Ep47 Commercial Ratio to Unlock Value with ROI Guy Tom Pisello

Ep47 Commercial Ratio to Unlock Value with ROI Guy Tom Pisello

Welcome to the Inside: Sales Enablement Podcast Episode 47

In this episode, the guys are joined by Tom Pisello, the ROI Guy who shares his thoughts on the commercial ratio.

To calculate the commercial ratio of your organization (www.commercialratio.com):

  1. Take your current annual revenue 
  2. Subtract it from the annual revenue of the previous year 
  3. Divide it by the total sales and marketing spending 

The guys talk about :

  • Why value is so important to understand in sales
  • Why value is critical to sales enablement programs
  • How sales and marketing are viewed as “growth programs” by investors
  • The relationship between strategy and tactics in creating ongoing programs to improve value communication with a portfolio of sales teams
  • The fundamentals of calculating the commercial ratio
  • How the commercial ratio is used by investors and executives
  • The role of Sales Enablement in moving the needle on the commercial ratio

Join us at https://www.OrchestrateSales.com/podcast/ to collaborate with peers, join Insider Nation, participate in the conversation and be part of the continued elevation of the profession.


Intro 00:02  

Welcome to the inside sales enablement podcast. Where has the profession been? Where is it now? And where is it heading? What does it mean to you, your company, other functions? The market? Find out here. Join the founding father of the sales enablement profession Scott Santucci and Trailblazer Brian Lambert, as they take you behind the scenes of the birth of an industry, the inside sales enablement podcast starts now.

Scott Santucci 00:33  

I’m Scott Santucci.

Brian Lambert 00:35  

I’m Brian Lambert and we are the sales enablement insiders. Our podcast is for sales enablement, leaders looking to elevate their function, expand their sphere of influence, and increase the span of control within their companies.

Scott Santucci 00:48  

Together, Brian and I have worked on over 100 different kinds of sales enablement, issues as analysts, consultants or practitioners, we’ve learned the hard way, what works, and maybe what’s even more important, what doesn’t.

Brian Lambert 01:01  

And our focus on this podcast is we are in season two is on sales enablement, leaders and orchestrators. And as you know, companies are often structured in hierarchical silos. And the topics that we’re covering affect not only sales enablement, leaders in talent or pipeline or Message Enablement, but also in commercial enablement. And that’s what we’re going to talk about today. Because when you look at operating in the space between strategy and execution, and having to bring those together, and that’s a big challenge that you’re facing, because it involves the concept and the discussion with the executive leaders around, Hey, you know what, give me give me more, give me more remit, I’m going to give you more impact. You’re going to spend less money and get more from it. And that’s a tough concept to land as an Orchestrator. So Scott, why don’t you set us up here on the podcast and share who our special guest is?

Scott Santucci 01:55  

Sure. Look forward to a Brian and insider nation. Let me just sort of summarize a couple things of where we’ve been. We’ve done probably the most research about post COVID, around sales enablement, then anybody, whether it be Gartner Forrest or anybody else. And we’ve been expressing that in terms of a series of webinars that we’re doing through my company growth enablement. So the first one that we had was about sales and a was at a crossroads, where we first introduced this Orchestrator concept. Brian’s really seized the reins on that. So we’ve had a lot of webinars around Orchestrator. Well, part of the difficulty then is how do we communicate the business value of Orchestration. And the last webinar that we had was around Commercial Ratio. And knowing the Commercial Ratio is so challenging knowing that it’s really difficult to put your head arms around this, this fuzzy notion of the value proposition to a CEO saying, hey, you should invest in a sales enablement department. And the more investment that you give me, I’ll give you less stuff. And in return, I’ll get you’ll get more.

So how do we make that come to life. So that’s really where Commercial Ratio comes in. So as if you’ve been participating in the webinar, if you didn’t participate in the webinar, Brian will make it available. We have a micro site called Commercial ratio.com is we need to make these concepts more accessible. And as we were leading up to it, I reached out to my friend, Tom, the ROI guy, because I thought, you know, this is this is a person who’s going to really resonate with it. So by by introduction, Tom, you and I have known each other for a long time, I’ll let you give you some context about how much we’ve known each other. One of the things that Tom’s done, so we started, I was the ROI guy, he built a business that was focused on visualization and simplifying ROI for salespeople. So he’s been doing this for lots of companies for a long time. So much so he wrote a book on it. And he wrote a book on it called frugal nomics. And I don’t know what I don’t know if you’ve ever heard this before, Tom, but for whatever reason, I just associated with Fraggle Rock. I don’t know why that pops into my head. I’m excited. Little Muppet scones. Yeah, exactly. Right. Little Muppets, and maybe we need to do that because the little Muppets will help us make talking about this stuff. simpler, right. Maybe we need to maybe do that.

So I’m really excited to have Tom on here. And we’ve asked Tom, hey, you wrote this frugal nomics book or I asked Tom, you wrote this frugal anomic books, you know, based on the last great recession. We’re in a completely new world here. What if we update it? So as part of that part of that process, I’ve invited him to be an ambassador around Commercial Ratio. So we’re, we’re having Tom join us. So Tom, would you give us a little bit, give our audience a little more background and color about yourself and you know, your involvement and the history of ROI and metrics and all that good stuff.

