I was in a business where a sales shortfall triggered a “Performance Improvement Plan”. The afflicted business unit would go off to investigate the problem and conjure up a convincing plan for fixing it. Then implementation of that plan would begin. If someone happened to get pregnant at the beginning of this process, they had their child about the same time that we were seeing the results of this process. And those sales results were not always good. There had to be a better way.
There is. Here is a way to reduce the response time and increase the confidence in the fix.
Model What You Intend to Do
Many business development/intro plans are this:
- The sales goal(s)
- The list of a bunch of things that everyone will do.
Basically, there is a big collective hope that the latter will produce the former. The dynamics of how that is expected to happen aren’t specified; so when the sales don’t materialize, nobody knows what failed. Not enough “things” done? Price wrong?
The better way: “The Magic Formula”. Estimate values for these three key drivers of sales performance and then track them as metrics:
Average sales price + Length of the sales cycle + Win rate
At the beginning, you may not have much to go on to set these. Not a problem. Make an educated guess (you’ll refine that over time as you get more data). Use those estimated values to model how you will get your sales goal.
Here is a model for a hypothetical business projecting $500K of sales in 12 months:
Magic Formula: Average sales price $30K, 4 month sale cycle, 25% win rate
- Given the average sales price, you need $500K/30K , 17 sales in 12 months
- At a 25% win rate you need to engage 17 x 4 qualified leads: 68 total
- Given the 4 month sales cycle, you need to have engaged seriously with those 68 qualified leads in the next 8 months.
- If you know half of those already, then you need to generate 32 qualified leads. Let’s say you need 7 prospects for every qualified lead: In this case you need to generate 32 x 7 prospects – a total of 224 prospects to generate and qualify in the next 8 months.
This approach focuses Marketing and Sales on the right level and types of activities needed to meet the goal. It makes the market development or time-to-ramp commitments much more solid. It also requires the two functions to work together to set these formula value estimates and refine them. Those discussions often surface hidden concerns, alignment gaps and expectations, reducing later issues and forging good relationships.
How Using This Can Speed Your Reaction Time
Ok, back to the scenario in which the order rate is below expectations. Instead of flailing at causes and fixes, go to your data. Which Formula factors are not as you estimated?
- Is the average sales price below your estimate while the other metrics are holding? Then look to either your discount level or the configurations that people are buying.
- Is the win rate lower than you expected? See if the sales force needs more training and check the competitive positioning.
The relevant issues and fixes will be specific to your business of course. The point is that this approach gives you built in diagnostics. Now when sales are down you do not start with a blank slate on which people write their excuses. Instead, you have focus and this gets everyone into effective and affective action, fast. Finger-pointing and delays in turning sales back up are de-motivators; quick iterations that also add to the collective knowledge base on sales generation are big motivators.