Two weeks ago, McKinsey & Company published an article discussing the steps that B2B company leaders should take to create an effective COVID-19 recovery plan. A post-COVID-19 commercial-recovery strategy for B2B companies identifies five components of a pandemic recovery strategy:
- Identifying pockets of potential revenue growth
- Adopting new go-to-market approaches to meet changed customer needs and expectations
- Doubling down on e-commerce
- Adapting pricing and/or offer configuration to suit customer needs
- Introducing new and/or reengineered products or services
While all of these components are necessary (to some degree at least), I would argue that no component is more important for most companies than the first – identifying the most fertile sources of potential revenue growth.
As the authors of the McKinsey article point out, COVID-19 has “upended” demand patterns across all sectors of the economy. In some cases, the pandemic has substantially increased customer demand. Think mechanical ventilators, household cleaning products, and digital collaboration applications (e.g. Zoom). However, most B2B companies have seen demand for their products or services fall, at least temporarily.
Some recent economic indicators suggest that the bottom of the COVID-19 recession may have occurred in April. But the pandemic is far from over, as the recent surge of COVID-19 cases in several states demonstrates. And many public health authorities are still warning that we may face a “second wave” of COVID-19 in the coming fall and winter.
Because of the continuing impact of COVID-19, the economic recovery is likely to be uneven. Different industries and customer segments will recover at different speeds. Therefore, it’s critical for business and marketing leaders to identify what revenue growth opportunities are (or can be) available to them and then determine which of those opportunities are most attractive under a range of economic scenarios.
While COVID-19 has dramatically affected demand patterns, it has not altered the structural sources of revenue growth that are always present, at least to some degree. The existence of these structural sources of growth isn’t dependent on the economic or market conditions a company is facing at a particular moment in time. However, the volume of revenue that a company can realize from each source is greatly dependent on the economic and market environment. And for the next several months at least, economic and market conditions will be largely dictated by the trajectory of COVID-19, progress on the development of effective vaccines and/or therapeutics, and the policy responses to the pandemic.
What COVID-19 Does – and Doesn’t – Change
The diagram at the top of this post depicts the framework I use when working with clients to identify and evaluate revenue growth opportunities. The impacts of COVID-19 do not require the framework itself to be modified, but the pandemic does require a change in how the framework is used. In essence, COVID-19 requires company leaders to analyze sources of revenue at a more granular level. Here’s a simple example of what I mean.
In the framework diagram, one of the two major sources of revenue is “Revenue from Existing Customers.” In more “normal” economic times, we would map recent historical revenues to this source and use those historical revenues as the base for our projected future revenues. But in the COVID-19 economy, those historical revenues may not be helpful because, as noted earlier, different industries and customer segments will recover from the pandemic at different speeds.
In today’s environment, business and marketing leaders need to segment their base of existing customers by industry, product usage, and perhaps by geographic market area, and then analyze which customer segments are likely to recover from COVID-19 first, and whether the demand from each segment will exceed or fall below pre-pandemic levels.
This type of analysis should be performed for every structural component of revenue, and the objective is to identify which customer segments, products, and geographic markets are likely to provide the greatest opportunities for growth over the next 6 to 12 months. The insights from this analysis will enable B2B marketers to target their marketing programs and investments where they are most likely to be productive.