3 Steps for Sales Enablement Leaders PITCHING THE Commercial Ratio
Declaring War on Inefficiency Across Sales & Marketing
Conversation has been edited for clarity.
Is the Commercial Ratio a reactive or proactive metric in your mind?
It’s neither. The Commercial Ratio is not a measure of proactive or reactive. (Proactive or reactive is a choice.) The Commercial Ratio is a metric that says here's how we're doing.
So much of sales enablement is considered either reactive or proactive. We're either doing tactically or we're taking time for strategy.
Some of the struggle that our listeners have had with this metric is, “Great. You're showing me a metric. Now what am I supposed to do about it? What problem do I solve with this?”
That stance of what problem do I solve is how people are really wired in sales enablement and in Sales and Marketing. What I think what the Commercial Ratio metric does moves into more of a discussion in the gap between strategy and tactics -- stratecution -- that is more around what problem do we need to prevent as opposed to what problem do we need to solve.
The metric is what it is but what do we need to do to start moving the needle over time?
"When you take action without any strategy, you get random acts of enablement and drive down your Commercial Ratio."
The way that I would characterize what you're talking about is in business we all know that immediately people want to start prescribing action. “It's red. I'm supposed to do something. Go, go, go!” Part of the difficulty is when you take action without any strategy, guess what happens? You get random acts of enablement and you drive down your Commercial Ratio.
So the Commercial Ratio really is a way to center everyone. “Let's take five minutes here to talk about the implications of what we're doing. Then let's frame out what are the cause and effect relationships here. And wouldn't it be great if we could do three things that are going to have 50 percent impact, rather than do 50 things that are going to have a 3 percent impact?” Many of us know this is the 80/20 rule. Some of us know this is systems thinking. All of these things as though are the same thing.
You have unintended consequences when you go off and do stuff. Taking that time to figure out why we are doing something, what resources we have, and where we want to get to in the future rather than just doing something right now to make a short term pain go away.
That's really what the value of the Commercial Ratio brings to bear. And it starts to create the space where the idea of orchestration, the orchestrator role of a sales enablement person, can actually take shape.
If you don't create the space for it, those seeds are never going to blossom. So you have to be able to create the space to do it. And part of creating that space is just carving out that five minutes to just agree on what we want to accomplish.
The interesting thing about that is when you carve out that space and say, I'm going to help orchestrate “declaring war on inefficiency,” that’s a proactive statement. It’s a mission to achieve. It’s a bit of a rally cry. That concept to me is what’s needed in sales enablement.
People know there's inefficiency but what are you going to do about it?
I love Kunal’s metaphor about the hang glider. You just have to take that first step and trust the hang gliding equipment. Know full well that the first time you jump off that cliff, it's going to feel scary as heck cause you've never flown before. Trust the tool, trust the apparatus. If the hang gliding equipment is the Commercial Ratio, take confidence in it.
You can say, “Oh, the Commercial Ratio is theoretical,” but you'd be wrong.
The Commercial Ratio has been rolled out to 57 companies. It's been workshopped for months to get just right within private equity general managers. Do you think private equity is going to roll out a metric that isn't accurate? I mean, come on. Let's be real here.
CEOs inside of the portfolio companies are mandated by their investors to be accountable for that metric. This isn't, “I like it. I use it.” They are going to be held accountable for that number. Is the CEO going to take on that accountability, or are they going to find somebody else inside the organization to pin it on? The chances are going to find somebody else to pin it on. And then with that accountability comes authority.
Follow the chain of logic and power and authority. I think that's the key point to pay attention to. The more you map to the metric and the work that you're doing, you're going to find a power base inside your company with whom you can partner. That's why we spent the time painting the tapestry.
The CFO is the objective referee. If you're not building relationships with the CFO, you're not building off of the power base. The person who has the power with this, or at least keeping score of it, is for the most part going to be the CFO.
If you have a friend in finance, learn some of the terminology. If you're in this space and you don't don't know the terminology, or worse, use the wrong terminology... Make sure that you're using the right terminology.
Some of the feedback that we've got from people who don't really understand the basic accounting rules of what numbers go into a cost of revenue and what numbers go into Sales and Marketing Expense and why that accounting matters.
It matters a lot because you have to know what kind of numbers are actually in the scorecard. And the reason that you need to know those things is because those are the specific levers that you need to pull. It isn't complicated. It's just intimidating because it's not accessible. Admit that, and then find people who can help you connect the dots.
What other advice do you have for folks that want to get started? How do they get started digesting this as an orchestrator?
The first thing is find some way to check whether or not you understand the Commercial Ratio.
One of the things that I've noticed is there are a lot of people who will launch in and think that they understand it, but they don't have somebody check their accuracy. A CFO is pretty forgiving about data inaccuracies if the structure of the information is correct.
For example, if your revenue number is inconsistent with their revenue number but you are following the right kinds of principles in the format, it will be pretty easy for them to correct your data inaccuracies. But if you show up and you're trying to lump cost of sales in with sales and marketing budgets, it's going to be very frustrating because you're basically saying, I don't know how income statements work and I want you to do this for me, but you’re not meeting them halfway. It would be like somebody coming in and telling you this is how you should sell. It’s pretty offensive; you want to avoid that mistake.
3 Steps to Prepare Your Pitch for the Executive Team
Here’s what to anticipate and account for in your plan. Before you pitch it, go through these steps.
Have a friend in finance help you understand the income statement. Make sure at the simplistic level that you know what’s going into each bucket and know what are the financial rules associated with the income statement. Make sure that you've got your dots connected in the structure.
Find somebody that you can role play what the message sounds like for different roles. How you deliver this message is really important. If you deliver it tone deaf to different audiences, you're going to get treated with a lot of pushback. Remember, it's not about whether you understand it or not. It's about connecting with the CFO, not alienating the head of sales or the CMO, and making sure the CEO understands it.
Make sure you have a plan. Once you pitch it, your executives are immediately going to have questions. You’re going to think they’re intense; they're just trying to understand. So make sure you're prepared to deal with that and not take it personally. Then, they're going to ask you for recommendations. If you don't have recommendations prepared with the pitch, at least have a great message ready: Here's why I need the time to do it. Next week, I'll provide recommendations and it'll look like this.
You need to be able to do all three of those things. So my suggestion is tackle them in order. One, two, three.
Keep reading: Earlier in the podcast, Scott and Brian are joined by Kunal Mehta from the Private Equity firm TCV. Kunal shares a behind-the-scenes view of rolling out the Commercial Ratio to all TCV portfolio companies. What were those discussions? What was the focus? What happened?
We want to keep this conversation going. Where are things working? If you have an idea of what Scott and Brian can cover in a future podcast, or have a story to share, please email email@example.com. You can also connect with them online.
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