Tom 04:55  

Yeah. Scott and Brian, thank you so much for inviting me to the Join the nation and to be an ambassador for the Commercial Ratio. I’ve been in the value measurement business for a long time for about 25 years. And why the Commercial Ratio and I’ve had I’ve got such an affinity for it back in the day when I was working at Gartner. And just after I left Gartner, I partnered with a gentleman called Paul strassman. And Paul had done just some incredible articles and books and had dedicated his life to finding what he called it productivity. And it was something called the it productivity paradox that he had discovered through his research. And in this research, he crunched the numbers for hundreds and hundreds of commercial organizations, these were all public companies, and what he was trying to do, being a research scientist, and he had been basically the CIO for the Pentagon. So incredible credentials, and he was the data guy at heart and analyst at heart. And he was looking for that productivity, where was the productivity and all of these it benefits manifesting themselves in organizations. And what he found founded was, most organizations were investing a lot of money in information technology, substantial amounts of their revenue was being invested in it. And most organizations, it was not showing up in the corporate financials, it was not showing up in the income statement, it was not showing up in stock value, any and it was being squandered, somehow, along the way. And this led to a book by Nicholas Carr. And it featured Paul and myself our research and our findings in that book. And for those who remember, that was the book that really started the cloud and software as a service revolution. What was the book, it was called, it doesn’t matter. And it came from an article he wrote in Harvard Business Review. And then he wrote a book about it. And it was really a changing point in the whole it landscape.

It was with that book that folks began to realize, look, we’re squandering a lot of these it benefits. And we can’t find them in where we’d expect to find it’s not creating additional shareholder value, which is what most companies are beholden to, from their value standpoint, it wasn’t showing up in massive amounts of cost savings, because what they were saving and productivity or saving and cost avoidance in one area was somehow being spent on it and development it. What it turned out to be was that companies shouldn’t be spending as much on this, because it’s probably isn’t their core competency. And they should be outsourcing it to the cloud, and software as a service. But there was a productivity paradox there that I thought was really profound. And it led to that revolution to where it today doesn’t look anything like it looked 20 years ago, or even 10 years ago, right. And when you Scott and Brian introduced the Commercial Ratio to me for the first time and I saw it, I wrote down and I’m looking at the piece of paper because I kept it on my desk, and I wrote down sales and marketing productivity paradox. I wrote that down right away, because once I saw what you were doing, where you were looking at sales growth, as the output, and sales and marketing investment as the input, and the ratio of those those things, it reminded me so much of that work with Paul, and with Nick Carr. And where we looked at, you know, here’s the it spending as the denominator. And then we were hunting for what what was that numeral, what was the numerator, and that there was a paradox there. And what your ratio was showing is that when most companies take a look at the input, the investment in sales and marketing investment versus the output, the growth in the company that’s being experienced, that there are ratios that are really not sustainable. And I’m like, yeah, this is really hitting on something very similar.

The better thing about the Commercial Ratio, then what we struggled with was the numerator and the denominator, I think, are very well understood for the Commercial Ratio. You know, you could look at sales growth, and it’s measurable. It’s measurable in the corporate financials, you can look at the sales and marketing investment. It’s in the corporate financials, your CFO has access to both of these metrics, whereas in the IT world, it was a little bit harder. But similarly, and why I use the word paradox is, I do think that we’re at this time where we’re spending so much in sales and marketing, and how much of that is being squandered? How much of that is being wasted? How much is not sustainable? And that’s what really hit me was, when I started to, all of a sudden I saw the ratio, I’m like, Okay, let me run this company through it. And I’m working with let me run this company that I’m advising on, let me run this. All of a sudden, I’m looking at These ratios, Scott, and they were not good. Yeah, exactly. You know, and I’m looking at it like, Oh, now I know why technology crossover ventures why TCV is using this now with their portfolio companies. I’m going to talk about that a lot more, I’m sure.

But it became obvious to me that, that they need this because they’re creating businesses that are not sustainable. And we, when we hit a crisis, like what we’re hitting right now, you need that sustainability. It’s not billions or bust, right? It’s not billions or broke, it’s, you know, we’ve got to have growth, right, because all of these companies that TCP and some of the companies I advise are more earlier stage companies are are involved with, they’ve got to grow. So you know, you’re going to be spending not completely efficiently or effectively, but the amount of inefficiency and the amount of effectiveness. That’s the paradox. And I love that that’s what the Commercial Ratio is trying to get at.

Scott Santucci 10:58  

So I love your story. Well, I want to go back to the it part. So I want to connect the dots for our listeners. So the IT organization over the history of, you know, over its history, it used to report into finance, right as today’s a controlled cost center, somewhere between, you know, the late 90s, maybe after the post y2k debacle right in the post y2k stuff, it started shifting to where it was no longer a technical person running him but a business leader. Mm hmm. Because executives were so frustrated that people would show up and I want to give that paradox some color. When I was a salesperson at Mehta group, so you say Gartner group, I think great Satan. That’s the way we were we had a chip on our shoulder at Mehta group about you guys competing against the Gartner budget was difficult. So you learn, let’s not make it about the Gartner budget. That’s that thing, go. And so you try to find new budget sources. So one of the things that we would do, or I would do, I remember specifically working with the CIO of Hearst.

