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Should Colocation Centers Work Backwards from Revenue?

In business, sometimes going forward means looking back first.

Should Colocation Centers Work Backwards from Revenue?On the surface, it seems counter-productive to establish a goal (in this instance, a revenue target) first and then work backwards to achieve it. 

Isn’t progress a forward motion? This type of reverse engineering, when used in business, is a solid way for colocation centers to set sales and marketing activity goals that work.

Shared Revenue Goal

After establishing a revenue goal, create a Service-Level Agreement (SLA) to commit both Sales and Marketing to meeting it as a shared goal. The SLA will turn the process into a two-way one: for example, Marketing will deliver a certain amount of quality leads every month and Sales will follow up on those leads promptly and diligently.

Client Lifetime Value

Client Lifetime Value (CLV) is a prediction of how much value a colocation center will realize from its lifetime relationship with a client. The 80/20 rule states that approximately 80% of a company’s revenue will come from 20% of its customers. Although this percentage is not an exact science, it reinforces the fact that some clients spend a lot more than others.

When a colocation data center takes CLV into account, Sales and Marketing can determine how to use the company’s customer acquisition spending for ideal value instead of focusing only on low cost.

Number of Clients Needed

Once the colocation center estimates its CLV, Sales and Marketing can calculate how many clients are needed to achieve the targeted revenue. Depending on the center’s business model, the required number could result by adding (current client’s x retention rate) to (Sales connections x rate of conversion). Once that figure is determined, both teams can determine the lead indicators that result in the greater number of conversions.

Lead to Client Conversion Rates

Conversion rates are the percentage of potential leads who take an action the company wants. For example, a colocation center may track the percentage of visitors who submit their contact details and then end up purchasing a service. This information can be used to determine what approaches result in the greatest number of conversions.

Sales-Ready Leads Required to Reach Each Goal

To improve the company’s bottom line, Sales and Marketing must work together efficiently to generate and follow up on leads. Instead of simply pursuing a number, Marketing can focus on the percentage of sales-ready leads. To do this, they must get to know their target clientele beyond simple demographics and buying history. Then they can segment customers and engage them with personalized, user-relevant campaigns.

Why Working Backwards ‘Works'

Although the idea seems counterintuitive on the surface, there’s nothing revolutionary about working backwards from revenue. When many colocation center managers create a revenue plan, they aim for a goal that is not possible to attain given the company’s timeline and resources. They don’t ponder whether or not the goal is feasible or outline what they need to do to reach it. Stating “XYZ Data Center must make a million dollars by year end” does not suffice.

Working backwards from revenue will provide a more comprehensive and precise understanding of what the company must do to move forward. When the selected goals are reached, a colocation center will be more profitable and capable of reaching even greater financial success.


Are you ready to start working backwards, to move forward? Let us know in the Comments below.


To learn more about how working backwards from revenue can make your colocation center more profitable, be sure to watch the free, on-demand “How Colocation Data Centers Can Differentiate to Grow Leads, Revenue, and ROI.”

Register for "How Colocation Data Centers Can Differentiate to Grow Leads, Revenue, and ROI" (Live Webinar)

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