A couple of weeks ago, Marketo announced its research-based belief that its form of revenue performance management (RPM) could help grow global GDP by US$2.5 trillion by 2015. I love it when emerging companies talk about big plans this way. It reminds me of the young plumber who upon seeing Niagara Falls for the first time says, “I think I can fix it!”
But there’s something to this proposal that ought to be taken seriously, and when you talk about trillions of dollars, you are presumably talking seriously. Global GDP in 2011 is predicted at $68.65 trillion by the International Monetary Fund, and the Marketo announced figure was spread over three years. But that’s a lot of improvement, no matter.
How Do You Figure?
To put this into perspective you have to back up and ask about the assumptions involved, and Marketo was kind enough to anticipate the questions and perform a little research. According to the announcement, Marketo did some analysis of its customers’ revenues as they took advantage of the company’s marketing automation, sales effectiveness and analytics tools.
Side note: No one’s crown jewels were harmed in the analysis. Having a big pile of relatively homogeneous data for analysis is a side benefit of multi-tenant cloud computing. Multi-tenant cloud computing could provide important analytic benefits like this to all users if we could only 1) Put down some ground rules governing the use of the aforementioned crown jewels, thus creating a data commons; and 2) Get over our hang-ups about maintaining the pristine nature of our data in clouds. Really, it’s like the five year-old who can’t stand seeing the peas touching the mashers on the plate. But I digress.
The three tools — marketing automation, sales effectiveness and analytics — combine to provide the tools a company needs to implement revenue performance management strategies. RPM is still a relatively new idea, but other companies like Eloqua (with whom Marketo competes) and Cloud 9 Analytics (a Marketo stable mate in venture capitalist Bruce Cleveland’s menagerie) are conspiring to give the idea critical mass.
In the nub, RPM is simply about using the data that is routinely given off by our business processes as fodder for the analytics engine. Too often the data goes unused or simple reporting engines choke on the abundance. But an analytics engine spits out all kinds of ideas, like what to offer the customer based on its experience, or generally offering insight that a human eye might miss but which a statistical model would discover easily.
So, two and a half trillion bucks over three years averages out to a bit more than 1 percent a year. In percentage terms, that is not much, but the existence of all the zeros in a trillion will get your attention. After all, that’s growth, and incremental improvements like this are how markets and economies grow.
More importantly, the ROI can be stunning. Given the fact that RPM would not be applied evenly across big corporations and lemonade stands, the places where it would make a difference would notice the change. Moreover, the cost of implementing ROI where it’s needed would be much less than the incremental gains, especially with modern cloud computing delivering the tools cost-effectively.
I am not an expert on RPM yet. I am more like the one-eyed man in the land of the blind. But my thought is that we ought to get familiar with this idea, which is essentially applied analytics. Our economy is still climbing out of the recession, and the jobs numbers that I have seen for May are disappointing. Every recession ends with some new product or idea taking off and leading the way. I haven’t seen the big new idea yet, but maybe this is it. Regardless, a little investigation won’t cost anything.
Sounds plausible, but I am more interested in profitable revenue growth than merely "revenue growth".
We all tend to get fixated over revenue or sales numbers, but revenue does not equal profit.
I wonder how many companies question their profit margins/ assumptions at a customer or transaction level?
If they are using standard cost accounting techniques, they could be way off the mark. It then becomes garbage in, garbage out when you think about segmentation, treatment strategies and optimization.
In our experience, 20% of a firms customers could be destroying 400% of the profit quoted in their P&L. Sad part is that few know who those 20% are. What if they are in your premium segement? What if they are spending lots of money with you? Would you know they are unprofitable?
And that’s before we even think about the value of influence and collaboration, which could be many times the value of an individuals transactional profit.
It’s messy, but at least people are now starting to consider it. We (SAS) asked the EIU to explore this in "Re-envisioning customer value" – people are starting to ask the right questions, but we have a long way to go – even though the technology exists to help.
For RPM to truly deliver, I believe customer value needs to be re-defined – get it right, and you can leverage the various analytics referenced to make a positive impact on GDP – probably more than the Marketo report claims.