So hertz is a German chemical company, they had moved their headquarters to New Jersey, which was my territory. And the CIO, was very frustrated, because all of these business unit heads, which we’re now located, whom he added to support, we’re just pounding on it, like so frustrated, and he wanted to show he kept showing me Look at all this benchmark data, he he had hired IBM, or any of the other people, you know, go through the laundry list. And he said, Look at all these nines, look at all these nines of performance. Look at, you know, any key he wanted to do, he wanted to ask me about, maybe we could do a benchmark study. And I said, I said that his name was Frank, I said, Frank, we could keep doing the same thing over and over again, but they don’t understand these nines, what these nines of availability mean, because this is a metric that’s important to you. It’s not a metric important to that. And for us to solve this, we’d have to have a completely different conversation, which is more like a customer experience study. And let’s figure out what the what those measures are. Well, he just couldn’t get his head around that. So I said, Okay, well, I’m not going to sell you a benchmark, because that’s only going to make it worse. And you know, lo and behold, six months later, he was fired, replaced with a business person who loved the whole idea of a customer’s right appearance. And, you know, I sold a lot of business from that.

Now, the reason I bring that up is because that’s a paradox. Hmm. You know, I think, very well stated, I think all these individual metrics are really, really, really important because I have to do it to run my technical department. And if we’re not running our technical department correctly, we have to be able to, you know, and we want to show how efficient we are. But that’s not what the business cared about at all. So the more he was digging down on these secondary metrics, the more he was alien himself from the business people. Now, let’s fast forward to where we are in 2020. And then I’ll like, yeah, and

Unknown Speaker 14:18  

Scott, let me just chime in on that real quick. So the the downtime figures of the availability figures are important to deliver the customer experience, but it’s the customer experience that the board cared about. And I think there’s an important, you know, emphasis there that you’re making. You know, you do have to measure that availability. And you do have to make sure that you’re you know, that you have that measure, but ultimately, that’s there to drive that experience. And you could, it’s not like we’re saying don’t measure the nines, but go in measure the thing that’s important at the board level. Yeah, the other metric that we

Scott Santucci 14:56  

don’t, I don’t share all the nines with the practical Maybe they don’t care, maybe you find out because what you know, here’s an example, when we went and talked to some of the business leaders, particularly the guy responsible for sales, he was super frustrated with email. So basically what this guy did is he set a massive standard for email, because he was trying to control cost storage, and then lock down the email. But guess what, when the documents that these guys are sending, the salespeople are sending, at the end of the quarter, by the way, at the end of the quarter, there’s a massive amount of these documents that they’re sending, they’re getting email it, they’re getting alerts to the sales organization, this is shut off their set saving, what five cents, versus the risk of salespeople. So these are the examples that

Unknown Speaker 15:44  

and that was the other thing at Gartner. And how I got to Gartner was with total cost of ownership, right and, and you know, you’re measuring the, the input figure, which is the investment in it. But if you just did that, and you didn’t focus at all on the output, you were also making a mistake. So it’s not just about the cost. And it’s not about these detailed metrics that are giving you the direction of where you’re going, you gotta elevate up to something that’s going to be meaningful to your stakeholders and your leadership, that’s going to kind of get you a place at the big table.

Scott Santucci 16:23  

Yep. So to highlight this, let me kind of just transition here to our next phase. So the hopefully, you can see the connection point, the connection point being, hey, look, the IT department was in a state of immaturity, you know, back in, you know, the early part of this, this century, and it’s evolved a lot. And where are we in sales and marketing? Well, we’re treating them as two different things. And you know, for if you look backwards, from an investor standpoint, there’s a line item on any income statement, depending on which income state you can look at it, it’s either gonna say s GMA, or increasingly sales and marketing. So on that line item, all that spending is is all lumped together as one thing. Now, whether or not you choose to decide sales and marketing are different things to investors, and to your CFO, they are not different. And that’s what we want to transition to is that that’s the goal, the Commercial Ratio. So obviously, Tom and I can geek out about these metrics and the history of metrics at ways to Sunday, what we heard a lot of feedback from the Commercial Ratio pitch, or webinar is, hey, next time you do something like that, give me a heads up so I can bring a calculator. So what we’re going to do is we’re going to have a way to sort of make it more relatable. So we’re have Brian, lead you through and just walk you through and say what are your reactions to the Commercial Ratio? What were the key parts and sort of get your your get your take on what the conversation was like to make it more relatable to our listeners? So Brian, would you like to eat, you know, introduce that and lead us through that discussion?

Brian Lambert 18:03  

Yeah, absolutely. And I think a great segue is this, this paradigm paradox you guys are talking about? And, and also the, if you think about it back then versus it now that’s, that’s really good. And I want to hook into that. And, Scott, one of the things that you said in the webinar when you when he talked about the Commercial Ratio, you said, basically, I might be paraphrasing, but you said that, you know, there’s there’s a commercial system to your point, which is sales and marketing. Your company’s organized into organizational silos. And the accountability and responsibility for that commercial system is distributed across too many people and there’s really no no process to bring those together. Is that is that a good paraphrase Scott? Yep. Okay. So when you look at that, then for our listeners, you know, let’s pretend you’re marketing Insider, while you might be responsible for driving some sort of commercial results. And if you’re a sales leader, you’re going to be held accountable for those results. beat you know, business unit leaders might be looking at efficiency or marketing. Ops might be looking at the spend, or the results of their filling the funnel, sales ops looking for more productivity from reps, enablement, looking at, you know, training up to Salesforce sales strategy, industrial Strategy Team looking at territories and coverage models. And I could go on and Tom, that’s where I want to enter us into there. You know, to make this relatable, you know, a lot of times it’s alignment enablement isn’t somebody else working on this, but what we just highlighted here is, you know, nobody’s really working on it, really, and it’s a team sport, what are your thoughts?

