The Importance Of A Chief Monetization Officer
In part 1 of this series, we recently proposed that executive teams at software companies need to include a dedicated Chief Monetization Officer (CMzO) to own the direction of the company’s overall revenue model, including pricing, one of the most powerful sets of levers leadership has to enrich their business. In part 2 of this series we covered the complexity of monetization has accelerated dramatically.
Our argument is based on deep observations of how software today is sold and delivered, and how customers use and derive value from it. These dynamics have simply become too complex and strategic to address at a lower level or as part of another CXO’s responsibilities.
But for all the positive impact it can have on revenues and profitability, maybe the biggest reason to add a Chief Monetization Officer to your executive team is something else. Could investor valuation be an even more important outcome?
Let’s be honest. From the moment a software company is founded, and through its various operational phases, most executives are mindful that they will someday seek additional growth capital or a full or partial sale. Obviously, at that time, the value established by the investor or acquiring company is critically important.
For this reason, it is worth understanding how monetization in general, and the existence of a Chief Monetization Officer in particular, can create additional value for your software company.
The Mindset Of The Software Investor
Your product assets contribute significantly to company valuation, as do revenue and earnings performance. But software investors also place great significance on scalability—the capacity of your products and infrastructure to rapidly expand without breaking—and transferability—the existence of well-honed processes, data and documentation that make it possible to achieve scalable growth independent of single individuals or hard-to-replicate assets.
According to Garth Tebay of Value Defined, LLC, a nationally-recognized leader in the field of business valuations, “In software firms, the majority of the firm value is comprised by intangible assets that can only be realized when the intangible assets are transferable to the buyer. The intangible asset value can be maximized by a process-based pricing model—integrated throughout the enterprise—that reflects and capitalizes customer and marketplace dynamics.”
A Chief Monetization Officer Tells Investors The Company Is Focused
Having a Chief Monetization Officer puts a bold check in each of those boxes and signifies to investors that the company is professionally focused on critical drivers, such as:
- Making decisions based on data, not discretion.
Software pricing models are often established using assumptions more than facts. Yet actual data—on issues such as how customers really use the software to produce value, how that use changes as customer characteristics change and the real prices being paid for competitive solutions—are fundamental to optimize monetization. A CMzO will know what data is needed, where to acquire it, and how to use it to make effective licensing, packaging, and pricing decisions.
- Building systems to organize all elements of the revenue engine around value creation.
While the monetization strategy is critically important, it only achieves its full potential when all elements of the organization’s sales structure are synchronized to support it. A CMzO will establish the processes and tools to enable the revenue team—from sales personnel to distributors, dealers, and partners—to understand the model, align to it, communicate it, and defend it. This empowered level of rigor will give investors confidence that revenue performance is less subjective, and more consistent and predictable.
- Aligning product development with what customers truly value and are willing to pay for.
In any software solution, customers gain true value from certain features more than others. Smart software companies have always tried to listen to users when planning new capabilities, but development decisions can be tainted by individual biases. Early in the process, A CMzO will force a data-informed debate about what customers value and are willing to pay for. Over time, this will result in capabilities that generate better revenues for the company and prevent the code-base from becoming bloated.
This infrastructure—established and sustained by a dedicated Chief Monetization Officer—can significantly increase investor confidence in the scalability and transferability of the company and its products. With that comes higher valuation.
There are many important reasons why now is the time for a CMzO. The weight that future investors place on demanding this discipline be managed professionally may be the most relevant.