Does a Profitability Focus Have Opportunity Costs?

How EMEA revenue leaders are dealing with balancing new variables while driving revenue growth.

Historically, companies focused on driving top-line growth with generally limited consideration of cost. However, with the whirlwind of recent macroeconomic events, we now live and work in a new era. As a result, leaders are prioritizing profitability over unbridled growth, creating entirely new mandates that prove short-term success. EMEA revenue leaders must now drive efficient growth and manage complex underlying variables.

In a recent survey of EMEA leaders, 90% of the respondents indicated that their focus is now on profitability, requiring them to balance variables which include:

• Measuring historical markets against rapidly developing, never-seen-before markets
• Building relationships with cross-country partnerships
• Lagging leadership mindsets that do not reflect current business realities
• Responding to evolving shareholder and leadership priorities

How are EMEA revenue leaders dealing with these new variables and their impact on their organization’s performance?

Shifting Priorities: Growth Expansion vs. Profitability Contraction

In recent years, focusing on top-line growth meant a whirlwind of investments in both infrastructure and headcount, all targeted at delivering a customized customer experience. Suddenly, shareholders and leadership changed priorities, valuing a more conservative approach focused on EBITDA and profits, leaving revenue leaders to balance these new priorities in a new macroeconomic environment. For example, the tech sector has seen a significant downturn and, as a result, revenue leaders must now make difficult headcount and account coverage decisions that still serve customers and drive profits.

As risk tolerance declines, companies make fewer long-term investments, focusing on immediate returns. Headcount, productivity and expense analysis are critical indicators requiring managers to make difficult tactical and operational decisions. Ultimately, this contraction impacts sellers, who may no longer have the support, tools or incentives to drive revenue as they did in a growth environment.

These challenges may be especially difficult for organizations without the “muscle memory” of historical market downturns. For instance, relatively new companies or leadership teams may impact their bottom line and culture by making whiplash decisions, while mature companies with experienced leaders or institutional memory of times of contraction may be better suited to handle periods of contraction.

Evaluating the Opportunity Cost

Some EMEA sales organizations can offer a different perspective on market downturns, focusing on opportunity growth. For example, convincing Finance that long-term investments are critical for continued revenue growth is one valuable and necessary perspective.

One global corporation took on the challenge of proving the opportunity cost of seller churn, directly impacted by lower investments in headcount and seller support. By focusing on seller productivity metrics, they developed a methodology that proved the lost opportunity at a dollar value level for every one of their front-line client ownership centers. In addition, they proved that seller churn impacts growth, with a resulting impact on their profitability of up to $1M for every lost seller.

Proving that more client-facing sellers promote growth can make talent retention and associated investments primary profitability imperatives.

Today vs. Tomorrow: Short-term Priorities

EMEA leaders now face a common challenge. Can they prove the ROI of an investment within the next quarter? Profitability has resulted in a focus on short-term results. As markets dramatically shift in response to economic events, shareholders and leadership demand short-term results.

What is the impact on the organization? First, long-term investments may be delayed, potentially impacting future growth. Next, the rapid shift to short-term results may not be reflected in existing KPIs, creating a dissonance between actual results and metrics for decision-making.

Prioritize the Right Variables

Alexander Group’s research indicates that leading companies find pathways to creating value by balancing growth and profitability over the long term. This means focusing on two to three of the most important outcomes with a blend of focus on top and bottom lines. Pragmatically, this often means an increased reliance on improving seller productivity as a variable.

Increasing seller productivity has three major components.

1. What customers are sellers prioritizing? Even the most effective sales motions lose their impact when deployed against segments or customers where the company has the low right to win.
2. How can sellers orient towards more sales time? Account managers, customer success managers and other customer-facing teams are often “stuck” in low-value administrative work that inhibits the amount of time available to work with customers.
3. What scaled programs create leverage for individual sellers? Leading companies invest differentially in sales operations, deal desks and lead generation to support the core quota carriers in hitting and exceeding targets.

Focusing on tactical improvements and medium-term investments to boost seller productivity (as opposed to adding significant new headcount) will likely meet ROI constraints given the marginal amount of improvement needed on average to justify the incremental investment.