Unknown Speaker 19:45  

My thought is something that Scott indicated which was going back to kind of the it in the customer experience, so customers don’t think of sales being separate from marketing being separate. From Customer Success and Support any more, but we’ve got these incredible silos within most organizations still. So if for nothing else, your customers don’t see any of the barriers that you’ve put up. From their perspective, they want a common message, they want a common engagement, they want the same solutions, the same availability, the same communications across all of these different mediums, that alone should be enough to break down the barriers, when it comes to the operation itself, what I see is a lot of fundamental breakdown within most companies, when it comes to marketing, the CEO and the marketing leader usually set up some metrics that the department is going to be governed by. And that usually revolves around opportunities, how many are being developed, and the value of those opportunities because they’ve done a pipeline analysis. And they’ve reverse engineered that, you know, you need this many leads, you need this many opportunities, and you need this amount of opportunity value. And a lot of times, what I’ve seen is that drives of behavior for marketing that isn’t often aligned to sales, which is they’re going and they’re spending incredible amounts of money to generate an incredible amount of leads and an incredible amount of opportunity. And what is sales say about those opportunities, and those leads and the the value of that? Not much, usually they’re thinking, Okay, this is a lot. And now we can keep up.

So then what sales does is sales is responsible for ultimately putting up the, the revenue dollar figure at the end, they’re getting all of these incredible amounts of leads and opportunities that they’re supposed to be working for marketing. And so they need to go now and hire more people. And throughout the whole system, you’re seeing a lot of focus on on group level metrics, that are driving, overspending and over investment in a lot of areas, without regard to ultimately ultimately building a sustainable and a good business. Again, it’s that kind of growth, it’s billions or bust, it’s growth at all costs kind of attitude, because we have siloed groups, and then siloed performance measures within those groups. So I liken it a little bit Brian to to try to get this to be maybe a little bit hit a little bit more home to people.

Brian Lambert 22:41  

I had,

Unknown Speaker 22:43  

you know, great

Unknown Speaker 22:45  

achievement in my life that actually came from some tragedy. But to overcome that tragedy, I really tried to focus on my health. And for those who’ve seen pictures of me, maybe from, gosh, even three years ago, four years ago, I was 80 pounds heavier. And you know, so when you when you look at that to achieve that amount of weight loss, really required a lot of work in detail. Now, a lot of people to go in and lose weight, they’ll go on that diet, right. So they’ll say, Okay, we’ve got to constrain our spending, or we got to constrain our eating, and we go on a diet. And what happens to most folks is they’ll go on the diet to lose that weight. But immediately when they stop that diet, they haven’t changed anything. And it’s not sustainable. And they go back to gaining that weight again. And so what you really have to do is the Commercial Ratio is in my mind, it’s almost like that scale, or that better yet a body mass index that you’re looking at that you want to have an ultimate goal around. And that’s going to create a sustainable kind of activity. And I think body mass index is the greatest way to do that, because the amount of body fat essentially that you’ve got, it’s the lean mass as opposed to just a scale which can sometimes be deceptive.

Now to achieve that, you definitely have to change your habits every day. And you have to measure things on a an individual basis. So you’ve got to make sure for me it was making sure when I woke up in the morning, the first thing that I did was is I have a big glass of lemon water. For me it was don’t touch another drop alcohol in your life. For me, it was the first The second thing I do every day is go on a walk with my dog and pop in a podcast and not only educate myself on something new and different every day, but get out there with my my furry friend and have a long walk and get my exercise in so that whatever else I do and then day if I go to the gym later or go to spin class or anything else it’s already taken care of. So it was making sure I keep my eye on the scale and the BMI and that measurement, the Commercial Ratio, but then doing a holistic set of dietary changes, exercise changes, and have them be cross functional. It wasn’t just let me get out and exercise like a maniac, which I had done before I had done long distance bike riding, spawn, hit the gym, but then my eating would be horrible. I’d have, you know, too much wine on the weekend or eating too much meat or whatever it may be, I wasn’t eating the right things. I was popcorn fiend and corn and other things like that other food that wasn’t really good for me. So if you don’t have the balance within the groups, and you’re siloing to just do exercise to lose weight, or just do that fad diet to lose weight, it’s not sustainable.

So what I love about the Commercial Ratio is this concept of a, we now have this this health metric that we can look at. And from that health metric, we can then build this cohesive silos broken down system to help drive us towards achievement. And the Commercial Ratio is that scale, that BMI index that we’re going to look at as our ultimate destination. And then the breaking down of silos to achieve that is we now have a cross functional set of metrics. It’s not how many opportunities I generate, or what diet I go on. It’s not in my sales system, what my quota achievement is per Rep. Right, or how much exercise I got that week, I ran, you know, 30 miles for the week. Um, it’s a way that we can have one standard metric to look across the organization that’s going to get us to do the right things longer term.

