Sales 101: Back to Basics

Transcription

1 Sales 101: Back to Basics by John Hanna and Haven Pell, Co-Founders, FunnelSource, Inc. Introduction Since the dawn of time, man has sold. Whether it s pelts, paintings, or PDA s, people have generated revenue. Yet, as civilization has moved from secluded caves to sprawling cities, one business formula hasn t changed: Like gravity, it is immutable. So what s the problem, today? Over-thinking It Today, companies spend fortunes focusing on areas that are not nearly as powerful as building pipeline. They send reps to sales training, hire motivational speakers, and spend time and money analyzing historical sales data. If you want to brush up your team, then training is good. If you want to predict revenue, then reports are great. But, if you want to increase revenue, then you need a take action strategy that is based on timeless fundamentals. The Power of Pipeline So, what s the fastest, most controllable way to increase revenue? Well, let s take a close look at our equation:

2 2 Which variable is the easiest to increase? Conversion Rate? Average Sales Price? The only variable that you can completely control (and therefore massively ramp) is Opportunity Volume. And if you keep Conversion Rate and Average Sales Price constant and increase Opportunity Volume, then you will increase Revenue by the exact proportion. Here s an example of Opportunity Volume showing its power: Three years ago, we were on a sales call with the CEO and VP Sales of a venture-backed software company. At the time, we owned an outsourced appointment setting firm that catered to fast-growing software companies who were willing to pay $1,000-$1,500 per meeting to build pipeline. Shortly into the call, John wanted to understand how valuable these meetings were to our prospect: John said, So, what is the average price of your typical sale? The VP Sales said, It s about one hundred fifty thousand dollars. One hundred fifty thousand dollars? Okay. So, if you met with ten decision makers at your target accounts who all had a clear understanding of your value proposition and the reason for meeting, how many of those would you convert into customers?

3 3 Ummm... about twenty percent. Twenty percent? Okay, so by that math, for every ten meetings you go on, you re going to convert two of them into customers, right? Which would be two customers times one hundred fifty thousand would represent three hundred thousand dollars in new revenue... Correct. Great. So my last question is this: how much would you pay for three hundred thousand dollars in revenue? How much would I pay for three hundred thousand in revenue?? Ahmm... I d pay fifty thousand dollars! Immediately, the CEO said, Whoa, whoa, fifty thousand dollars for ten meetings?? We didn t end up charging five thousand dollars per meeting, but we did come to an agreement and enjoyed a very successful partnership with this company. But, more importantly, using simple math, we proved a point: pipeline is the most powerful way to build a company. So the next question is: to hit your numbers, how much pipeline do you need?

4 4 Understanding Funnel Requirements Babe Ruth hit one home run every at-bats, so his home run-toat-bat Conversion % = 1/11.76 = 8.5%. If Mr. Ruth wanted to hit 50 home runs in a season, what did he need to do? Well, let s not guess... let s plug it in! (#At bats)(8.5%)(1 home run) = 50 home runs (#At bats) = 50 home runs /.085 (#At bats) = 588 It s that simple! Based on Babe s 8.5% conversion, he knew that if he went to the plate 588 times in a season, that he would hit 50 home runs! Babe was already the best home run hitter in the world, so he knew that he wasn t going to suddenly double his conversion ratio to 17%. Instead, he knew that he needed at-bats. And Yankees owners wanted him to hit home runs, so they gave him at-bats. It s no different in Sales. And knowing exactly how many opportunities you need to beat your goal is extremely powerful! Three years ago we met with a very successful VP Sales at a Silicon Valley software company, who already outsourced lead generation to us. They had raised over $50 million in venture capital, had an A-list management team, and paid us $1,500 per meeting. It was November and the VP Sales wanted to make sure that he was getting enough pipeline for the following year. In order to figure this out, we had a very basic spreadsheet that used the equation above. We plugged in the VP Sales following year revenue goal, his average sales price, conversion rate, and number of sales reps. Based on the simple math, it displayed exactly how many meetings he needed per year, per quarter, and per month for

5 5 each of his eight sales reps! Now, here is a guy who had been very successful, made a lot of money, and was working at a company that had all the resources in the world to deploy sales software and when he saw this document, he practically jumped over the conference table and said, I want that spreadsheet! Why? Because until that moment, he had been flying blind. He knew that he needed pipeline, but he didn t know how much. So, a few simple formulas got a Valley veteran to jump across a conference table? Yes, because it showed him exactly how many opportunities he needed to hit his number. Here s another example: let s say you re driving from Beverly Hills to San Francisco, which is 380 miles, door-to-door and your car gets 28 miles per gallon on the highway. How many gallons of fuel are you going to need to get there? Let s use our equation: (Fuel Needed)(MPG)(1 drive from BH-SF) = Distance from BH-SF (Fuel Needed)(28)(1) = 380 miles Fuel Needed = 380 / 28 Fuel Needed = 14 gallons So, you want to drive to drive a few hundred miles? You want to do twenty-million in new business next year? In both cases, you re going to need fuel! The car needs high-octane gas and the company needs sales opportunities. If you try to fight this law, then you re missing the point. You might say, well, we re different because we mostly sell into existing accounts.

6 6 Irrelevant. Why? Because whether it s new opportunities, existing opportunities, software opportunities, services opportunities, training opportunities, maintenance opportunities, renewal opportunities, channel opportunities... it doesn t matter because they are all Sales opportunities. There s nothing magical or crazy about any of this. Your entire sales life is right here in this equation: You ve got your quota. You know your ASP. You know your Conversion Rate. Just plug the numbers in and you ll know how many opportunities you need! It s as simple and as complicated as that! Now, once you have enough opportunities to hit your number, what are you going to do with them? Managing Opportunities For every United States Marine Corps infantryman, also known as a trigger puller, there are ten people who support him. Ten. All of the assets in the entire organization, tanks, artillery, cooks, Generals, you name it, are there for one reason: to support the year old men on the front lines who are kicking down doors. And during combat, it s critical that everyone is on the same page. Why isn t this the same in Sales? Why do companies spend fortunes on management tools, yet almost nothing on their individual sales reps who are on the front lines hunting deals? It makes zero sense! Instead, they should invest in sales weapons for their men and women on the front lines. Like a military invasion, companies need to have both managers and reps on the identical page speaking the identical language. They need everyone in the Sales organization

7 7 conscious of where they re strong, where they re weak, and what they need to do to hit their number. In order to do this, everyone needs to manage his or her pipeline using the same tool. What kind of a tool? Pipeline Management Software. Pipeline Management Software brings everyone together on the same sheet of music. Whether you re an EVP of Sales managing the global pipeline or a quota-carrying rep working direct deals in the Northeast, you should all look at your pipeline through an identical lens. World class Pipeline Management Software (like FunnelSource) enforces data integrity so that reps keep their Opportunities perfectly clean and visually shows users where they are, where they need to go, and what they need to do to get there. There should be nothing left to the imagination. There should be nothing but truth in the form of perfectly clean Opportunities with accurate Close Dates, surgically organized by Owner with a powerzoom that a CEO uses to drill from the top, through territories, all the way down to an individual rep in seconds. This power married with a standardized interface takes Sales to the next level because everyone drives revenue using the same tool. Conclusion So, there you have it. To win in Sales, it s simple: you need to understand precisely how many Opportunities you need to beat your number, then you need to get them, and finally you need to drive them through to closure in an efficient manner. If you are not doing all three, then you re lying to yourself, to your company, and to your shareholders. The End