7 steps to hit your 2020 revenue goal

(This is a more detailed follow-up to topics I discussed in my recent interview on the Growth TL;DR podcast about finding your biggest opportunity for Growth and building a Growth team from the ground up.)

So, your company’s priority for 2020 is to grow new revenue by X% and/or hit $YM. Are you and your teams now asking yourselves: what do we do now? Where should we start?

I’m sure we can all relate to this. It’s not an easy task! Oftentimes what I see happen is, each department (Marketing, Sales, Product, etc) comes up with their own plan to achieve the revenue goal but those plans aren’t coordinated across the departments and their teams. This makes it difficult to know if the combined efforts will actually ladder up to that revenue goal, or if one team’s efforts to optimize one metric might actually be to the detriment of another team trying to optimize a different metric. What if the hard work of those teams cancel each other out and you’re back at square one?

I’ve been working through this with our teams at Recurly and have come up with an end-to-end Customer Acquisition Model that quantitatively shows:

  • How your Marketing efforts lead directly to Sales opportunities
  • How Sales opportunities lead directly to revenue
  • Your progress to your revenue goal
  • Forecast of the gap you need to cover in the time remaining
  • Which metric(s) have the biggest lift in terms of revenue, i.e. if you improve X, it will have the most impact on new revenue

So far, this model has worked quite well for us! I’ve created a generic template to help illustrate the approach. Feel free to copy and customize it for your own company.

But first, I want to point out some core assumptions of this model:

  • You are a B2B company.
  • You offer a free trial experience in which customers can buy your product or service directly.
  • You also have a Sales team that works to reach out to those trying your product or service to have a conversation and encourage them to buy.
  • You track cohorts by week (Monday thru Sunday).

Even if this doesn’t exactly describe your business, this can still be a helpful model. You may just have to do some additional customization to tailor it to your business.

STEP 1: Gather some data

It all starts with getting baselines for some key metrics. You’ll want to work with your internal data or business analyst teams to get numbers for the following — or ask for access to the tools you need to pull this yourself:

Running totals for:

  • Visitors to the website
  • Visitors to the trial signup page
  • Trial signups
  • Number of trials who converted to paid without Sales assistance
  • Number of trials who became Sales-assisted opportunities
  • Number of closed-won Sales-assisted opportunities

Current calculations for:

  • Number of website visitors (average)
  • ARPU for non Sales-assisted customers
  • ARPU for Sales-assisted customers
  • CAC of non Sales-assisted customers (average)
  • CAC of Sales-assisted customers (average)
  • LTV of non Sales-assisted customers (average)
  • LTV of Sales-assisted customers (average)
  • Time-to-close (average), e.g. how long it takes from signup to win
  • Time-to-payback (average), e.g. how long it takes until LTV ≥ CAC

Once you have this data, feed it into the model in the Variables tab under the ACTUALS column.

STEP 2: Decide on your revenue mix

What is your target revenue goal? Of that, what is the desired mix between Sales-assisted and non Sales-assisted?

  • Revenue goal
  • % of revenue from non Sales-assisted customers
  • % of revenue from Sales-assisted customers

To help with that conversation, you should also look at the CAC and LTV and what that ratio is for Sales-assisted vs non Sales-assisted customers.

  • CAC of non Sales-assisted customers (average), e.g. simplistically: divide your Marketing spend by the number of new customers
  • CAC of Sales-assisted customers (average), e.g. simplistically: divide your Marketing + Sales spend by the number of new customers
  • LTV of non Sales-assisted customers (average)
  • LTV of Sales-assisted customers (average)

For example, if CAC is generally equal for both, but LTV is much higher for Sales-assisted customers, you may want to focus on winning more Sales-assisted customers.

Once you’ve discussed this with your teams, put it in the model in the Variables tab under the ACTUALS column.

STEP 3: Look at the forecast model

Once you’ve entered the data above, the Forecast model tab will automagically update each weekly cohort and show if/when you’re likely to hit your revenue goal, or how far off (positive or negative) you are.

STEP 4: Figure out what is your biggest revenue lever(s)

The Variables tab also has a column for HYPOTHETICAL numbers. This is intended to help you determine which of the key metrics has the most effect on your revenue.

For example, what if you improved your “Trial to Sales-assisted opportunity %” rate by 10%? You’ll see in the template that a 10% improvement in this metric leads to a 6.92% increase in new revenue.

Compare that to a similar 10% improvement to “Non Sales-assisted win rate %”. That only leads to a 3.08% increase in new revenue.

So, given this, if you were to choose which of the two to start working on first, “Trial to Sales-assisted opportunity %” would be the better bet.

Use this tool to compare the magnitude each metric has on your revenue. Based on this, you should then be able to prioritize which metric(s) to optimize.

STEP 5: Formulate a “roadmap” to get you to your revenue goal

Now that you have an idea of which metrics have the biggest impact on your revenue, you can use the Forecast model to help you visualize and confirm: if you were to improve those metrics by a certain amount and timeframe, would you be able to hit your revenue goal in time?

For example, let’s say one possible plan we’re considering is:

  • Improve “Trial to Sales-assisted opportunity %” by 20% by March 2020.
  • Improve “ARPU for Sales-assisted customers” by 50% by May 2020.
  • Improve “Non Sales-assisted win rate %” by 20% by July 2020.

Are we likely to hit our revenue goal by the end of 2020?

After plugging in those numbers into the Forecast model, we see:

We’ll potentially hit and then exceed our goal by mid-December 2020. So, if we’re able to execute on our plan and successfully improve the 3 metrics we’ve identified in the given timeframes, we should be able to achieve our revenue goal for the year!

STEP 6: Test your hypotheses via experimentation

This is where the fun really begins :)

Now that you’ve identified which metrics have the most effect on your revenue, and what improvements you’re aiming to make and by when, you need to come up with hypotheses about what will drive those improvements and come up with experiments to test those hypotheses.

For example, if one of your goals is to improve your “Trial signup conversion rate” by 10%, you’ll first have to figure out why it’s at the level it is now, e.g. are you asking for too much information and people drop off before answering all your questions? Ideally, your hypotheses will be founded on data you already have, like data from Google Analytics, FullStory, or similar tools. From there, you’ll need to come up with ways to test your hypotheses and then, potential solutions to the problem(s) you’ve verified via those experiments, e.g. reducing the amount of information you ask for at signup.

I won’t go into detail on how to do that here since there is already tons of resources out there on hypothesis-driven development, A/B testing, etc. (Check out this list compiled by the great folks at Reforge.) But, this is definitely the most exciting part of Growth!

STEP 7: Keep your model up-to-date

As time goes on, be sure to keep your model up-to-date. Update your Variables (ACTUALS) on a consistent basis, as well as the actuals for each weekly cohort in the Forecast model as they start and end. That way, you’ll always see your progress towards your revenue goal and what the forecasted gap is.

To that last point, the Forecast model also includes calculations for:

  • Average revenue needed per remaining cohort to hit your goal
  • Numbers you need to hit for each remaining cohort

This is to help you react quickly and address any gaps which might lead you to miss your revenue goal.

That’s it! Hopefully you found this useful and are able to apply it to help you and your company achieve its goals for 2020.

If you have any questions or feedback for me directly, or would like to communicate in a forum-like setting with other Growth professionals, feel free to reach out via the channels below.

All the best for 2020!

Website: ethanteng.com

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LinkedIn: https://www.linkedin.com/in/ethanteng/

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Product @JoinDaylight 🌞🌈 | Ex @Recurly @Braintree @PayPal | @Stanford Computer Science | 🏳️‍🌈🇹🇼 INFJ He/Him

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