which I believe at the time had a well-balanced structure. Since leaving my previous role, I have begun consulting with companies and the following questions have surfaced several times.
When Should You Hire a CRO?
It depends on the maturity of the organization and industry. There isn’t a revenue target, or size of the company. Rather there is a persona of the company, and where they are at regarding revenue growth relative to profit margin. Illustrated by the matrix, the CRO’s focus can be shifted from upkeep to complete overhaul. Of course, most companies will probably be in the moderate range, thus the CRO R&R’s will be more diverse between the quadrants.
- Revenue Growth Rate: Measure the year-over-year percentage increase in revenue. This indicates how well the CRO is expanding the business. Distinguish total revenue from Annual Recurring Revenue (ARR) especially if you have revenue from Software as a Services (SaaS)/subscriptions.
- Profit Margin: This shows how much profit the company retains from its revenue after all expenses are paid. Be careful when comparing profit margins, many companies include/exclude costs from Cost of Goods Sold (COGS) when calculating profit margin.
- Balanced Strategy: The goal is to balance revenue growth while maintaining or improving profit margins. Excessive focus on growth might hurt profitability, while too much emphasis on profits might hinder expansion.
- Persona Factors: Consider industry norms, market conditions, and company-specific strategies. High growth with low margins might be acceptable in a high-growth industry, while established industries might prioritize profitability.
Who Is the Right CRO for Your Organization?
Depending on the maturity of the company, hiring a dedicated CRO may not be feasible, thus hiring a virtual CRO can save the company money, while providing a more diverse background. Hiring a consultant or contractor allows the organization to focus on specific areas, such as pricing strategy. If you currently have a CRO, this doesn’t mean you cannot augment your ad-hoc or niche projects based on the needed skillset with a consultant or contractor.
Sometimes it’s easy for you to appoint a seasoned salesperson into this role. While there are benefits to this, the CRO job function is much broader than specific sales and needs to be more strategic. The ideal candidate is a business orientated individual, with background in demand generation, pricing strategy, vision and strategy alignment, metric development and of course customer insights. Your seasoned salesperson can manage the day-to-day pipeline, individual metrics and training for the sales team.
What can I expect from a CRO?
The CRO’s focus should be revenue and profit margins, some organizations will use the “rule of 40” as a benchmark. The rule of 40 is commonly used in SaaS companies but has been more broadly adopted over the recent years. The rule of 40 simply states that the growth rate of the company plus the profit margin should be equal to 40 or more. It’s a fairly easy way to determine the balance of reinvesting and short-term vs long term growth rates.
There are many tactical components that can be implemented to manage the various levers a CRO has to control these outcomes. Let’s focus on 8 areas that the CRO should have on their whiteboard at any given moment.
- Brand Ethos. Let’s first start by defining the brand of the company. This is generally a mission statement or tagline and should be well known and used throughout the company. I call this the brand ethos defined as “the characteristic spirit of a culture, era, or community as manifested in its beliefs and aspirations.” When you hear BMW you should think “ultimate driving experience” or Volvo “safety”, these are the brands ethos, and allows the company to focus on this message- while keeping the company from veering off course or “off strategy”.  Some organizations refer to this as their NorthStar. I have found many companies haven’t determined their brand ethos, and struggle with their go-to-market strategy that quickly becomes diluted. “Growth without a clear direction is like sailing without a compass—you’re moving, but you’re lost.”
- Revenue Channels. Visually framing the various revenue channels is a key component for any CRO. Understanding the current and forecasted revenue, developing metrics and ensure that you don’t have channel conflict along the way, are all facets of a CRO R&R’s. Let’s assume we want to focus on a specific vertical, a CRO needs to understand the forecast revenue for this vertical and track overall performance throughout the year.
- Sales Team. The sales team structure is also within the purview of the CRO. There are several roles within the sales team, including business developers (BD), account managers (AM), account executive, inside sales, account coordinators and the sales manager. The sales team shouldn’t report to the CRO directly, but through a sales manager or other designated role, allowing the CRO to help negotiate deals or look for alternative pricing strategies to win the work.
- Marketing. The marketing strategy can be imbedded into the revenue channel but should have a very distinguished focus. The coordination and collaboration between marketing and sales is critical for a CRO.
- Negotiations and Pricing. A key component of the CRO is understanding the relationship between revenue and profit. The ability for the CRO to understand what accounts/customers are on-strategy and which accounts are “lost leaders” can help build efficiency into the organization. If you know me, I must talk about developing negotiation frameworks like the Multiple Equivalent Simultaneous Offers (MESO), and how the CRO should be enabling the organization to make better decisions on each deal. “In negotiation, the most powerful tool is not getting what you want but understanding what the other party needs.”
- Metrics. Developing metrics and performance dashboards are another key component for CROs to build/manage. Cascading metrics represent a sequence where the output of one metric directly influences the next, creating a chain of dependencies. This term effectively conveys the concept of metrics that flow into each other, highlighting their interrelated nature. These can be particularly useful in understanding the flow of processes, the impact of changes, and in building performance models. I once saw an organization using “influenced leads” as their key metric for marketing performance. The influenced lead was any account that downloaded a piece of content or engaged in a webinar etc. As you would expect the marketing influenced pipeline was significantly overstated compared to the sales pipeline. In this example even though sales and revenue were down, the marketing team was 110% of its goal- funny how miss-align metrics can cause so much confusion. Ensuring metrics are aligned to business goal will drive the right behaviors from all team members.
- Customer Interactions. In today’s market the focus on customer interactions is more and more important. I hear “we need to be in front of our customers more…”, and “how do we engage with our customers?”. Growing sales is much easier when you have a considerable ARR (annual recurring revenue) base. I often ask organizations to tell me their ideal customer, building customer personas allow this question to be answered without hesitation. I find business to consumer (B2C) companies have a much easier time developing/answering this question than business to business (B2B) organizations. Net Promoter Score [NPS = % promoters – % detractors] is a good metric that should be used when measuring customer engagement. Don’t forget your lost customers/opportunities, and why did you lose them? You need to call these customers/clients especially in a B2B environment, don’t rely on CRM notes or surveys.
- Board Discussions. The CRO should be a critical voice within the board meetings. Forecasted revenue, market projects and overall expectations are key Rocks (Stephen Covey) for CRO. The execution of the growth strategy rests on the shoulders of the CRO, and the accountability/results should not be delegated to other leaders.
The CRO role is indispensable for organizations undergoing significant growth or industry disruption. By focusing on strategic revenue management, the CRO ensures that the company not only grows but does so sustainably and profitably.
