A few years ago, I had the opportunity to work with and be mentored by Mark Palmer. Mark is a former CEO and executive sales leader for companies like Sun Microsystems, and author of the book, Sales 2.0. My first foray into consulting was with Mark’s firm, Sales Insights.
Mark has the unique gift of being able to take complex ideas and make them simple. His company, Sales Insights, focused on helping companies exceed their growth objectives by building sales organizations that were scalable and replicable.
I distinctly remember Mark telling me that there are only 3 things a company can do to increase sales. He then went on to share his formula for generating revenue:
As you can see from the formula above, there are only 3 variables in the revenue model. However, in my work with companies, business owners and sales leaders are often unaware of these variables and their impact on their revenue growth strategies.
Let’s look at each of the variables listed above.
1. Opportunities or Deals – this refers to the number of qualified opportunities you have to sell your product or service. The number of times your product or service is offered as a solution to qualified prospects.
2. Close Ratio – this refers to the success rate of closing those qualified opportunities and converting them into sales. Sometimes described as a “win rate” or “success rate.”
3. Average Deal Size – this refers to the average size or amount of revenue you average across all your opportunities.
To increase revenue, you must increase or improve one or more of the variables listed above. Most business owners that I work with assume this will happen, but they do not have a plan as to how it will happen. Each of these variables represents a different strategy for growth and business leaders must choose which variable to address and then build a plan to support it.
Here is a brief overview of each one and areas of focus required when developing a growth strategy for your company.
1. Increase # of Opportunities – This is the most common approach to increasing revenue. Increasing the number of qualified prospects will result in increased revenue. But this may not be the most cost-effective way to grow your business.
Let’s assume that we set the other variables aside and only focus on increasing the number of opportunities. To accomplish this, we need to set our sites on “top of the funnel” activities which begins with leads. Can we identify our target customers by industry, position, and location? Are we engaged in marketing activities that promote our solution to these target customers? Do our sales efforts align with our marketing efforts? Are we pricing our product or service to appropriately?
Focusing on increasing the number of opportunities is typically activity based. It requires that we invest more in marketing and sales activities. Understanding the ROI of these efforts is critical before we make this our primary revenue growth strategy.
2. Improve Closing Ratio – How do we get better at converting more of our qualified opportunities into revenue? Improving your close ratio requires no additional investment in marketing or sales activities. Instead, the focus is on defining and improving your sales process.
Most of the companies I work with suffer from the lack of a clearly defined sales process model and system to hold sales reps accountable to. Sales Reps are encouraged to bring in and work with unqualified opportunities that will never close. Organizational kudos are dished out to reps who have a large pipeline of opportunities regardless of whether or not they are qualified. Reps spend too much time chasing opportunities that will never close because they will not adhere to a disciplined approach.
In my work with companies, I develop a Sales Playbook for the organization to follow. This includes a defined sales process model with clearly defined parameters for what constitutes as a qualified opportunity. Each step of the sales process includes the assets required to support that process including discovery questions, standard company presentation and proposal, list of common objections, case studies, etc. Reps are held accountable to follow the process via a CRM System that is aligned with the company sales process model.
3. Increase Average Deal Size – Simply put, this involves knowing where to hunt. This is all about identifying and targeting your best prospects, the ones who buy the most from you.
The first step in this process is to review your current customer base. Which customers buy the most from you? Is there an opportunity to Up-Sell or Cross-Sell your products or services to these customers? What makes this customer better than other customers? Focus your efforts on finding more of these customers.
This is an excellent opportunity to focus both your marketing and sales activities. Are your marketing activities effectively targeting these customers? Can your sales team identify these preferred prospects and is there a plan to engage with them? Are you leveraging the success you have had with these customers with testimonials, case studies and other assets that build credibility with similar quality prospects?
Too often I hear business leaders express a desire to increase their revenue by X% without defining how they expect to accomplish that goal. They assume that they will get some improvement from all the variables listed above, but they stop short of developing specific strategies to ensure that it happens.
As you can see, there may be only 3 things you can do to increase revenue, but each one requires a unique and separate focus and strategy. Companies that take the time to think about which variable can have the greatest impact and then develop strategies to accomplish that are the ones that see significant increases in revenue year after year.
I welcome your comments and feedback.
If you would like to discuss in more detail, let’s schedule a time to connect and discuss your situation in more detail.
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