The math you need to hit your goals.
Everyone thinks that salespeople are all “people people”. This means that they love to connect and chat and are incredibly social. This is in direct conflict for the typical statisics nerd who tends to be a bit anti-social and an outcast. Surprise, surprise but the best salespeople love stats, and that’s because it’s the tracking that helps them hit their goals, make them commission, and get the job done.
Don’t get me wrong, I’m not talking about calculus or anything, but everyone needs to run the numbers to make effective goals and benchmarks. That’s why I’m sharing my cheat sheet and will explain how you can do a little back of the envelope sales math that’s going to make you money. And no matter how much you hated your 6th-grade algebra teacher, this kind of math is worth doing.
The methodology- There are two ways to approach this. The first I like to call activity-based and is great when you don’t know where to start and need to figure out your numbers. The second is goals-based and will tell you exactly what you need to do to win. Typically business owners will go through their current activity, see if it is on track, or off track and then set new activity goals based on what they want to see happen.
The tools- A calculator will be helpful, but even better is a well used CRM (customer relationship manager). This is a tool that will track your sales process, lead flow and so much more. If you’ve already been doing this, then the math will be much easier, if you haven’t it might be time to put one in place, you’re going to need it before you hire a salesperson anyway.
Ok, let’s get started. The lesson is in session:
Step 1: Finding your benchmarks
1. Where do your leads come from?
List out all of your lead sources. Your network, referrals, marketing, events, outreach, cold calls, emails, trade shows, and whatever else you are doing and estimate how many leads you get from each source every month or year.
2. How many prospects do you talk to in a month?
That’s right, look at your total meetings and take a look at your activity. Are you getting meetings on the books?
3. How many of those meetings did you close?
This is called your close rate and don’t worry, it shouldn’t be 100%. Not all good prospects are a good fit, but you do need to know how many frogs you need to kiss until you find your prince or princess.
Here is the formula: Closed deals/ Total Meetings= Close rate
4. How long does it take to close a deal?
This is called your sales cycle. Some businesses will close in the first meeting, others can take a year to jump through many corporate hoops. Knowing an average for how long it takes will help you set expectations, forecast for your business, and stack your pipeline accordingly.
Here is the formula: the time it takes to close a deal (weeks, months, years)= Close rate
5.How big is each deal?
Look at your clients or deals and figure out how much revenue each deal produces. If you have packages, look at what the average package is, if you have a service, look at the average annual revenue per client, if you have a product, this is the price of your product.
Got all that? OK, now let’s put it into practice!
Step 2: Finding your goals
1. How much do you want or need to make?
We’ve got to start with the end in mind, so go ahead and write that big number down. It can be a personal goal, a goal for a team member, or an overall business goal. However, you write the goal to make sure it is in total revenue. This means that if you have a profit goal, be sure to bake in your costs of goods sold or multiply it by your margin so you get to the total revenue needed to meet that goal.
Example: $500,000 in revenue
Example: $300,000 in profit (profit margin is 30% so you need to have a $1,000,000 revenue goal)
If you are running the numbers for a salesperson, make sure you factor all of their costs into the equation.
For example, if they have a 100,000 base salary, make 20% commission and cost you $20,000 in taxes and benefits,
$100,000 +20,000 + (Commission * Needed Sales) = Needed Sales
If you want to know how much it will take for a salesperson to break even, this is the point that they have paid for themselves and you aren't seeing any additional profit from their efforts:
$100,000 +20,000 + (Commission*Sales Goal) + (Profit Margin * Sales Goal) = Sales Goal
If you want to know how much it will take for a salesperson to meet the profit goals you have even more calculations to consider. This is the dream right, we don’t hire salespeople so we can break even.
Sales Goal -$100,000 +20,000 + (Commission*Sales Goal) + (Profit Margin * Sales Goal) + = Profit Goal
2. How many deals do you need?
Take that big goal and break it down to the total deals you have to close to meet your goal:
Average deal size/Goal = number of deals
Example: an average deal is $1,000 and your goal is $500,000 in revenue $1,000/$500,000 = 500 Deals Needed
3. How many meetings do you need?
Now that we know the total number of deals we need to close, we need to understand how many total meetings it’s going to take us to get there. Using your close rate, let’s see how busy your calendar is going to get:
Deals Needed / Close ratio (as a decimal) = Meetings Needed
Example: you have 500 Deals Needed and a 25% close rate
500/.25=2000 Meetings Needed
4. Where are your meetings coming from?
Now that you know how many meetings you need to have, take a look at all of your prospect sources and set specific goals as to how many leads you need to achieve your goal. Where are they going to come from, where do you need to invest time or resources to make it happen?
I know, I know, this is a lot of work and by the end of it most business owners are overwhelmed and feel like there is no way they can meet these goals. If you’re considering a Head of Sales to make this all work for you, make sure you’re prepared and know the risks.
Every day I help business owners understand sales math and put together a plan and a strategy for them to achieve success. And the best part? They don’t have to hire an army of sales gurus to achieve their goal. If you want to learn how AppointmetnsIQ can make sales math work for you, contact Greg.