Brian Lambert 26:49  

Yeah, that’s great, great analogy. And let’s build off of that. You know, when you started out the story, you were you were outlining, you know, salespeople are not using content, the leads to sales people are subpar. Sometimes, sometimes salespeople don’t follow up, either I would add, yeah, we’ve talked about and heard this concept of sales and marketing alignment for, what, 20 years, 15 years. I saw a post on LinkedIn yesterday on sales and marketing alignment. You know, these activity and group level metrics that people focus on including headcount, and how many heads you have. And I love that concept, or what you’ve said, which is there’s a lot of overspending and over building, and when you think about that, saying, hey, let’s let’s let’s step on the scale here, the Commercial Ratio is a way for us to take a take an overarching number and see how we’re trending.

Unknown Speaker 27:44  

Yeah, absolutely. And it’s not something you know, there are certain people that step on a scale every day or do BMI. For me, when I was going through the process, I would do it very infrequent, you know, once a week, I didn’t, you don’t want to over measure when you’re looking at this kind of Pinnacle level metric, like the Commercial Ratio is creating. And in that way, for a lot of people, I think it can be intimidating, right? You could be intimidated by this metric, because it’s going to look at the output, are we growing quick enough? But for the first time, it’s going to hold us accountable to the input? You know, are we doing the work efficiently to get that sustainable growth? Or are we just doing that fad diet or doing that fad exercise to get a quick result, and then something that can’t be sustainable? So you know, the The Commercial Ratio is that mountaintop, it’s that Pinnacle that we’re trying to achieve? And then these other measures that we’re going to build under that cross group measures, or even these individual measures within each crew are that first order derivative and second order derivative to get there, the velocity and the acceleration towards that ultimate goal. Um, in the in the webinar, Brian, I had a great side conversation with miles konkol. And miles would like yeah, Mike, Mike, I’m sorry. Yeah, my uncle. And, um, Mike was being critical of the Commercial Ratio in the fact that there were a lot of other metrics that he has used in the past, and I’m sure we’ll continue to use to kind of get a feel for how sales is doing or how marketing is doing. And so he was talking about, well, you know, I still think you need to measure the wind rate, you know, I still think deal size is important, I still think time to close is essential. What about quota achievement? What about time to effectiveness? And, you know, I’ll pose back to you, Brian, and Scott, you know, I don’t think you’re advocating that those metrics not be tracked and use kind of like the the five nine metric right that we were talking about before, but that we need something that’s bigger and greater, we need a pinnacle to drive our achievement and to guide us towards that ultimate goal and ultimately to get a seat at the big table. Right?

Scott Santucci 30:14  

Yeah. So to give some color on that. So first of all, I love the miles comment, I immediately thought of Frasier. And I thought of Mike’s snotty brother is that So Mike, if you’re listening to that, you know, some humor, they’re mine, my understanding of Mike is he engages that way out of curiosity. So I’m not sure if he was being critical. He’s trying to understand. And I think but what I love critical thinking, but yeah,

Unknown Speaker 30:45  

and so when I say Mike was being crowded, like, you know, that’s, that’s actually

Scott Santucci 30:48  

a good thing. I think that I want to stress this for our audience, right. So collaboration is difficult, because sometimes our community is way too sensitive. So I’m just trying to say, let’s create a little bit more space and allow, but I think what makes it really difficult is getting discipline on something like win rate, you know, or, you know, time to performance is hard and upon itself. And if you’re in that role and say, Look, how do we stick, keep that discipline, we don’t want to lose sight and move to something else, because this is something that we can control. So I completely understand that. I think the thing that we need to pay attention to though is to whom do we serve. And if we’re in service of the head of sales, the head of sales, oftentimes doesn’t realize that all of the sales and marketing, this, the marketing spending, looks on the income statement, as part of his spending, when they hear sales and marketing costs have to get cut, the sales leader will think only about his budget, rather than the marketing budget. And I think these nuances of how things are accounted for and measured, it’s important for us to connect the dots. And my experience is once you do that work, and you talk to a CFO, they are your friend, because they understand how hard it is to connect all the dots and they help you, you just have to do a little bit of the work and being able to do it. So it just like the story with the CIO, that I shared with them all the five nines and everything. Of course, I’m not saying not to measure that. The issue though, is if you provide all of that data directly to a CEO, they’re gonna get super annoyed, because number one, they don’t understand it. And number two, it doesn’t match to just give me more revenue, or just show me what our profitability looks like, answer me these questions. And those metrics don’t answer those questions.

Unknown Speaker 32:50  

Yeah. And the other thing that I think is important is that if all you do is focus on the revenue growth, as the metric, you know, the board is going to eventually look at that and say, Okay, well, what did that revenue cost us? You know, yes, every incremental dollar of revenue is costing us $10 to acquire, this business is going to go under pretty soon. And it seems pretty obvious, but I can’t tell you how many real estate companies I work with, that have that as their challenge.

