Gary Braun, Co-founder of Pivotal Advisors
Sometimes we make sales harder than it really needs to be. Most owners know that they want to grow, but when I just look at all the sales results, it is sometimes hard to know where to focus. This article is meant to simplify things. Looking at sales is easier than you think. Let’s start with a simple formula:
Opportunities x close rate = # of Deals x Average Size = Revenue
Example: 200 opportunities x 50% close = 100 Deals x $50K/deal = $5M in revenue
Now let’s say this is across a team of 4 salespeople. That means 50 opportunities per person per year or 4-5 per month.
Before you say, “my business is different and it is not that easy,” I will stop you and say that you are right – kind of. After working with nearly 400 businesses, almost all of them can have some slight variation of this formula. So, let’s break it down and customize it for you.
Opportunities – this may or may not be your exact metric. It works well when you sell a deal or project or piece of equipment. But it may be some other leading metric. That is the key. What is one leading metric in your business that can directly be linked to revenue? We have companies that have used Calls, Meetings, Leads (Marketing Qualified Leads or Sales Qualified Leads), Demos, Presentations, Site Visits, etc. We even had one distributor make up a metric called “touches” which was defined as anytime they had a meaningful meeting, training, ride-along, etc. with a reseller. The more they “touched” their resellers, the more top of mind they were, and sales soon followed. For you, determine what is the best leading indicator for you. Now let’s adjust our example and see what would happen if we just focused on increasing that leading indicator 5%. That’s not a ton.
Example: 210 opportunities x 50% = 105 deals x $50K = $5.25M or $250K increase
You can get that increase just by getting just over 2-3 more opportunity per salesperson per year! The trick is A) determining the right metric that you can tie to revenue and B) figuring out how to drive those extra opportunities. More on that below. First, let’s move to close rate.
Close Rate – this is just simple math. What percentage of our leading indicator above, converts to revenue. Determine the total number of deals or orders you generated for the year divided by your total opportunities (or whatever leading indicator you used). So, let’s look at if we ONLY improved close rate from our original example, but not Opportunities.
Example: 200 opportunities x 55% close = 110 Deals x $50K/deal = $5.5M in revenue or $500K increase
That increase means that each salesperson needs to close 2-3 more deals per year – less than 1 more deal per quarter. Again, how do they do that? Let’s address that below.
Average Size – this is where we can get some variation by your type of business. If you sell orders/projects/widgets, you can just take an average for the year. If you sell recurring revenue, then this could be annual revenue per account or something similar. Let’s go back to our original example again.
Example: 200 opportunities x 50% close = 100 Deals x $52.5K/deal = $5.25M in revenue
That is a 5% increase in average size pretty modest. We will also look at HOW to do that below.
So, what if all 3 went up? Here is the impact of small tweaks in each area:
210 opportunities x 55% close = 115.5 Deals x $52.5K/deal = $6.064M in revenue or over $1M increase.
That is significant growth with very small tweaks in each area.
How to Address
Can you pull off all of these increases? Maybe, but let’s focus on where the lowest hanging fruit is? Look at your business and see where the areas are that you can have the biggest impact. You could focus on just one area and do more than just a tweak and get dramatic results. Or you could try to address a couple area. Let’s look at how you could make improvements in each area:
Opportunities: This is a matter of getting more “at bats.” I find that salespeople struggle in this area for a few reasons. The first is the easiest – there is no goal around how many at bats they should get and/or there is no accountability to hitting that goal. It can be as simple as determining the number of at bats or opportunities (or whatever your leading indicator should be), setting that as a weekly or monthly goal, then having 1-on-1s to make them report out on it. This simple tactic has elevated activity in many of our clients. But what if they are trying hard, but just can’t seem to get the meetings or opportunities? That could be a people problem (we have account managers when we need hunters). Or it could be a process problem – you need to teach them the skills for getting those at bats. The ways buyers buy has changed over the years. They don’t pick up phones or return emails like they used to. You may need to teach your team other ways to get in the door.
Close Rate: If you want to focus in this area, there are a few things to consider. First, do you have the right people in the role? Second, do you have a good sales process? I ask that of many executives and sales leader, and I typically hear “It’s pretty good but could be better.” That is until they see what really good looks like. A sales process is not a couple of sentences of what to do at each stage. I good sales process gets at HOW to execute at each stage. This could include which stakeholders to target, what questions to ask of each, which sales tools to leverage at each stage, how to differentiate your solutions, how to show value and impact, etc. If your sales process doesn’t get to this level of detail, then your salespeople could struggle. Determine what the best salespeople on your team are doing differently than the rest. Try to standardize that. Third, coach and reinforce best practices. Writing down the process alone or even doing a training on the process only gets you so far. To shape adult behavior to follow the process needs observation, feedback and reinforcement. That means time in the field with them to see if they can execute.
Average Size: This can also be addressed in a couple ways. It can be as easy as helping the sales team define WHO to chase. There are many salespeople out there that will chase anything and everything. Those clients may not be the best clients for the business, and it takes a LOT of small clients to hit a big number. Help them put together their target lists. Talk to them about how they qualify and whether those prospects are worth their time. Help them with negotiating skills. Some size can be made up just be not giving away the farm. Finally, work on Discovery with them. Too many times salespeople will take the low-hanging fruit but miss the big deal that was there, but they didn’t ask the right questions to uncover it.
This is a very high-level, conceptual view of analyzing your sales numbers, but can be super helpful in pointing you in the right direction.
If you want to learn more about this topic, reach out to us at www.pivotaladvisors.com.