In this update, Navint Managing Director Jeff Wissink discusses one of the more nefarious effects of running a poorly-optimized Subscription Revenue business - the "mushrooming" of internal groups like Sales Operations.
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Mushrooming Sales Operations Means Your Recurring Revenue Business is Broken
There are many reasons that businesses employ recurring revenue models, value derived from The Continuous Customer ultimately being the big one. Yet operating these kinds of businesses in a "frictionless" way is a huge challenge and creates what we refer to as the subscription business paradox. In this paradox, dynamic monetization methods are both critical to revenue growth but, if not designed and managed properly, drive incredible complexity and cost into an organization.
One of the more nefarious effects of a poorly-run recurring revenue business is a growth in hiring people to accommodate less-than-ideal operating practices. Let's be honest - sometimes it's just easier to hire someone to operate an inefficient process than to analyze and fix a deep-seeded issue, especially when it requires close cross-departmental coordination and/or a reliance on already over-burdened IT groups.
Costs Outpacing Revenue
As a company grows, you would hope that the advantages that come with scale would allow your operations costs to go down as a percentage of revenue. But oftentimes the reverse is true - your revenues are growing, but support costs are growing faster.
Throwing bodies at fundamentally broken or "good enough" processes in a recurring revenue business means the cost of operating those groups can actually go up as a percentage of revenue growth. By definition, this is a scalability issue.
But sadly, it gets worse.
Over time, this "reverse scalability" effect can snowball and result in entire departments that take on a life of their own. One case in point, sales operations.
Mushrooming Sales Operations
I've seen myriad write-ups that extol Sales Operations as critical components of an organization, a group whose "main function of the sales operations team is to smoothen the sales process - reduce any friction and incorporate itself to the organization so as to ensure the execution of the sales strategy." Even Harvard Business Review says that Sales Operations is "essential for effective sales management," while admitting that it's hard to get right.
Saying that Sales Operations is essential for sales management is a little bit like saying that band-aids are essential for stopping the bleeding but without asking why the patient is bleeding in the first place. More bleeding, more band-aids. Sounds crazy, right? But we see businesses with recurring revenue models do this all the time - more sales, more sales operations. You are hiring people to reduce friction in the sales process without asking why.
Mushrooming Sales Operations headcount means you've inadvertently created a cost center, not a revenue center, in your recurring revenue business. You are funding, potentially indefinitely, to maintain ineffective process that suck dollars in a cyclonic spiral out of your profitability.
Fixing the Root Cause
Many day-to-day tasks of Sales Operations exist because of the limitations with CRM and ERP systems and all the sales and finance activities in between "the junction box" when adapting to a recurring revenue and continuous customer model. Your old processes built with traditional, transactional business paradigms have been band-aided with manual, inefficient work arounds guised as the "essential" department called Sales Operations.
Fundamentally it's a design flaw in process and technology your trying to solve with people, and it's costing you. For over 20 years Navint has served organizations, from small-to-medium businesses to global Fortune 100 companies, to reengineer and transform their enterprises to innovate the products they make, the services they provide, and the operations that support them. If your sales operations headcount is mushrooming, give us a call.
To learn more about Navint's Subscription & Monetization service offerings, please contact Jeff Wissink at email@example.com or visit us our Subscription Services section.
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