|Smooth The WavesCreating a Predictable Revenue Stream -- Four Ways to Smooth the Waves
By Ken Thoreson Contributing Writer, Minnesota Technology magazine
Anyone in sales knows what it's like. One month the company hits a new sales record, the next month it misses the revenue target by a wide margin, then the next month strong revenues appear again. The ups and downs are enough to make you seasick. In fact, we call it the wave theory. By contrast, our goal in sales management is to create a predictable revenue stream. That is, create a positive growth curve without the large ups and downs of monthly fluctuation in revenue.
From the marketing perspective, your sales program must include a strong mix of direct mail, trade show and other promotional activities to build a foundation of potential business, qualified leads and hence less revenue fluctuation. However, it's up to sales managers to ensure that the sales force actually gets the orders, closes the deals. To do that, you must refine several elements of the sales program to eliminate the wave and build a predictable revenue stream.
Here are the major points you should consider:
Build the Recruiting Pipeline
The recruiting process is an often-overlooked key step on the road to predictable revenue. First, it's important to understand the revenue that you can reasonably expect a salesperson to generate. Then, you must have an interviewing and recruiting program (a subject for a future article) that ensures the quality and, equally important, the quantity of staff to meet the company's revenue goals.
It's not enough to simply plan to add salespeople at specific times. You must plan the strategy and activities necessary to add these salespeople prior to your assumed hire date. Also, don't assume that all the existing salespeople will remain with your company. If you're short on salespeople, you can hit a wave's downside, so build the recruiting pipeline.
Hint: Hire several additional salespeople earlier than you have planned; build turnover ratios into your recruiting plans; hire in groups of two or more and recognize that each salesperson will not perform exactly as you predict.
Develop Measurement Tools
Determine at least four key indicators to measure ongoing sales success. These may include, by salesperson: 1) monthly forecasted revenue ratio to actual monthly revenue achieved, 2) number of proposals/ quotes per month, 3) number of new accounts added to the pipeline each month, and 4) number of company visits per month. For new people, one of your indicators could be the time it takes to become productive. Is it 90 days, 60 days, 30 days? If it takes the salesperson longer to achieve productive revenue than you expect, you may need to consider retraining or releasing that person.
Simply increasing the level of activity or increasing the quantity of prospects does not necessarily mean increasing sales, so ratios serve as important measurements. The sales leader must develop closing ratios for each salesperson; that is, how many prospects it takes to attain the monthly quota or your company's revenue expectations. Analyze these ratios, by salesperson, then roll them into a combined sales team ratio.
Each sales manager must know the specific ratio of the revenue forecast to the percentage of actual revenue achieved. Graph this forecast-to-actual performance ratio monthly for each salesperson and for the entire team.
Find your four indicators, set the standards and track them. Graphing them and letting the team see everyone's trends will show what it takes to be successful. These graphs can be great coaching tools.
Hint: An important lesson for a sales leader to learn is that declines in indicators foretell potential revenue downturns. These trends, caught early, may allow the sales manager to take the action necessary to reverse the potential downturn.
Forecast with commitment
Most organizations have a forecasting procedure and an annual sales plan. Typically, each salesperson completes a forecast each month. Some forecasting tools are simpler than others, but they generally provide a list of potentially active accounts to close for the current month and next three months, their prospective dollar value, actions that have taken place and the probability of closing the sale.
This process serves a purpose well beyond telling the sales manager what revenue to expect. More importantly, the forecasting process provides the individual salesperson with an opportunity to review his or her progress, develop account strategies and take responsibility.
With forecasting activities, the sales leader sets the tone and can increase the chances of predictable revenue. First, change the forecast tool to a monthly revenue commitment. This simple rewording changes the process and perspective. Second, when reviewing the monthly revenue commitment form with the salesperson (individually or in a group) evaluate each account that has the potential to close within the next 60 days, not just in the current month. Third, it is important that the sales leader review the previous two months when they review the current month's commitment.
Through this review both the salesperson and the manager begin to see important trends. You will uncover accounts that are not moving through the sales cycle, accounts committed but not closed and new accounts that appear each month but then disappear from the salesperson's list. It is the sales manager's responsibility to understand and question why each account has appeared on the commitment form and then disappears.
Developing a good account won/lost reporting process can provide valuable insight into sales strategies. This detailed approach will also assist the salesperson to review his or her account development process and understand the importance of accurate forecasting.
Hint: The sales manager should call certain accounts that are won or lost and determine from the prospective customer why they chose your company or a competitor.
Find the Influencers
Nothing beats word-of-mouth promotion for your company or product. A good referral from a vendor or organization aware of your company's products and solutions may be the equivalent of one salesperson's quota. Creating a network of "influencers" who can put in a good word for your company will increase your opportunities to develop predictable revenue, balance your sales efforts and may lead to new accounts.
Finding and developing the key influencers is an ongoing process. Once you identify them, create a campaign to boost their awareness of your company. Set individual meetings and create an ongoing contact process. Proving your expertise to provide a high-quality service or product will become the key component of a long-term trusting relationship and smoother sailing.
Hint: To develop your list of influencers, ask your key accounts to identify the leading organizations or individuals in their industry. Seminar speakers, magazine contributors and trade show exhibitors may also be good people to make aware of your company. Also consider contacting people on the boards of industry associations, partners in accounting and consulting firms or retired executives from your industry.