Axonify Budgeting For Rapid Growth Case Solution

Company has shown healthy growth in annual recurring revenues in 2016 and reported $11.7M in 2016 as compared to $8M in 2015. Currently, Dave Pooley (CFO) is concerned about the budget estimates for total incremental cost to be incurred in 2017 for increasing the customer base and the average cost of acquiring new customer. The senior management and the board has decided a target of $10M from new customers while cost to acquire new customer not to exceed $150,000 per customer. The cost of acquiring new customers include cost of marketing qualified lead (MQLs), marketing salaries, sales salaries and other sales operating salaries. The company does not use a typical top-down approach to come up with the budgeted numbers and division heads possess autonomy to forward their respective budgets. A quarterly review was conducted to evaluate performance and only significant deviation from target was followed up. CFO is concerned whether any changes in the current approach would help to achieve the target growth. 

2. Why are budgets important in growing companies like Axonify

Careful planning and execution is extremely important in any stage of business growth, for all ages of business and sizes. A sound business plan with clear short and long term objective could not only help to create a road map for financial success but also provides an opportunity to expand. For a growing company like Axonify, a critical aspect of planning is the budget which derives success by allocating funds, planning operations, and achieving target annual recurring revenues (ARR). Since Axonify is in the early stage of development therefore budgets have significant importance to achieve goals and objectives. Since the revenue (ARR) targets are set with nod of senior management and the board which provides proactive planning and a road map to the entire firm to work closely to attain the company’s profitability objectives. At the same time, the management of the company would have access to a better picture of the financial status for the upcoming period. This will help Pooley and Leaman in determining the requirement of capital for each division. In this regard, budgets would allow Axonify to be more efficient by categorizing the essential and non-essential costs or expenses. Moreover, the management can also use the budgets as an evaluation or appraisal tool to check the performance of the departments by comparing the actual and budgeted targets whereby strategy and future planning can be improved.  

3. Calculate the total budgeted cost for 2017 of generating the marketing qualified leads (MQL) necessary for Axonify’s revenue growth goal.

The total budgeted cost for 2017 of MQL is calculated to be $2,267,514. The total ARR to be generated by ODRs is $5,250,000 after adjusting for upselling activities, referred clients, and ARR generated from Leaman’s leads. Since historical passed leads conversion rate is 10% meaning only 10% of passed leads would be converted to an actual customer. Therefore, 350 passed leads would be required to generate ARR of $5,250,000 assuming ARR generated by one customer to be $150,000 as historical. From the 2016 analysis, conversion rates of discovery calls, introduction calls, and MQL can be determined. From backward calculation, the total number of MQL calculated to be 15,117. Since cost of one generating one MQL is $150 which gives total budgeted cost of $2,267,524 for 2017 of generating MQLs.