Scott Santucci 33:20  

And it’s not even just early stage companies. It’s later stage companies as well, the paradigm of the complexity shifts. Yeah, so for example, a large company I’m working with right now, the question is, so what’s the revenue number? Is the revenue number from the business unit? Or is the revenue number for the geography. So you have, you know, this company has five major business units, each of them have their own p&l right, if you will, and they want the sales organization to drive more revenue growth for it. And in order for the sales organization to it, they’re organized geographically, like, say, North America, and the North America group has a number, but they don’t match. And of course, they wouldn’t match. They’re different. They’re different calculations, but somebody expects them to match. And that’s and then when you throw in the feast, budgeting for marketing, and then it’s not just marketing is not a monolith. There’s many departments within marketing. Many different product marketers have their own budget. There’s different demand generation teams, there’s marketing operations, you might have multiple marketing operations. Some of those marketing operations will report directly into the business unit, not in the business unit. This amount of complexity that exists that no one wants to tackle is what’s super frustrating for executives. The Commercial Ratio helps illuminate where you might have structural problems or other things like that. So your points incredibly well taken. I think what what my advice to our listeners would be is just be please practice empathy. We talked about empathy for sales and we talked about teaching salespeople empathy. You need to practice what you preach a little bit to your budget is so cleani an infinitesimal compared to the overall massive spend that you might not think it matters. But you know, like a wellness program, like you talked about Tom, every little thing matters. 30 extra calories from the butter that you put on the popcorn, you know, you might not think about it, but it matters if you want to lose weight and be healthy. So all of these things matter in and if you’re in a role where a lot of these touch points come together, illuminating it actually empowers you.

Brian Lambert 35:35  

So and that’s one of the questions that we had from the listener, one of the listeners after the webinar was, you know, I guess I have two, two common questions. One is, you know, this is a sales enablement podcast, it was it was on the heels of the state of sales enablement research. So would you guys advocate or Scott, would you advocate that sales enablement, take ownership of this Commercial Ratio? and inspect it? Or how is the sales enablement leader supposed to action this in your world? In your view question?

Scott Santucci 36:08  

Well, I think there’s two parts and I love Tom’s take on this too. I think step number one is doing the calculation and understanding where you are versus owning it are two different things. You should be to me, if you don’t do the calculation, you’re operating in a state of ignorance, just do the calculation understand where you are, then the next question would be given the whole scope of what I’ve got, because I can’t make that statement, Brian, because some sales enablement, people only are a band of one. Some people have a department of 500 people, depending on what your current scope is, is going to tackle what each what you address. So I’d say first, do the Commercial Ratio and understand where it is, and then figure out okay, where do we want to? Where do you want to get to where does a company need to get to? And then use that to come up with what your strategic plan is? So I can’t say, you know, yeah, I think sales enablement should own this number. I think you’d have to first be an orchestrator. You’d have to first have a seat at the table, if you’re going to own a number. And then the question is, do you really want to own the number? Because part of the challenge that that we’re seeing, so TCB has rolled out, I want to make sure that super clear. I noticed in the chat, some people took away that TCP was rolling out. No, they have rolled out. That’s why we did the podcast or the webinar is after it’s rolled out. This isn’t theoretical stuff. You know, it’s rolled out. And part of the reason they’re, they’ve rolled it out, make sure I’m stressing that right, Tom rolled it out, because they want one person to be accountable for that number. They are sick and tired of being on boards, and having a sales leader say I did this, but I didn’t get this from marketing, a marketing saying I did this. And marketing didn’t do that. And the finger pointing back and forth. It’s frustrating for a company that says I gave you 100 billion dollars or whatever they spent on sales and marketing. What did I get? And what do they get? What do they hear back? They hear fingerpointing? And that’s just unacceptable. You know, or they hear Oh, well, marketing. Yeah,

Unknown Speaker 38:21  

we generated this much opportunity and sales. Oh, well, we we hired an onboard this many sales people. Those are not the metrics they want to hear either, right, right. They’re too tactical. And they’re not getting at the bottom line, which is if you don’t want this much input, we expect to get this much output and it needs to have a sustainability ratio to it that makes business sense. How much

Scott Santucci 38:47  

money did you spend driving growth revenue that you know, and that’s another factor that people questioned is, wait, I don’t get it. All a sales and marketing exists to drive all of top line revenue, why would you just truck you know, measure all the top line revenue. And what you have to recognize is that from a company standpoint, they’re accounting for a lot of headcount that they think goes to the renewal of the business in cost of sales, that’s already deducted at the top line. So you go your top line revenue, and then you take out cost of sales or cost of revenue. So think about the people. If you’re a SaaS business, for example, your customer success, customer support people, there are going to be paid for most likely out of cost of revenue. So your sales and marketing costs, all of that work. All of those people exist, constantly talk to people and help them they think that works is going to match into a renewal. If you’re spending money on sales and marketing to also work on renewals, you’re double dipping. And if you need to do that, make sure the business understands you have to do it and highlight it. So therefore they can make adjustments and record It but if you’re just doing it because you think you have to do it and you’re not communicating up, the expectation is, I’m 100% of the money that I’m spending in sales and marketing is going to drive revenue growth, not renewals. And that’s just the way the math works. And the more you understand it, the more fraying it is. So that was another derivative off of that off of that line. That created some confusion.

Unknown Speaker 40:25  

Yeah, and and Brian, getting back to the ownership, you know, I think that if the organization has a chief revenue officer, where sales and marketing roles such I mean, ultimately, that’s where I think the ownership belongs of it. If the organization has a separate head of sales, and a separate Head of Marketing, it’s really owned at the CEO level. But as a sales practitioner, sales leader or sales enablement, as a marketing leader, I think you’ve got to start driving towards this productivity figure, proactively and be the proponent of it be the calculator of it within the organization to get that sales marketing lineman, which so many companies need and customers are demanding right now. Whether your CIO or CEO gets it or is asking for it yet, or worse, what’s happening at TCV, which is, you know, they’re demanding it now. Yeah. And they’re making people accountable. And, you know, a lot of these leaders are being caught off guard. And their ratios are not good as a result. And so now all of a sudden, the king doesn’t have any clothes. And it’s been revealed by the board. Shoot, if I’m not wearing any clothes, I’d like to realize it myself before I walk out the door.

