As the saying goes, you can never reach your destination in a straight line, there are bound to be turbulence’s. To ensure stability, you need to trust your control tower and onboard navigator, and believe in your skill as a pilot.
I always remember that turbulence is only temporary.
In real life terms, your journey to your target will be challenged, its your job to stay on course and keep evaluating your plan to ensure it’s well calibrated.
So, the question now is, how do you proceed from here? To answer this question, I will be using fictitious numbers to explain the scenario.
NB: There are a number of tools ( sales enablement tools ) on the market that can help you plan your metrics.
In the past I have used specialised tools however, there is no better feeling than knowing the mechanics of how something works.
This post would detail the workings and formula’s that I use, and many other sales professionals have, although may be in slightly different format. The goal here is once you understand the mechanics of the formula, you can have this implemented and tailored within your enablement tool adopted by you or your company.
DEFINITIONS
1. Suppose your Annual Quota is £1000,000 of revenue to the business, this is your Target and represented by the letter “T”
2. Your Average Contract Value- this is the average deal size in your company, segment or region, denoted by “ACV”
3. Customer Buying Cycle – the length of time it takes to close the opportunity. This is measured in months from the time of uncovering the opportunity right down to receiving the signed contract from your prospect.
4. No of Deals – the number of closed Opportunities needed to meet your expected target, denoted by “NOD”. This is worked out as the number of opportunities ( NOP ) multiplied by your close ratio.
5. Close Ratio – the ratio of number of open opportunities divided by the no of Closed opportunities, denoted CR
6. Closed Opportunities – this refers to signed contracts and agreements
For this scenario, we will work on the basis of an ACV of £250,000 and Sales Cycle of 9 months.
FORMULA
Scenario A
- Target = ACV x No of Deals
- T= ACV x NOD
Incorporating the numbers and abbreviations expressed above:
£1000,000 = £250,000 x 4 ( 4 is the number of closed opportunities needed to meet your given quota )
As an ambitious sales professional with an unwavering desire to exceed your given target, I always aim for 150% of my target as my personal goal.
Applying this personal target to the above formula
Scenario A ( Revised )
- Target = ACV x No of Deals Closed
- T = ACV x NOD
- £1,500,000 = £250,000 x 6
At this point, I need to decide on what is within my control, from the above formula, I can control the ACV, CR and the NOD.
This was my thought process:
ACV – I can increase my ACV through ensuring a thorough understanding of my prospects business, and speaking to all the stakeholders to understand if my value proposition would meet any of their needs. I would ask them to articulate why they think my value proposition would be of benefit and where possible, quantify this value in monetary terms.
I am mindful that the key here is spending extra time ( means potentially even longer sales cycle) and reaching beyond my usual contacts that I may engage with. The resulting outcome could mean that my offering would be widely leveraged within the organisation and therefore the size ( in £ ) of the opportunity I’m working on would increase.
NOD – this was my approach, I decided to go for volume of sales closed in a year ( Financial Year ). Referring to the flight scenario, the question was, who could and would be willing to help me find opportunities that could convert into closed opportunities.
Close Ratio – This can be influenced through ensuring I have covered every single stage/step of my customer/prospects buying cycle ( notice I’m using the buying cycle and not sales cycle ). As you perfect this skill you could potentially shorten the buying cycle and therefore close more opportunities in a given year.
Example of a close ratio
- 10 opportunities identified “divided by” 2 closed opportunities = close ratio of 0.2 or 20%
Expanding on the earlier scenario B above;
- NOD = NOP x CR ( refer to definitions above for this formula )
Since I knew the historical close ratio, I concentrated on the no of deals.
The question I asked myself was in addition to my own opportunities, how many more opportunities could my flight crew ( team ) bring me;
My channels of opportunities chart ( this is the actual chart that I used )
To summarise, the formula’s we’ve used so far are as follows;
1. Firstly : T= ACV x NOD
2. Secondly, focusing on what you can control and influence ( since you cannot influence your target ) : NOD = NOP x CR
3. Finally: since you know your close rate ( CR ), we focus all our attention on NOP, and the chart above helps us map where these opportunities would come from.
In Part 3 we will explore these channels and the strategy I typically use to help generate opportunities
If you found this useful, I would value your feedback and comments. Remember, this is a learning blog and our WHY is to use these blogs as a platform to support others.
P.S- do contact me at mike@metricdrivenselling.com should you need any further questions or support.
To Our Growth
Mike
