Is a Bird in the Hand Really Worth Two in the Bush?

There’s something to be said about being content with what you’ve got. That’s why people say a bird in the hand is worth two in the bush. It’s better to have something than the risk of nothing.

But I have a hard time with that. It’s really a saying that justifies—correctly or incorrectly—a risk-averse attitude toward life. But if we take the time to really plan and are diligent with readjusting, we can actually have much greater success.

In my experience, this conversation comes up often when selling ads and balancing sales with unpredictable growth.

There was a time I was working on a podcast and we were trying to project growth. We were relatively new to the podcasting business, so we weren’t sure what to assume for growth. Was it 10% per month? 25% per month? It often felt like I was just pulling a number out of thin air and hoping I was right.

We came up with something and within a month, our sales team had come back to us and said, “great, we’ve got partners ready to buy the entire year.” They were obviously thrilled because it was a significant amount of revenue. I pushed back. “I don’t think we should sell the entire year. What if we’re wrong?”

This became one of the many times that I was lectured on the above saying. How could I give up the guaranteed revenue for the opportunity to make even more money?

This came up time and time again. Any projections we came up with were quickly gobbled up by marketers hungry to target our audience. The ad market was unbelievably hot at the time and we were seeing unprecedented ad deals.

Who cares, right? We were hitting our goals and that’s all that mattered.

Unfortunately, the results were mixed. The podcast grew faster than we had even anticipated, which depressed the CPMs that advertisers were paying. We left money on the table. And on the inverse, the newer newsletters didn’t grow as quickly. Suddenly, we had partners not getting as much as they expected.

It happens, though, especially when you’re moving into new areas that you know nothing about. You have to make an educated guess and that can sometimes cost you. But the attitude shouldn’t just be, “oh well, at least we have some revenue.” Instead, we need to become smarter.

Here’s how I think about it… This entire exercise is based on two variables.

The first is how far into the future you’re willing to sell. Are you going to unlock inventory that is a year ahead? The longer you go out, the harder this exercise is because it becomes much more difficult to account for variables. For example, could there be an algorithmic change at Spotify that hits podcast downloads positively/negatively?

On the other hand, if you don’t sell out far enough, you may leave money on the table. An advertiser may want to spend $500,000 over the year with you, but if you only let them spend $125,000 for the first quarter, when you go back in the second, third, and fourth quarters, the remaining $375,000 may not be available. Suddenly, $500,000 of guaranteed revenue turns into a scramble to sell.

So, you have to figure out what your comfort level is and go from there. In my opinion, the level of comfort vis-à-vis long term sales should be tied to how reliable your growth projections are. In other words, as the product becomes more mature, you can start selling far ahead of time. The only way to truly know how reliable your projections are is to have the historical growth data. This takes time.

There is another way to look at this. You can set some rules around how much of a future quarter can be sold in the current one. For example, maybe you’re not terribly confident about your growth, so you decide to only sell 50% of the fourth quarter in the first. This way, if you find that your numbers were off in one way or the other, you can reassess and still sell some inventory—or offer a make good—at more concrete growth numbers.

This brings me to the second variable, which is how often you reforecast growth. This one is actually really straightforward. If you were projecting 10% monthly growth and after the first month, you grew 15%, you could reforecast your growth with that as the new baseline. For anyone that has already bought, they get the extra growth. But for those that haven’t bought yet, you can charge higher prices.

There is no correct frequency of reforecasting. A straightforward way is to pick a certain percent difference and use that as the reason to reforecast. If growth is above or below the projection by 5% in a period of time, then make updates.

The point of this exercise isn’t to extract every last dollar from your advertising partners. That’s not possible unless you want to be offering all sorts of make goods. Instead, the point is to maximize revenue on a rolling basis. As each month or quarter goes by, you continue to unlock more inventory with updated growth projections that help you to ensure you’re pricing at the right point.

I’ll be honest… this is as much an art as it is a science, is very easy to mess up, and can get even harder.

When you factor price into it, the math gets even more complicated. If a partner comes to you with $500,000 but wants a 20% bump in value, is it better to take the money or walk away? What quarter do they want to buy in? How much inventory remains? How many other prospective partners do you have in the pipeline? These are all questions that are worth asking to determine when to walk away or not.

This is why one of the most important departments at a company is revenue operations (RevOps). The seller may want to give the bump because, ultimately, they want the sale. But the RevOps team may understand just how likely the sales org is to generate the same amount of revenue without discounting.

There should be a healthy tension between the sales team and RevOps. Sales are going to try and generate revenue as quickly as possible (often with their individual revenue goals in mind). RevOps is going to try and maximize revenue over a longer period of time. You need both. And the tension leads to maximum success.

Sometimes, a bird in the hand is worth two in the bush. But with the right reforecasting, a smart inventory release schedule, and an amazing RevOps team, you can often get the two in the bush. It just takes time to get better at it.

Thanks for reading today’s newsletter. I’d love to hear your thoughts. Hit reply or join me in the AMO Slack channel. Have a great weekend!