Brian Lambert 41:46  

Yes or no? No, yeah, that’s a good, great point. And I think, you know, Scott, you highlighted that in the webinar as well is, look, you know, right now, he heard it from kunaal. executives are fairly coachable on a on a journey to take together. So I think pre COVID, it was always well, if I can’t do anything in the next 30 days, forget it. You know, I think you to your point, that’s that, that that idea of this could be a journey over time, we’re going to step on the scale, and look at this over a couple years is on the table. And then secondly, and I’d love your comments on this, because what I want to do is paint a vision, let’s cast a vision a little bit, because you also said in the webinar, there was that calculation that you did. And, you know, you figured out that one company had at 2.6 million in revenue growth, you know, that they could they could capitalize on that they could they could capitalize on if they move from a point five, one Commercial Ratio to a one dot O, which is you know, 521 million in market cap. So the, just by moving the needle, you know, point five, you know, half a percent they can they can really drive a huge impact revenue growth and market cap. So why not set on the scale? You know? Absolutely. And yeah, tell me a little bit about the opportunity and cast a vision if you guys could for our listeners on how this might play out in the next few years.

Unknown Speaker 43:12  

Yeah, so I think looking at the cost, and then looking at the growth, and just doing some modeling, you can really figure out that small changes in the Commercial Ratio can generate some big results. One of the things that I think it highlights which is interesting is that the spending in a lot of organizations is the issue. The growth is the goal. And so you set up these lofty growth goals. For a lot of organizations in particularly in the tech industry, where I know a lot of us do do consulting, but this is appropriate in other industries as well. You know, 50% growth 40% growth targets year over year, despite the crisis, you know, that’s being thrown up there. So what happens is, is you kind of do the reverse math on it. And with all your current unproductive investments, you’re spending a ton of money to generate or try to generate that growth. And then what happens is your growth has a shortfall. So when you start to look at the math, and you look at the way the income statement builds out, any dollar that you can ultimately save actually has a bigger impact than $1 of growth. You have to be careful though, in that the ultimate goal is to generate growth, particularly if you’re a TCV or you’re a tech company. Growth is the lifeblood of your valuation. So you’ve got to have growth, but at the same time, you’ve got to really be much more prudent about managing the dollars not throwing additional sales headcount at every opportunity or not paying $6 a click for that keyword that all your competitors have bid up through the roof. So There’s, there’s this tendency when you’re looking at Commercial Ratio, you can focus a lot on the sales growth and then overspend on the bottom line. But it’s actually tightening up the bottom line, the denominator of the sales and marketing investment, that will actually lead to better a better ratio, but perhaps less growth. And I don’t know if I’m being clear on that, Scott, any clarification you can provide?

Scott Santucci 45:26  

Well, yeah, what so what’s interesting about this conversation that we’re having is, part of it is, am I looking at this holistically, like an ecosystem, or I may looking at it mechanically, in micro spots. So one of the things that I’ve run into a lot in my consulting work, I’ve worked with a lot of really large companies, is this idea that we can either focus on growth, or cost reduction. And it doesn’t work that way, in real life. So what’s interesting is, if you do a targeted grow a cost reduction effort, you can actually grow revenue. Why? Because what sucks is, if you’re trying to do team selling, if you have 10 people that you have to work with, you get nowhere. If you have three people you need to work with, then you can actually do team selling and cross sell.

Unknown Speaker 46:17  

Yeah, I Said another way Skype, you focus, maybe focus the resources, tighten up your customer profile, focus on a tribe and building the old Seth Godin stuff, you know, you could maybe be more effective in your spending, keep going. Yeah,

Scott Santucci 46:30  

I agree. I think so I think what we need to do is, we need to do a much better job in our community of talking about this stuff, because my experience is the one on one conversations I have with either sales leaders, or definitely sales enablement people is they’ll admit privately, they don’t know diddly squat about these numbers. But they will never admit it publicly. And that’s just, I just think we need to create a safe space to really talk about these things. Because avoiding knowledge of these things is only going to make the problem worse and worse and worse. And I agree, Scott,

Unknown Speaker 47:07  

I’ll get back to you know, the health challenges that I had, and you know, it. Unfortunately, I had to go through a lot of trauma to kind of be the catalyst to get there. And maybe that’s what we need. And maybe this crisis is a good app for that. Right? Why waste a good crisis? Why waste a good pandemic? Maybe this is the time that we need to get conscious of this. But um, I wasn’t paying attention to those things. Yep. Until it kind of hit me in the face that Okay, I got to do something. And now I’ve got to holistically change everything along the way.

