Why Fit and Intent Isn’t Enough for Account Selection
Most of us make promises to ourselves in Q4 that we’ll “start planning early” to get a jumpstart on the new fiscal year. We lead hours of meetings and by the time January rolls around, we’re ready to conquer the world. That’s the power of having a plan. All we need to do now is execute, right?
Not so fast! With the coronavirus pandemic, those plans have quickly become a thing of the past for most of us as we pivot to react to this sudden change.
Whether we like it or not, success of any plan is contingent upon things outside our control. Yes, organizations still need to fuel growth, but they face real challenges, with 80% expecting a decrease in pipeline according to TOPO’s COVID-19 Impact Survey. Most organizations also need to start doing more with less. A recent study from Gartner indicates that 32% of marketers are expecting a significantly decreased budget (15% or more) from their original plan at the start of the year.
This is where risk-adjusted go-to-market planning comes into play. The approach is simple – by adding ‘risk’ as an additional dimension for account selection in addition to fit and intent, organizations can identify accounts that have the highest likelihood of facing financial strain and potentially going out of business. This helps sales teams prioritize their time and helps marketing teams allocate their limited resources more wisely.
|Figure 1: Organizations still need to fuel growth, but faced with a crisis fuelled by COVID-19, they must overcome challenges with pipeline health and account profitability once the sale closes.
Let’s take some inspiration from Warren Buffet, one of the greatest investors of all time. His approach to investing advice ran contrary to the conventional wisdom of “diversification,” where risk is spread across multiple investments:
“Diversification is protection against ignorance. It makes little sense if you know what you are doing."
“Keep all your eggs in one basket but watch that basket closely.”
– Warren Buffett
As it relates to go-to-market planning, diversifying your target accounts to reduce risk can hardly be sound advice. But, knowing the risk profile for your ‘basket of accounts’ may protect your organization from missing revenue targets. Now more than ever, teams must keep their emotions in check and make sound targeting decisions based on risk.
Neglecting to select target accounts based on risk also has a direct impact on acquisition cost. Let’s take a simple example of a $1,000 marketing budget, which results in 100 leads, 40 meetings, and 10 sales. In a bull market, payment and collections isn’t usually a big issue – so let’s assume all customers were able to make payments on time. This results in a $100 acquisition cost for each account.
Now let’s look at this through the lens of our ‘new normal’. Conservatively speaking, a 10% reduction in budget leaves us with $900 to spend, excluding events as a viable channel. We also focus on digital media channels. Anticipating reduced demand, let’s assume this results in 70 leads, 30 meetings, and 5 sales. In this scenario, one might think acquisition cost has gone up to $180 per customer. But due to financial pressure caused by the crisis – let’s say two of these customers become delinquent. If the organization collects payment from only three customers, the Risk-Adjusted Customer Acquisition Cost goes up sharply – by three times – to $300 per account.
Marketers and sellers may not be measured on being able to collect payments, but it has a significant impact on the performance of the business. This illustrates why it’s critical to factor in risk in times of crisis – whether it be caused by a pandemic, war, natural disaster, or something else.
|Figure 2: Risk-Adjusted Customer Acquisition Cost factors in which customers can meet payment obligations after a sale closes.
Coronavirus Risk Drivers
But risk data isn’t always readily available to marketers and sellers. In risk management, this is referred to as ‘adverse selection’ – when one party (seller or buyer) has information the other party doesn’t have. Adverse selection is this information gap between two parties, and one party therefore has a greater chance to benefit from the transaction. Currently, the information gap is between what organizations know about their accounts versus what accounts know about their own risk profile during the pandemic. At Dun & Bradstreet we have identified that an account’s risk profile is primarily driven by the following:
- Accounts in geographies with movement restrictions for employees, customers, suppliers.
- Accounts in industries with government-imposed restrictions on operations.
- Financial stability and the account’s ability to pay their obligations given reduction in demand.
|Figure 3: Sales and marketing professionals must incorporate risk into account selection and prioritization in addition to fit and intent – especially during periods of economic uncertainty.
The challenge for go-to-market teams is closing this information gap by identifying which accounts are impacted by coronavirus risk drivers. With this information in hand, go-to-market teams can:
- Market to the right accounts. When risk is incorporated into the Ideal Customer Profile (ICP), account selection and prioritization can be revisited to help ensure high risk targets are either removed or treated differently from other segments.
- Assess pipeline risk. When sales leaders can identify risky accounts in their pipeline, they can be more confident in their forecasts. This also helps leaders direct their teams to generate new pipeline and fill gaps that may exist.
- Allocate resources based on financial risk. Risk-adjusted Customer Acquisition Cost factors in the account’s ability to pay in addition to marketing and sales resources spent to acquire the customer. This enables teams to reallocate resources based on risk-tolerance. This might include allocating high-cost tactics like digital ads to low risk accounts versus allocating lower cost tactics like email to high risk accounts.
The coronavirus pandemic has shown how interconnected the global economy has become. An incident in one location can cascade to affect the entire world and disrupt go-to-market plans in a split second. This demonstrates the importance of selecting target accounts based on three key dimensions of fit, intent, and risk.
To empower you to make better decisions during this difficult time, Dun & Bradstreet is offering a complimentary Pipeline Health Scan to give you visibility into which of your accounts may be at risk in this pandemic economy. The information presented in this complimentary analysis contains proprietary risk models that Dun & Bradstreet curates on financial health, in addition to location and industry data tied to the coronavirus. We hope this can help you make more informed decisions to start Q2 with a go-to-market plan that will help position your organization to hit its sales and marketing goals.