Your commercial ratio is measured by subtracting your current total annual revenues from last year’s total and then dividing that by your current years’ sales and marketing total spending.
The underlying assumption is that sales and marketing’s focus should be 100% focused on driving revenue growth. Investments made to protect existing revenue are mostly accounted for in the Cost of Sales.
What it captures?
Sales and marketing are two sides of the same coin – they are both departments focused on communicating value to current and potential customers.
What it highlights?
The overall productivity of your commercial system. If your ratio is:
Under .75: Your engine is running too hard and consuming too much resource for the results (money, effort, people, etc.)
Between .75 and 1.25: Your system is optimized, and your resources and results are balanced.
Over 1.25: You are probably being too risk-averse and should be investing in building new markets or capturing more share.
Kunal Mehta (Principal; Portfolio Operations) from TCV and I will be sharing executable insights about how to use the commercial ratio to:
– Drive accountability
– Improve predictability
– Promote visibility
My team is working on a microsite dedicated to sharing information about this vital concept.
You can visit this site here>> www.commercialratio.com