Revenue should be one of most important things to care about for everyone in a company, even though it might not seem to directly impact their day to day work. Certain functions like sales or marketing can draw a clear line to revenue, however every team impacts revenue – implicitly or explicitly. In this post I will showcase how and why.
People Pay for Must Haves
If you’re building a product, whether on a design or engineering team – you’re building to solve a specific problem for your users. If you stray away too far from the problem, you have a nice-to-have product that people like and might use, but only if it’s free.
If you are building for the core problem that you are trying to solve, and the change you provide users saves them time, money or energy – you have a must-have product.
People pay for must-have products. And they’re happy to pay for it.
People in non-revenue roles shouldn’t let what drives revenue guide their decisions and workflow, as their work is creative in nature and shouldn’t be disrupted. But seeing what things people pay for helps you understand why they are important.
It tells you why someone in investing in your product. And why their investment is a factor of not only time, but also money and sometimes reputation.
Not doing so can be painful, and in some cases fatal.
Evernote had it, then somehow lost its way
One company that has learned this the hard way is Evernote. They built a great product to help you organize your life with notes. Because of the promise of traction (not revenue) they were able to raise a huge amount of venture capital.
They initially targeted consumers but never really mastered a repeatable use case to get their users using Evernote daily – the key to converting them to paying users. To reach sustainability via unit economics, they had to increase their Average Revenue Per User (ARPU.)
With all the money raised, they hired a bunch of people, who’s core focus is not on increasing ARPU. They made a business product, started selling notebooks, office supplies and apparel. In theory, selling additional products improved ARPU and their brand, but not via the daily usage of their core product.
With users not paying for the main product, the additional revenue was a distraction. Revenue via the nice to have products simply added more confusion to their brand and took away resources from making Evernote a must-have product. Meanwhile, users like myself who pay for the core product are left frustrated with long standing bugs and the glacial product development.
While many teams were not directly accountable for the revenue inflow to the company, the failure to earlier monetize affected their attention and focus in their jobs.
Revenue helps you build a must-have product
If you’re a CEO, you’re constantly being approached by senior leadership for extra budget for their teams. Sales and marketing folks can directly quantify why their teams should get the extra budget with leads and closed deals. Design, HR, engineering and other teams should do the same.
Let’s consider three examples where teams can connect the dots to revenue and become strategic within the organization.
Example 1: Investing in technical infrastructure
Sometimes technical decisions can provide a huge boost in revenue. If they are no executed correctly - this could lead to small earnings in revenue - especially in e-commerce.
Let’s examine an e-commerce company – MeUndies. They are an online store selling underwear. Black Friday is approaching and they’ve deployed extra servers for the expected increase in traffic. After some analysis, they found there’s a direct correlation between the response time of their site and the increase in revenue. As a result, MeUndies over-invests in servers to ensure customers have a good experience and they don’t abandon their shopping carts because of slow loading pages.
Investing in more servers became a direct contribution to increasing revenue for MeUndies.
Example 2: Investing in Design and User Experience
After some analysis, you’ve found that your net promoter scores have been low and people are not using your product as much as you’d like. Your customer success reps are collecting info from your customers that they’re happy, but the product has some warts and some of the work-flows are less than ideal.
You hire a world class UX designer to starting running usability tests, find out what’s working, what’s not and they initiates some major changes to the product while keeping its main function and integrity in tact. Your red flagged customers see the improvements, and decide to stay around for another year. The changes have positively affected your customers and your UX designer has just contributed to lowering your churn rates and maintaining your renewal rates.
Example 3: Investing in Talent Management & HR
Another key hire that can pay off tremendously is having a Director of Talent & People very early on. This hire usually comes in when the CEO and founders can no longer manage people operations and need the expertise of a proven professional to set strategic goals, provide the means for feedback, coaching and implement administrative programs to keep and retain top talent.
HR is usually a fire-fighting hire. You need someone badly because you haven’t paid as much as attention to this area as you should have. You either have a harassment lawsuit on your hands, or your best people are walking out the door.
Modern HR people make the case for their decisions helping companies reduce the expensive cost of recruiting, and facilitate programs that help increase productivity among employees. HR professionals are implicitly helping reduce costs by ensuring the right people are hired for the company.
Everyone contributes to revenue. One way or another – you’re helping increase revenue, reduce the risk of losing it, or reduce your costs.
Understanding how your team contributes to revenue can help you acquire more budget, have more influence with revenue-backed numbers to push forward your decisions, and it helps individuals understand how they contribute to the bigger financial picture.
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