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July 2016

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The Relationship Between Activity, Pipelines, Revenue and Profit

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How do you currently measure sales success within your organisation?

I remember in one of my first sales roles, I was a top performing biller month on month, always leaving my sales targets for dust, and then one day getting pulled up in an end of month sales meeting only to be criticised that I wasn’t doing as much sales activity as others in my team.

It seemed irrelevant to my sales manager at the time that the quality of my sales activity was clearly working and all he could focus on was the tick box KPI exercise he clearly deemed as the only way he was capable of managing a sales team.

Ironically, I see this time and time again with many of the sales focused organisations I work with.

Undoubtedly, sales professionals go through a development cycle during their sales careers – starting out as so-called “rookies” where they need to be shown the habits of success, quantity of activity being just one of those habits.

But as sales people find their feet and grow in their roles, there needs to come a time when they are given more accountability and responsibility for their actions. They need to be given the opportunity to create their own habits of success and learn from their mistakes along the way. Otherwise, how do they ever grow?

In sales, there are four clearly defined measurements of success, as follows:

Revenue

Ultimately this is what most sales managers focus on – how much revenue are you bringing in as a sales person. You are set a target, you agree to that target and therefore there is no excuse not to hit that target, whatever the circumstances.  If markets are tough, then you look for new ways to exploit those markets, or find sub-markets and other markets to target. Even when markets do tighten, there are still numerous competitors winning business that you are not, so there must still be business to be had.

– Actions

Look at your existing relationships and customer base, contact dormant clients (those with whom you haven’t billed for over six months), identify cross selling and up selling opportunities across your business database, target your competitors’ client base.

Profit

It is easy in most sectors to win new business if you are willing to drop your margins and in effect, buy business with low-profit returns. But what impact does that have on an organisation?

Low margin business, being easy to acquire, makes you feel in the short term like you are doing a good job and keeping your sales manager at bay, but it can have seriously detrimental implications for both your organisation and you as an individual in the long term.

As an example, we spent some time working with one business, a large global, multi-site recruitment organisation, enabling its least performing branches turn around into corporate profitability in 90 days. We took each branch manager through a financial measurement system we developed and identified that in common with a number of these poor performing branches were profit-sapping clients who literally cost that recruitment organisation money every time they made a placement with them.

The margins they were working on with some of these so-called trophy clients were so low, and the time spent in managing them were so extensive that by simply renegotiating or in some cases firing those customers, enabled each of those branched turn their profits around into the black in a very short space of time (certainly less than 90 days).

– Actions

Measure the profitability of each of your customers across your existing customer base, be prepared and confident enough in your service / product to renegotiate terms, develop risk-sharing strategies with key customers were you can earn additional margin through the delivery of pre-determined KPIs, set minimum margin targets across all your sales people and reward sales professionals on winning high margin business.

Pipeline Management

The pressure of selling can often drive sales people to live in the today, and lose focus on the tomorrow. The issue with that is that you ultimately end up with Feast or Famine situations where there is a lack of consistency across your sales people’s figures.

One month they are feasting, bringing in lots of new business and earning increased earnings for themselves, and then the next month they are having a famine where they miss their sales targets and are being questioned by their sales management for lack of success.

This inconsistency is caused predominantly by poor sales activity management and not maintaining a consistent funnel of new opportunities (hence the inverted “funnel” shape). Focus gets steered toward one or two opportunities and whilst we’re busy working those down the funnel to appoint of closure (we hope!), we lose sight of the need to continually drive new opportunities into the top of our funnels  and creating active prospect opportunities.

Remember, before a sales person can celebrate winning a new bit of business, they first need to replace that customer with three to five new potential customers at the top of their funnels … and then the celebrations can begin.

– Actions

Set clear, long-term goals for every sales person, reward them for consistency across a number of months as well as individual monthly revenue, map out their sales funnels and ensure they are reporting back on the status of the funnels at the end of every day / week.

Activity Management

This is the final piece in the jigsaw. To ensure your funnels are being effectively managed, you need to do enough of the right type of activity.

Activity has to be high quality. Every time you make a cold call (or even do a cold piece of marketing) and the quality is poor, you are throwing away an opportunity that may never come back again and ultimately devaluing who you are.

There can often be a negative perception of sales people in many sectors and often this is due to the poor quality of sales activity that they are doing.

Once you have defined what high-quality activity looks like for your organisation, you then need to do lots of it. Without doubt, sales is a number game so providing you are not jeopardising quality for quantity then there should be no reason not to keep your sales activity at a consistently high level.

– Actions

Define what good sales activity looks like, ensure you have all the basic tools in place and at hand to do a good job (capability statements, proof points, case studies, calls to action etc.), identify ways to generate high volume activity through innovative sales strategies, measure the success ratios of each individual component of the sales generation process to determine best practice.

This brings me back to that sales manager from my first sales job. Measuring sales success is not and cannot be all about the numbers of calls you make or visits you go on.

Sales success is about the revenue that you bring in, the profit that derives from that revenue, the funnels you need to maintain to generate that revenue and the activity (quality and quantity) that is required to keep your funnels full, top to bottom.  Focusing on any one or two of these in isolation is a mistake.

Sales professionals, certainly those rookies in the early parts of their career, need to truly understand the direct correlation between activity, funnel, revenue and profit and managers should manage revenue and profit and ultimately give sales professionals the skills and capability to self-manage their funnels and activities.

 

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Leadership Succession

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There are times when a business or a team is synonymous with their leader, for example Virgin and Richard Branson and Manchester United and Alex Ferguson. After 26 years as Manchester United manager Alex Ferguson has decided to retire, so how does the organisation or team survive when the leader moves on, especially those when the leader has become part of the brand image or reputation of the business or team?

The first thing to recognise with these successful leadership led organisations is that they have support from the rest of the team. Ultimately these leaders have teams – board members or team members – to answer to and help implement their vision. The relentless drive to create high performing teams will always ensure an easier transition of a team leader.

In the early days of Alex Ferguson’s Manchester United career he set the tone for his vision and strategy for the organisation. Underperforming players were shipped out, he drew up a youth scouting network to identify youth performers to come up through the ranks, clearly thinking long term plans for the organisation. Whilst these changes didn’t bring immediate results for the club the support he received allowed him to manage these changes through, which then brought in the results. By strengthening the foundations of the club and defining the values for everyone to work towards, he secured the future of it allowing the club to prosper without him and enable the transition.

The best way to make any transition, gaps created by people moving on or being promoted, go as smoothly as possible is to create a framework where we:

  • Develop a vision that the business or team is working towards – if we have developed, articulated and shared a clear and compelling vision, it makes it easier for a new team leader to step in and for the team to see and sense a consistent direction
  • Develop clear values – by agreeing the ‘way we go about things’ , irrespective of who is running the team or business, facilitates any transition
  • Agree the measures of success – what are the KPIs that define success
  • Get the right people with the right attitude – effective performance management will create a team with the right attitudes, people who embrace change, are open to learning, adaptable and positive

Finally – throw out the previous job spec and start with a blank piece of paper and map out what the role requires. Too often we just use what we had before because it’s there.

Continuity, stability, focus, and teamwork are critical for business success; in a world where change is the norm and healthy, the way we transition our business and team leaders can really impact our business performance.