Scott Santucci 47:39  

That’s right. So So learning how to think about think about things holistically is challenging, and we want to put that on us. The other thing that that’s really interesting to me, is how much empathy matters. So for example, it’s easy for me to tell you or anybody our listeners a story about the conversations that I have with CFOs. And how I have to talk with them about, hey, what if you were to look at sales and marketing costs, not as expense centers? And then you have to pause, pause, pause and let them digest that? What if you treated them as investments? Would you manage it differently? And then you have to shut up and wait 100% of the time that I’ve had that conversation, it’s almost like a revelation to a CFO, we might think, Oh, of course, that’s the way of course sales and marketing is investment. But that’s not how they think that’s not. And if we don’t make it easy, because we give them budget items of all these things that we want to spend in these charts of accounts, and that can’t connect the dots of what works and what doesn’t work. So guess what they do, they tap one of their analysts on the shoulder to study your budget. So you’re like, Oh, God, here comes, here comes a finance to have the procall exam on our budget, we have to protect all this stuff. It just such an unhealthy cycle that we’re in finance is on your side. That’s the thing that people don’t realize they want you to grow. They just want you to grow smartly. And they have the tools to be able to do it. If you don’t if you’re hiding things from them. That’s a defensive posture, just like your kids, when they hide things from you, you know, they’re up there. They’re up to no good. It’s sort of the same attitude. So I think if you can get more curious about what things are, instead of making declarative statements about management wants this or that’s all they care about. They’re not true statements. You’re the investors that at TCB, for example, they’re not ogres. They are completely aware of how important human beings are to it. Have you ever had sat down and had a conversation with them about her and just assume they only care about the profit like bottom line. And that’s sort of the The language that we’ve vilified our executive leadership and not said, hey, maybe the environment is different for them, too. What can we do to help? So I think we have a huge opportunity to do a lot of things that in our community, we talk a lot about empathy, growth mindset, well, why don’t we put them to use ourselves, you know, practice what we preach.

Brian Lambert 50:22  

That’s great point. And, you know, listeners, you’re, what we’re talking about here is this idea that your commercial process, and the combined efforts of sales and marketing, it’s really an ecosystem with many moving parts. Without an effective, you know, stepping on the scale or procedure to coordinate all these moving parts and perspectives, you’re going to create too much noise and burden on your customers, because that’s really what this is about. We’re talking about growth here. And then when you look at the amount of span and complexity that Tom outlined, the conversations that need to happen to really drive profitable growth, like Scott’s outlining, you know, the purpose of the Commercial Ratio is to help focus on measuring how well your commercial system is creating value for customers, for customers. And that’s by realizing sales and marketing are both organizations that are focused on communicating value, and that these are investments that need to pay off. And the more you think that way, and the more you engage that way, and get curious and not be afraid to do the math, these are simple calculations. It’s not not rocket science. And you might end up with where the bulk of where the bulk of these companies are in the point one range, but you got to know where you are, and baseline it and build a plan. And that’s the opportunity going forward. So I want to thank Scott for that. And also, Tom, thank you so much for joining us. I hope this is the first of many conversations around value, our audience needs to hear more around value concepts, and also appreciate all you’re doing through your organization and through your books and your efforts to really bring value back to the forefront here. It’s not just growth at any cost. It’s its growth and profitable growth at that. So thank you so much for joining us, Tom.

Unknown Speaker 52:14  

Thank you, Brian. Thank you, Scott, a volve selling.com is where all of the book and the thought leadership is in podcasts that you can check out from the evolver community as well. And I think you hit it right on the head, Scott, you know, this is about a growth in value mindset. And we’ve got to have the right mindset going in particularly now. And it’s an empathetic, holistic, and cross company, commercial mindset. And I think this is a great way to measure that we’ve got that right mindset, and we’ve got that right. Health metric out there. So thank you guys for promoting it and giving me an opportunity to speak my mind about it as well.

Scott Santucci 52:54  

Oh, no problem. So what so audience here’s, here’s what we’re going to ask you to do, please direct your questions that you might have about it, recognize that you don’t have to have all the answers. That’s what we’re what we’re for, direct them back to Brian and I will have conversations about it. We’re gonna have Tom on again, what we’re also doing is please visit www dot Commercial ratio.com. We’ve deputized Tom and we’re looking to deputize other people to help expand and make this concepts, these concepts more accessible, we’re going to load the webinar on there, definitely probably listen to it again, and try to try to engage with it, find more ways to interact with it. The more This isn’t a one off thing. Commercial Ratio is here to stay, you’re going to hear more about it, people are going to call it different things. We need to get comfortable with it. And then what we’re also going to do is sort of follow Brian’s work as he works on evolving what the role of an orchestrator does. So I’m going to concentrate more on the Commercial Ratio and the business process kinds of things, and Brian’s going to concentrate more on the on the role, we’re going to try to herd these two cats together. So please, please stay tuned. Please, shoot comments. If you’re listening to this. If you’re doing what Tom says, and, you know, walk your dog out, you’re listening to our podcast right now. Just stop right now send me a text or send me an email like, Oh my gosh, I like this or I don’t know what you’re talking about. What the hell does it stuff have to do? What are you talking about? Anything that you reacted to? It’s important because we have to give it back to the community. So with that, we’re gonna we’re gonna close out please visit inside se comm to find out other podcasts like this. And if you get a chance, please tell Tom, thanks for all his great insights and all the work that he’s doing to help us all be smarter. We’re out.

Outro 54:56  

Thanks for joining us to become an insider and amplify your journey. Make sure you’ve subscribed to our show. If you have an idea for what Scott and Brian can cover in a future podcast or have a story to share, please email them at engage at inside s e.com. You can also connect with them online by going to inside se.com following them on Twitter or sending them a LinkedIn request.

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